5 Critical Business Metrics To Monitor As a Business Owner
Keeping track of business performance metrics is crucial for running a business. If you don’t monitor these metrics, also known as KPIs (key performance indicators), you won’t know how your business performs or be aware of potential issues.
Some KPIs are more important than others, and if you focus on the wrong metrics, you’ll waste time. Just knowing your KPIs isn’t enough; business intelligence allows you to use raw KPI data to make effective decisions, which we’ll explain further.
Why KPIs and Business Performance Metrics Matter
Essentially, business metrics drive business growth and enable you to focus on making the right business decisions. Plus, they help you understand whether those decisions were effective. One study found that 49 percent of small and medium businesses hadn’t identified any KPIs, even those who weren’t tracking them regularly. The companies developing and tracking KPIs were 15 percent more likely to meet their growth goals. In addition, monitoring KPIs can help you avoid painful errors. For example, if an employee’s performance isn’t meeting expectations, you can address it. Addressing the issue early on can help reduce the formation of bad habits while still maintaining your employee retention rate. It can also prevent lost revenue resulting from under-performance. If your team is aware of KPI goals, they’ll be motivated to meet them. Measuring KPIs provides an opportunity to reward employees who meet them and provide training to those who don’t meet their goals.
5 Important Business Performance Metrics
There are hundreds of potential performance metrics, but not all are relevant to your business. In addition, non-essential measurements can harm team morale or decrease productivity. So, which key metrics should you monitor as a business owner? Keep reading to learn more about the performance and financial metrics that you should track:
1. Employee Performance
There are several KPIs that can help you understand your employees’ performance. Some focus on your workforce as a whole, while others target individual efforts. You can calculate revenue per employee by dividing your revenue by the total number of employees. Profit per employee is similar; calculate it by dividing your profit by the total number of employees. These KPIs will help you ensure that employing your sales team isn’t costing more than the revenue that they’re generating. Remember, raw data shouldn’t be the only factor in assessing an employee’s work. There are also qualitative aspects of employee performance, such as their attitude and willingness to learn. Ideally, you’ll address these components when giving feedback.
2. Sales Revenues
Your business's total sales revenue is the amount of money your company generates from selling goods or services. Some small business owners focus exclusively on profits, which is understandable. You can use net profit after subtracting taxes, manufacturing costs, and other expenses. However, it’s best to track both profit and revenue. Understanding your revenue can give you vital insights into your business. For example, you can determine if sales are higher during certain seasons or if customers buy more on certain days. You can calculate the profitability or profit ratio by dividing net income by sales revenue. This figure tells you how well your business converts sales into profits. If your profit ratio is low, you can improve it by reducing unnecessary costs.
3. Customer Service
Low customer satisfaction doesn’t just lead to lost sales and decrease your average customer lifetime. Unhappy customers are likely to tell nine to 15 other people about their experience. They’re also likely to leave a negative online review, which can cause problems for your business, as 93 percent of consumers say reading an online review affects their buying decisions. There are several ways to look at customer satisfaction. First, you’ll want to consider customer experience (CX), which measures how people feel when spending money at your business. Are your employees friendly and responsive when they receive customer inquiries? Is it easy to make a purchase and receive a refund if necessary? These factors determine your brand’s CX. Some popular ways to measure customer satisfaction include Net Promoter Score, Customer Satisfaction Score, and Customer Effect Score. These methods use surveys to see how satisfied customers were after a purchase or other interaction with your company.
4. Implementation of Strategies
Strategic implementation is how you ensure that your business follows particular strategies. After all, what good is a business growth strategy if you don’t commit to it? There are various KPIs that fall under the umbrella of strategy implementation. The best one for the job depends on your business strategy. Some strategic outcomes are hard to measure. Customer satisfaction is one example since it’s not quantifiable. However, strategies such as NPS surveys provide measurable data. You may find it helpful to differentiate between strategic and operational KPIs. Strategic KPIs are more relevant to long-term business goals and projects. Operational KPIs are measured each day or in real-time, like average call handle times.
5. Cash Flow Levels
Among small businesses that fail, 82 percent cite cash flow problems. Therefore, tracking your cash flow levels can differ between succeeding and closing your doors. Cash flow is separate from revenue. Understanding your overall revenue doesn’t tell you if you have enough cash to cover an emergency. It doesn’t include how much money is tied up in inventory or other non-liquid assets. Some different KPIs relate to cash flow levels. One of the simplest is Operating Cash Flow (OCF), which is your business’s cash each day. To calculate it, start with net income, and adjust it for factors like accounts payable, which don’t count as cash.
Conclusion: Tracking KPIs is Crucial To Business Success
Once you determine the KPIs you want to measure, you need an easy way to track them. If it’s too hard to monitor or you don’t have systems in place, these indicators won’t help you achieve your business goals. Many business owners and executives like to view KPI progress on a dashboard. This format provides an overview of the different metrics you might be tracking. Many business intelligence tools are available to help you track and analyze KPIs. For example, SimpleKPI offers dashboards and reporting that make tracking easy.
These metrics provide insight into how successful your business is and help you set goals and determine when you’ve reached those goals. Tracking KPIs ensures that you’re aware of any problems, such as a lack of cash flow. Understanding a company’s KPIs can help keep employees motivated to help meet them.
Business owners should consider tracking employee performance, revenue, customer satisfaction, strategy implementation, and cash flow.
Editor’s Note: This post was updated for accuracy and comprehensiveness in May 2022.