Private equity KPI standardization
By Derwin Lucas ·
Private equity KPI standardization usually starts with systems or templates. It works when it starts with definitions: an agreed statement, for each KPI the sponsor relies on, of what counts, what it is divided by, which period it belongs to and what evidence supports it. Systems and templates can follow, or not.
This guide covers the usual approaches and what each leaves out, what a standardized KPI definition contains, and how to standardize KPI definitions across portfolio companies without replacing their systems. All figures are illustrative.
The usual approaches, and what each leaves out
Sponsors tend to reach for one of four tools: a common template, a KPI dictionary, a shared dashboard or a system migration. Each helps, and none of them on its own makes the numbers mean the same thing.
- A common template gives every company the same boxes. Each company still decides what goes in them.
- A KPI dictionary writes the definitions down, but often nobody checks whether each company follows them, or records where it doesn’t.
- A shared dashboard shows consistent labels and charts over inputs that may not be consistent. How this differs from BI and portfolio monitoring →
- A system migration is slow and expensive and often unfinished when the board asks its question. Even a common system can be configured differently by each company.
Why the label isn’t the definition
Two portfolio companies can report the same KPI name and be measuring different things.
In one illustrative brand’s month, the same records produce close rates of 33%, 27%, 20% and 13%, depending on what counts as the sale and what it is divided by. Where financing fees, installation labor and sales commissions are booked can put one P&L’s gross margin anywhere from 29.9% to 62.0%. Every one of those figures is calculated correctly. A standard that fixes the label without fixing the calculation leaves all of them in play. See the arithmetic →
Common objections
The objections to standardizing definitions are real, and each has an answer that doesn’t involve forcing companies to operate identically.
- "Our companies are too different." A portfolio definition decides what is compared, not how a company runs. Where companies do different kinds of work, define those KPIs trade by trade and compare within each group. Home-services portfolio reporting across trades →
- "Our companies won’t change how they report." They don’t have to. A company can keep its own definitions for its own management. The portfolio definition governs portfolio comparisons, and its figure is restated from the company’s records where they allow.
- "The definitions will change after the next acquisition." They may. That is why each definition carries a version and an approval, and why an add-on is mapped to the definitions before it is compared. Acquisition KPI integration →
Common systems are a project. Common definitions are a decision.
What a standardized KPI definition contains
A standardized KPI definition states six things, and a company’s figure can be compared without qualification only when it meets all six.
- The event that counts. For a close rate, whether the sale is a signed contract, a contract net of cancellations, or a job in production.
- What it is divided by. Demonstrations, appointments issued, or something else, stated once.
- The period an event belongs to. The month of signing, of cancellation or of completion.
- What is included and excluded. Which companies, work types and records are in scope. A total that covers 22 of 25 companies should say so. See the reporting coverage case →
- The evidence the figure must rest on. Individual records, or submitted totals with that limitation stated.
- Who approved it, and when. A version and an approval, so a change is a recorded decision rather than a quiet edit.
How to standardize KPI definitions across portfolio companies
Choose the few KPIs that drive decisions, define each one, map every company against it, and record what can be restated.
1 · Choose the KPIs that matter
Start with the measures behind capital allocation, covenant compliance and valuation, not with every metric anyone reports.
A short list that holds up is worth more than a long dictionary that doesn’t.
2 · Write the portfolio definition
For each KPI, write down all six elements of the definition before asking any company to report against it.
A definition missing its denominator or its period will be filled in differently by each company.
3 · Map each company against it
Record how each portfolio company calculates the KPI today and exactly where that differs from the portfolio definition.
The differences are the standardization work. A difference that is recorded can be resolved; one that isn’t will surface later as an unexplained change.
4 · Restate where the records allow
Where a company’s records allow, restate its figure under the portfolio definition; where they don’t, report it with the limitation stated.
Record-level data can be recounted. A rate submitted without its counts can’t be restated at all. Missing figures are stated as missing, never estimated.
5 · Approve and version the definitions
Have the CFO approve each definition, and change it only by a recorded decision with an effective date.
Earlier figures stay under the definition they were built on. Definition drift in portfolio reporting →
What standardization doesn’t require
Standardizing KPI definitions doesn’t require common systems, identical operations or a single chart of accounts.
Each portfolio company keeps its own systems of record. The data can arrive through connections, exports, extracts or monthly submissions, including templates, as long as the definition, not the template, decides what goes in. Systems modernization may still be worth doing for other reasons. It isn’t a prerequisite for KPIs that mean the same thing across the portfolio. In Goverisyn, every figure carries an evidence state: Substantiated, Qualified, Limited or Not Available. What each state means →
Where to start
Start with one KPI the sponsor already uses to make a decision, and write its full definition before collecting another month of it.
That single definition will show how far each company’s current figure is from it. Goverisyn’s Portfolio Measurement Review does this across selected brands. The first step is a free 60-minute Portfolio Review, which needs no data in advance. For how to apply the definitions once they exist, see How to compare performance across acquired companies and EBITDA comparability across portfolio companies.
Start with a Portfolio Review.
60 minutes. No data needed in advance.
By Derwin Lucas, founder of Goverisyn, with nearly three decades in management and information systems in home services. Published . About Goverisyn →