Updated: Mar 24
Do you want to do more to track and manage your business growth and performance? Most small business owners wonder if there are certain numbers they should be tracking that matter more than others, or metrics that will gauge their unique business. Maybe you’ve even heard of key performance indicators, and wonder what they are.
The short answer is, there are important metrics, and they do indeed relate to your operational and business performance. They’re called key performance indicators, and you should definitely know which ones matter for your business.
How to use Key Performance Indicators
From a financial point of view, every business is the same in that it has: revenue, costs, expenses, net profit, assets, liabilities and equity. The 3 standard financial reports capture these metrics in the profit and loss, cash flow and balance sheet. These 3 reports apply to every business. But if you’re like most small business owners, those reports aren't very helpful for gaining insights on your business and making key decisions. You need more.
Even though all businesses use the same financial reports, all businesses are unique in that each has a special combination of things that make it profitable or not profitable. Things like staffing, vendor pricing and terms, loan requirements, and unique mixes of products and services, each with different types of sales patterns and seasonality.
In other words, your business has a unique model that makes it hum. If you’ve heard the term business model, that’s what it refers to. Knowing your business model is your key to identifying the exact metrics you need to gauge your success, and keep it on track.
This is a list of Key Performance Indicators, and the areas of business operation and health that they relate to the most.
This list will give you the overview. Join our webinar on Thursdays to learn more about these metrics, and ask your questions in real time.
Financial Metrics and Key Performance Indicators
METRIC - KPI
AREA OF YOUR BUSINESS IT MONITORS
Sales team, strategic partnerships, stability of new products or services, public relations and marketing efforts
The amount you have sold, but not yet billed. Mostly for project work and service based businesses. You want to have a high backlog for profit and cash stability, but balance it with your staffing.
Cost of Goods
Vendor pricing, contract language and terms, vendor relationships, partners and resources, negotiating power
Is the thing you are selling profitable? Can it be optimized for more efficiency and profit?
Careful budgeting, payroll structure, HR standards and policies, employees benefits, vendor contracts and rates, employee retention
Accounts Receivable (AR)
Sales volume, work in progress
Collections, contract negotiation, customer relationships
Accounts Payable (AP)
Timing of resource needs to purchase (just in time)
Negotiating power, vendor relationships and health
Current Ratio (Assets/Liabilities)
Long term stability
Ability to survive in a crisis
Utilization (Billable Labor)
The health of your billable service work
Effectiveness of your marketing dollars spent
Effectiveness of your staff budget and payroll expenses
Effectiveness of your use of space for your business
Recruiting + Training Ratio and Employee Turnover
Recruiting and training is incredibly expensive, so you want to be sure you are spending the right amount. The leading indicator here is employee turnover, or attrition. Track what percentage of employees you lose each quarter.
Join our webinar to learn how key performance indicators will help you gauge your business’s health, track your progress, and achieve your goals.