Brain Food

January 29, 2018

6 Key Performance Indicators (KPIs) your Small Business Can Track




Key Performance Indicator is a measurable value that demonstrates how effectively a company is achieving key business objectives. Organisations use KPIs at multiple levels to evaluate their success at reaching targets.

If you’re a solo entrepreneur, you’re probably trying to juggle about a dozen different jobs at once, from accounting to product development to marketing. It can be easy to end up with a to-do list a mile long but no real clarity around which tasks are the most important in moving your business forward.

Setting and tracking KPIs can keep you on track. If you’ve set them correctly, they reflect the most important elements of your business right now. For each of the tasks on your list, you can ask yourself how it will contribute to hitting one of your KPIs, and prioritise accordingly. You can make sure that you spend the bulk of your time on tasks that will have a direct impact on something that’s truly important to your business.

When writing or developing a KPI, you need to consider how that KPI relates to a specific business outcome or objective. KPIs need to be customized to your business situation, and should be developed to help you achieve your goals. Below are some simple steps to follow when writing a KPI:

  • Write a clear objective for your KPI
  • Share your KPI with stakeholders
  • Review the KPI on a weekly or monthly basis
  • Make sure the KPI is actionable
  • Evolve your KPI to fit the changing needs of the business
  • Check to see that the KPI is attainable
  • Update your KPI objectives as needed

Below are 7 examples of KPI’s a small business can track:

Gross profit margin (GPM%) is a profitability ratio that measures how much of every dollar of revenues is left over after paying cost of goods sold (COGS). The metric is an indication of the financial success and viability of a particular product or service.  The higher the percentage, the more the company retains on each dollar of sales to service its other costs and obligations.

Customer Acquisition Cost (CAC): Divide your total acquisition costs by the number of new customers in the time frame you’re examining. Voila! You have found your CAC. This is considered one of the most important metrics in e-commerce because it can help you evaluate the cost effectiveness of your marketing campaigns.

Customer Lifetime Value (CLV): Minimising cost isn’t the only (or the best) way to optimise your customer acquisition. CLV helps you look at the value your organisation is getting from a long-term customer relationship. Use this performance indicator to narrow down which channel helps you gain the best customers for the best price.

Customer Satisfaction & Retention (CSR): On the surface, this is simple: Make the customer happy and they will continue to be your customer. Many firms argue, however, that this is more for shareholder value than it is for the customers themselves. You can use multiple performance indicators to measure CSR, including customer satisfaction scores and percentage of customers repeating a purchase.

Net Promoter Score (NPS): Finding out your NPS is one of the best ways to indicate long-term company growth. To determine your NPS score, send out quarterly surveys to your customers to see how likely it is that they’ll recommend your organisation to someone they know. Establish a baseline with your first survey and put measures in place that will help those numbers grow quarter to quarter.

Employee Turnover Rate (ETR): To determine your ETR, take the number of employees who have departed the company and divide it by the average number of employees. If you have a high ETR, spend some time examining your workplace culture, employment packages, and work environment.

Website Conversion Rate (CVR):  To begin tracking conversion measurements, you might want to calculate the traffic-to-lead ratio. In the digital world, you’ll need to understand the origin of your website traffic — organic, social media, or referrals — to focus marketing efforts and measure leads coming from your top channels. If you find that you have high traffic but a low number of leads, you may need to revise your website content and design. Make sure that navigation is intuitive and you’re getting the right type of traffic.

There really are hundreds of different types of KPI’s your business can track…and I want to re-iterate that it’s important to chose the ones that are relevant to your business and objectives. Remember though, the data is just data, it’s the action that you make on the back of interpreting the data which counts!