Make Your Business Better – KPIs

There are lots of ways to know if your business is doing OK. The number one way most business owners judge is by how much is in the bank account and how tight things feel when it comes time to pay the bills.

My business has gotten years and years past the point of being in survival and startup mode and I still do this. It’s a hard habit to break, and that’s OK.

But what you don’t want to do is ONLY manage the business by looking at the bank account. If you do, you tend to miss out on a lot of other important indicators that can help your business grow bigger, faster, and more profitably.

There are some other informal things you might look at as you go along, but when you do get formal about it you’ll notice your results really start to improve.

Imagine if you wanted to lose weight but never kept any track of what you ate- you just looked only at calories (like only looking at the bank account). You might keep yourself to 2000 calories a day, but if a bunch of those came from sugary desserts you aren’t doing the best you could at really improving.

On the other hand, if you also tracked what you ate and the mix of foods in addition to calories, chances are your diet efforts are going to be a lot more successful.  

It’s the same with your business. But instead of just looking at cash, the other things you can look at are often called KPIs- short for Key Performance Indicators. These can be different for each business, but here are some common ones:

• Leads per month or per quarter (or per day if you are a high-volume seller)
• How many leads convert to sales
• Profit per sale by type of product or service
• Revenue per employee
• Growth by month or quarter compared to a previous period and the previous year
• Cost of Goods Sold as a percent of revenue
• Cost of customer acquisition
• Lifetime value of a customer
• Gross profit and net profit as a percent of income

Once you decide what to use, then you can start measuring and really see how the business is doing and how it can continue to improve, and where it may not be doing as well as it could.

Just follow these examples and then make them your own!

Using Your KPIs to Improve Your Business

Your business is unique and what makes the biggest difference to your success or growth may be some of what’s on this list or you may have something else entirely it would make sense to measure! Only you can decide. But whatever it is, name it, measure it, and then track it consistently. If you do this, you will see improvement. If you don’t, not only is improvement less likely but if it does happen it will be hard to know what changed and how to continue to get more of it.

Here is how you could use each of the items already to improve your business:

• Leads per month or per quarter (or per day if you are a high-volume seller)
  • Track where leads come from and invest more effort in getting the best lead source to grow further or find more similar to the ones doing the best for you now.
• How many leads convert to sales
  • Once you have a baseline, figure out how to increase this number – why are people saying no and how can you turn more into yesses. More sales from the same number of leads is a great revenue booster.
• Profit per sale by type of product or service
  • Not all options provide the same profit – figure out which ones do the best and sell more of those and figure out how to increase the price or lower the cost of your underperformers.
• Revenue per employee
  • Are there ways to make the work more efficient or have lower-cost employees take some of the burden off higher-cost employees to lower the overall cost mix?
• Growth by month or quarter compared to a previous period and the previous year
  • Tracking growth over time is key to increasing it and making sure you’re staying on top of inflation at a minimum but hopefully also seeing meaningful growth in sales and profits.
• Cost of Goods Sold as a percent of revenue
  • Growing sales doesn’t help if your margins are eroding at the same time – keeping your margins steady ensures that revenue growth also means profit growth.
• Cost of customer acquisition
  • You have to understand how much you can spend to acquire a new customer and make sure your efforts aren’t bringing you down instead of up.
• Lifetime value of a customer
  • How long a customer stays with you and how much they buy from you over that time are both things you can work on improving and that means you can then spend more to acquire each one – growth works together across multiple data points.
• Gross profit and net profit as a percent of income
  • Literally the bottom line here making sure that your cost to sell your products or services is staying healthy and profitable and you’re not sacrificing one to gain something else that doesn’t benefit the business in the end.

The key to running a successful growing business is more than just knowing how much you have in the bank and being pretty sure it’s more than the bills you have coming. Of course, you want to know that baseline value, but there is a lot more you can do to make things much, much better. But it all starts with having the data to actually know how those things are going!