Financial outsourcing: Use KPIs to take your pulse

A. Getting the pulse on your HME business is simple when you know what to look for and how to look for it. Key Performance Indicators are used to break down strategic objectives into trackable metrics. With KPIs, you can see how close or how far you are from meeting specific objectives. Let's talk about three of the most important KPIs and learn how they can help your business improve.

Customer Acquisition Cost (or CAC) If your company spends $10,000 in sales and marketing in October and gets two customers, then the cost to acquire a new customer is $5,000. But do you want to spend $5,000 to acquire each customer? That's where Lifetime Value (LTV) comes into play.

Lifetime Value tells you how much a customer will spend on your product, on average, for as long as they are a customer. For example, an average customer will buy 20 wheelchairs over the course of their lifetime. You know you make $750 gross profit for every widget you sell. So, the LTV of one of your customers is $15,000.

Now that you know how much it costs to acquire a customer and how much that customer is worth to you, you can determine whether you're adding customers profitably with the CAC:LTV ratio. In the example above, the CAC:LTV is 1:3, and that's pretty good. Ideally, your minimum CAC:LTV target should be 1:3, meaning your customers are worth three times more than your cost to acquire them. If the ratio is close, like 1:1, then you're spending too much. Wider ratio ranges, such as 1:5, indicate you have ample opportunity to profitably invest more in sales and marketing.

Quantifying these two KPIs will quickly diagnose the health of your go-to-market engine and ultimately your HME business. While the math is relatively simple, the technical setup to easily produce these KPIs each period can be more challenging.