How do you measure success in your small business?
KPIs, or Key Performance Indicators, are metrics and standards that define what success means to your business and then act as measurements against it.
While each business is unique, there are some common KPIs that can help you get a gauge on the success of your business.
Here are a few things to consider.
Why You Need to Track KPIs
KPIs are more than just simple metrics. They’re attached to a goal in order to measure progress.
Many small businesses, especially in their early days, have loosely-defined measurements of success. They might not know what to track or how to track things.
But in order to scale and group, you need to know where you’re starting and where you want to go. Setting relevant goals helps you grow and sustain your business over time.
There are multiple benefits to tracking KPIs:
- Increase your knowledge: The initial legwork to determine your KPIs will give you a deeper understanding of the health of your business.
- Set standards and expectations: KPIs set a standard or benchmark for all employees to meet. This can help evaluate employee performance and set company-wide standards.
- Support strategic decision-making: Once you know how things are going, you can make changes and adjustments to your business activities.
- Accelerate growth: KPIs are also useful to predict future outcomes and, therefore, growth. When you know how things are going, you can choose the right activities to keep accelerating.
The short and simple of it is this: KPIs help you track your progress so you can make realistic changes to maintain and grow your business.
10 Small Business KPIs to Start Tracking
It’s important to note that KPIs will differ across industries, so you’ll want to also look into what’s specific to your business. This is the best way to accurately measure progress in your own context.
That said, here are some general KPIs that all businesses need to be aware of and can start tracking today.
- Revenue: This is the core of your business—making money from your products and services. Revenue is the total amount of money your company takes in before expenses.
- Net profit: Every business has costs associated with it, such as staffing and payroll, marketing and promotions, or materials and supplies. These expenses are paid out from the revenue you take in, leaving the net profit.
- Net Profit = Revenue – Expenses
- Break-even point: While the ultimate goal is to earn a profit, many small businesses can take a while to get there. That’s why it’s important to know your break-even point, or when revenue is equal to costs.
This is helpful because it identifies exactly how much you need to earn to ensure you can cover your obligations and costs—i.e., what it takes to stay in business!
- Break-even Point = Fixed Costs / (Sales Price Per Unit – Variable Cost Per Unit)
- Customer acquisition cost: This metric helps you understand your expenses compared to the number of customers you have. I.e., how much does it cost you to bring in a new customer?
If you have a very high customer acquisition cost, for example, you want that customer to spend a lot of money to put back into your business. The goal is to keep the customer acquisition cost low or at least low compared to what they spend on average in your business.
- Customer Acquisition Cost = (Sales Expenses + Marketing Expenses) / Number of New Customers
- Cash flow forecast: Understanding cash flow in your business ensures you have enough to keep operations going. If your cash is tied up in inventory, for example, and you have low cash flow, it’s hard to keep a business running.
Cash flow can be projected on a monthly rotation, based on projected sales and expenses. These figures are usually determined by past sales, so get to know your numbers well.
- Cash Flow Forecast = Beginning Cash + Projected Inflows (i.e., sales revenue) – Projected Outflows (i.e., expenses)
Promotion and Engagement KPIs
- Website visits: Your company website is likely the first point of contact for many customers as well as an important part of the sales funnel. So, it’s helpful to know how many people are visiting!
- All website hosting platforms will track this metric for you. Get in the habit of pulling and analyzing reports to understand your website traffic.
- Social media traffic, reach, and impressions: There are many KPIs within social media, so it’s tough to narrow it down to just one or two.
It’s ultimately important to understand your reach (how many people see your content) and engagement (how many people interact with your content).
- Hootsuite has a comprehensive list of social media KPIs and how to track them.
- Ad conversion rate: This KPI measures the success of online ad campaigns, such as paid search (Google Ads). It measures how many people who click on your ad end up making a purchase, signing up for a newsletter, or contacting you—i.e., whatever action is valuable to your business.
- Conversion Rate = Conversions (i.e., sales) / Total Ad Clicks
Customer Satisfaction KPIs
- Churn rate: This metric tells you the percentage of customers that leave each month or year. It’s most relevant to industries that have ongoing sales or services (i.e., monthly subscriptions).
Some churn is natural, as there are many reasons why customers may move on. But if the churn rate is increasing or higher than competitors in your industry, it’s something to look into.
- Churn Rate = (Customers at start – Customers at end) / Customers at start
- Average customer rating: If you collect customer feedback or reviews, you can measure it as a KPI. This is also an important piece of learning to handle negative online reviews as a small business.
- A customer satisfaction (CSAT) score is simply what customers rate their satisfaction with a product or service as, usually on a 5-point scale.
- A net promoter score (NPS) is a survey question that asks how likely they are to recommend a product or service.
Again, these are just some of the general KPIs that all businesses need to be aware of. And if you’re going to start with anything—begin with your financials. Develop a deep understanding of where you are and then set goals for the future. These 12 basic budgeting tips can be useful for small businesses looking for a place to start.
After that, look at how customers engage with you and how satisfied they are with your products or services. Finally, research some industry-specific KPIs to start tracking so that you can measure progress in your specific context.
If you’re a small business owner, being surrounded by like-minded and experienced professionals can be a gamechanger. If you’d like to immerse yourself in a community of innovative pros, book a tour of Co-Balt today.