Important KPIs Your Small Business Should Be Tracking

As a small business owner, you have a lot on your plate. Taking the time to review and understand various business metrics can easily fall off your list. However, for your business to grow and thrive, it’s critical to monitor key aspects of your business.

Key performance indicators (KPIs) can help you quickly measure and improve your small business. By setting and monitoring KPIs, you can help your business grow and thrive without getting overwhelmed by too much data. In this post, we’ll discuss the basics of KPIs and outline tips to excel as a business owner.

What are KPIs for Small Business?

KPIs are metrics that show your business’s performance. They can help you understand the health of your business and stay on track towards your goals. By continuously tracking KPIs, you can identify issues before they impact your performance and optimize your business for success.

Important KPIs for Small Business

There are many different metrics that a small internet business can track depending on your specific industry and goals. With that said, business of all sizes can benefit from tracking these common KPIs that we’ve outlined below.

1) Total Revenue

Total revenue is the total income your small business earns from all sales. Your total revenue can tell you a lot about your small business. It can show if people are interested in buying your product or service, if your marketing efforts are paying off, if you’re keeping up with the competition, and much more.

Many different factors can impact this KPI, so as you’re measuring it, make sure to consider recent changes in your industry or market, advertising or marketing campaigns, and changes in the competition.

How to measure:

Sales Revenue = Income from products/services – Costs of Returned or Undeliverable products

How to improve:

An obvious way to improve your sales revenue is to increase your overall sales. You can do this by changing up your marketing strategy, considering special offers or discounts, or hiring more salespeople. Make sure your strategy is long term and not just focused on a quick, temporary boost in sales.

2) Net Profit Margin

This KPI shows what percentage of your dollars earned translate into actual profits. In other words, it reveals if your business is actually profitable despite the costs of running your business. Net Profit Margin is a great way for business owners to track long-term growth.

How to measure:

Net Profit Margin = Monthly Revenue – Sales Expenses 

How to improve:

You can improve your Net Profit Margin by increasing your revenue. The easiest way to increase your revenue is to increase your prices or sell more. You can also improve this KPI by cutting your costs.

3) Gross Margin

Gross Margin measures how much of each sales dollar goes towards your business’s profit and other costs. If your gross margin is high, most of your sales dollars are retained. As a result, businesses with high gross margins can invest more in other operations. This is a metric that’s particularly important to newer businesses since it reflects a business’s overall efficiency and productivity.

How to measure:

Gross Margin = (Total Sales Revenue – Cost of Goods Sold) / Total Sales Revenue

How to improve:

This KPI can be improved by making your business’s processes more streamlined and efficient.

4) Operating Cash Flow

A business’s cash flow is the amount of money that moves in and out of a business over a period of time. If more money comes in than goes out, the business has a positive cash flow. Operating cash flow (OCF) is the amount of cash a business generates through its typical operations. This KPI help a small business understand how much money it can spend short term and whether it should cut back on spending. OCF can also reveal if customers are taking too long to pay their bills (or if they’re not paying them at all).

How to measure:

Operating Cash Flow = Net Income + Non-Cash Expenses – Increase in Working Capital

How to improve:

There are a few different ways you can improve OCF. You can take a close look at your accounts receivable and collect any overdue invoices. You can also review how quickly your inventory is turning over. If inventory is not being sold, you can consider selling it to a third party or returning it to suppliers.

5) Average Customer Acquisition Cost

This KPI shows how much your company spends to acquire new customers over time. It’s typically proportional to the price of a product or service, so it varies widely across different industries. This KPI should be compared to a customer’s lifetime value to ensure your business model is sustainable long term.

How to measure:

Cost of Customer Acquisition = (Cost of Sales + Cost of Marketing)/New Customers Acquired

How to improve:

By reviewing the lifetime value of certain customer segments, you can identify which segments are bringing in a higher profit than others. To improve cost of acquisition, you can stop focusing on segments that are spending less long term but more expensive to convert.

By keeping a close eye on your performance, you can quickly identify areas where you can optimize your small business. Tracking these KPIs can help keep your business healthy and thriving.