Key KPIs for small business
Demystifying KPIs
KPI’s or Key Performance Indicators are tools to measure the success of an organization. It helps to determine how effectively a business is performing against defined KPI’s. Key KPIs for small business
Frequency: The startup should define the frequency for monitoring a particular KPI. Certain financial metrics are to be reviewed on a weekly or daily basis eg Profit margins may be reviewed weekly. While revenue may come in on a daily or weekly basis for your business, expenses are lumpy. Payroll is usually every 2 weeks, and your rent may occur once at the end of the month. To get an accurate profit margin, a startup founder needs to have a complete picture of all expenses for a given month. Thus, you can only really view this metric monthly.
Sources of Revenue: in case accounting systems merges various sources of revenue into one category called ‘Sales Revenue’, then this needs to be broken up into new categories so you can track a particular product revenue separately. Your accounting team will let you know whether this is possible and easy, possible but extremely costly, or essentially impossible given your current systems and processes.
Defining Key Metrics: In the case of a high-growth startup, the payroll cost may be the key to the growth of your business and the profit of your business is a headcount and the size of your payroll.
You may like to track some more expenses like marketing spend (more Google Ads Cost equals more revenue) or travel and entertainment (the food and travel spending was way too high last year and needs to be monitored to keep costs down this year).
Also, a few more metrics like Gross Profit may be considered over a period of time. If revenue is going up, but Gross Profit (Revenue minus Cost of Goods) is going up, that can help explain why there is less cash in the bank for the same amount of revenue. Maybe you have shifted toward products that cost more to produce or the inputs for your products have become more expensive over time. KPI’s serve as a guidepost to decide where to keep an eye on and all indicators that businesses should monitor regularly. Key KPIs for small business.
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Also read:
- 5 Key Metrics Startup must track
- 5 key items every budget should have
- Track Key Investors Metrics for your Startup
