If you own a small business, you’ve likely tried both traditional and not-so-traditional strategies for growth. Each strategy is unique, but they all require time and energy to implement.
Because of this, it’s important to understand if your strategies work or not. How? You need to start measuring key performance indicators (KPIs). This Millennium Omaha blog gives a brief overview of what KPIs are and the 5 KPIs to track if you want to see your small business grow.
First Up: What Are KPIs?
Key performance indicators (KPIs) are quantifiable – aka numerical – measures of performance over time for a specific objective. Examples of KPIs include ROA (return on asset), number of errors, planned value, total revenue, and so forth.
Here’s how a KPI would work in a real setting. Imagine that your goal is to reduce the number of errors that your team makes. In this instance, your KPI is the number of errors made by your team. If you want your team to make less than 10 mistakes a month, this number of errors KPI will objectively tell you if your current strategy works.
What KPIs should you track as a small business? The next section is made just for you.
5 Small Business KPIs to Start Tracking Today
Gross profit is a basic KPI that measures the profit a business makes after subtracting the cost of manufacturing and selling said product or service. If your goal has to do with the profitability of your products or services, gross profit is a must-track KPI.
Formula: gross profit = revenue – cost of goods sold
Is your small business getting more or less profitable year to year? If you’re curious to know the answer, it’s time to start tracking your net profit. Net profit is your total revenue after deducting all operational, interest, and tax expenses over a given period of time.
Formula: net profit = revenue – total expenses
Is customer acquisition your primary goal? If so, the conversion rate KPI can be a great asset. Conversion rate is the basic metric that tells you what percent of your prospects actually become customers.
Formula: conversion rate = (number of sales * number of leads) * 100
Customer Acquisition Cost
Speaking of customer acquisition, the cost of obtaining customers is also important to know. This is an important metric to keep track of especially as your business grows.
Formula: customer acquisition cost = (sales expenses + marketing expenses) ÷ number of new customers
The quick ratio metric makes it easy to see if your business’s cash, securities, and income are enough to cover your liabilities.
Formula: quick ratio = (cash + securities + account receivables) ÷ liabilities