What KPIs to keep track of for small businesses
Small business founders are very often fully immersed in current tasks and because of this may lose sight of the state of their business. KPI tracking can help entrepreneurs in this situation. They can help you measure and improve your business.
What are KPIs
According to Wikipedia, Key Performance Indicators (KPI) is a tool to monitor and evaluate the performance of people, teams, divisions and companies, and can also help in the evaluation of strategy implementation.
In other words, KPI is a measurable value that shows the state of your business and your progress towards goals. Monitoring KPIs helps to take your business in the right direction and will allow you to know if your investments are worthwhile, identify problem areas and fix them before the worst happens.
How to choose a KPI for a small business
There is no one KPI list that fits every business, the metrics you should track depend on your industry, the stage your business is at and your goals.
The first thing to do is to formulate a KPI strategy, choosing the right metrics to track that are right for your business. Otherwise you may waste time and other resources on calculations that are irrelevant to your business.
Small business founders don't need to track all KPIs, but there are three metrics you should consider when choosing KPIs for your small business your business goals. Profitability is one of the most important indicators in business, but it is not the only one. You can set business goals related to customer attraction, employee qualifications, marketing. Think about what goals are important to your small business right now.
Business stages. Goals depend a lot on what stage your business is in right now. Are you in the start-up stage and want to attract investment, are you in the scale-up stage and focused on growth, or do you have a stable company and want to focus on retaining your team of professionals.
Track customer satisfaction and profits. The more satisfied your customers are, the more likely they are to come back to you. Profits will show how your business is performing.
KPI reporting helps your business grow, so you need to communicate the importance of KPI monitoring to your professional team.
The effectiveness of KPIs depends on how well they are used and only then can they lead to positive business results.
Provide KPI reports to all team members, encourage discussion and so you can develop a strategy for action based on the information you receive.
A sample list of KPIs to keep track of for your small business
- Net profit. Track whether your business is becoming more profitable each year.
- Profit margin. This number will tell you how efficiently you're using your income.
- Your liquidity ratio shows whether you have enough money or securities to cover your liabilities in the near future.
- The cost of attracting a client. Divide the amount you spent on marketing by the number of customers you attracted. This is an important indicator.
- The lifetime value of the customer. If you know how much one customer on average spends with you, you need to be sure that the cost of attracting that customer is well below that amount.
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