Essential KPIs for Every Small Business Owner to Track (Part 1)
- June 28, 2021
- Posted by: Funmilola Sanya
- Category: Business
How can you tell if your small business is growing and thriving in the marketplace after you’ve invested so much time and effort into it? If you’ve set goals for your business, then you should be able to keep track of your progress to know what’s working and what’s not.
In today’s competitive business environment, a record of every single detail of your business activities – that includes your business’s performance – is essential. This record can’t be tracked by looking at balance sheets or by mere words or descriptions. Information is key. It is what helps you make vital decisions in your business. Measuring your progress without using the proper metrics would lead to loads of details and data, which can be overwhelming. And that is where KPI comes in.
Key Performance Indicators (KPI)
Key performance indicators (KPIs) are a set of quantifiable measurements used to measure or determine a company’s overall long-term performance. They are used to assess how a business is performing in all different areas of operation.
According to Bernard Marr, a company that specialises in intelligent business performance, “KPIs provide a way to measure how well companies, business units, projects or individuals are performing in relation to their strategic goals and objectives.”
It describes KPIs further as “vital navigational instruments” that provide the most important performance information that enables organisations (or their stakeholders) to understand whether or not the organisation is on track toward its stated objectives.
For every business activity, there is a KPI. Social media engagement, sales, revenue, expenses, customer retention/efficiency/retention, and so on. With KPIs, you will be able to keep track of the progress your business is making, no matter the size of that business.
There a lot of KPIs to track your performance and you can also create a KPI for anything in your business, but here a few to help you get started:
A track of your sales on a regular basis will give you insights on how well your business is functioning and the areas where you might need to improve. These KPIs will measure your sales performance:
- Monthly sales growth
- Sales targets
- Sales opportunities
- Product performance
- Percentage increase in monthly sales
- Monthly sales bookings
- Customer churn rate
- Customer lifetime value
Net profit and net profit margin
Your net profit is a way to know if your business earns more than it spends. It equals your revenue minus expenses. While the net profit margin measures how effective your business is at generating profit on each dollar or naira of revenue you bring in and shows you how your revenue is being used.
The net profit and net profit margin are essential KPIs to help you know if your business is getting more or less profitable by the year.
The gross profit KPI is a measure of your business’s financial gain minus the costs of making your products or providing your services. This ratio is calculated by looking at the difference between production/service costs (excluding overhead, payroll, and taxes).
Customer service or satisfaction is another important KPI because it helps you measure how well your business is doing in maintaining its relationship with customers. This KPI is a group of other metrics that measures different aspects of a customer’s experience. Every customer is vital to your business’s success. And no matter the number of customers you have, it is crucial to know that you’re meeting their individual needs. They will eventually become repeat customers and recommend you to others if they’re satisfied with your product or services.
You can track how well you’re doing with your customers through administering a survey, asking for feedback, listening and monitoring conversations customers are having about your product/service across all social media platforms, and tracking online reviews and comments.
Cash flow forecast
Cash flow is exactly how it sounds like: how much cash is flowing in and out of your business. Cash flow projections or forecasts predict the amount of money entering and leaving your small business, and it lets you predict the future performance of your business. Cash flow forecasts can help you manage surplus cash, track whether your spending is on target, keep track of overdue payments, and anticipate future surpluses or shortages. Because it is one of the important documents a lender or investor will ask before making their funding decision, a cash flow forecast can enable you to apply for loans or other sources of funding to help your business expand.
To make your cash flow forecast, add the total cash your business has in savings to the projected cash value for the next four weeks, then subtract the projected cash out for the next four weeks.
Cash Flow Forecast = Beginning Cash + Projected Inflows – Projected Outflows
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