Business owners often ask how to measure business success.
KPIs (Key Performance Indicators) for business are the stats of business.
First, let’s define KPIs
- Key – Vital aspect to success
- Performance – The manner in which your business behaves, operates
- Indicators – Draws attention to a condition
We use KPIs or stats in sports all the time.
- Stats like FGM, FGA, FG%: field goals made, attempted and percentage in basketball.
- YDS – Passing yards, CMP – passing completions and dozens more.
- Same thing in Baseball and every sport.
Business has stats too. ROI, DSO, AR, Expense Ratios, COGS, Sales, Profit, EBITDA, CLV (customer lifetime value), CAV (customer acquisition value) and lots more. Don’t worry if you are unfamiliar with these. Start learning the most important ones a step at a time.
Here’s a rundown on how to measure business success with a good set of 18 KPIs for businesses.
Top Five KPIs for every business
And here are five top financial KPIs every business needs to track from QuickBooks.
I always start with Sales. Top line on a “Profit and Loss” or P&L statement. QuickBooks skips this important business KPI of Sales. I’ve included it here.
- Sales What are your sales this month, this year, compared to last month, last year, trends on trailing 12 months.
- Gross Profit Margin Your gross profit margin tells you whether you are pricing your goods or services appropriately. Here is the equation to calculate this: Gross profit margin = (revenue – cost of goods sold)/revenue
- Net Profit This is where the rubber hits the road. Your net profit is your bottom line — the amount of cash left over after you’ve paid all the bills. You can figure out your net profit using simple subtraction: Net profit = total revenue – total expenses
- Net Profit Margin Net profit margin tells you what percentage of your revenue was profit. The equation is simple: Net profit margin = net profit/total revenue
- Aging Accounts Receivable Also known as DSO or days sales outstanding. How long it takes customers to pay their invoices.
- Current Ratio This accounting term describes the ability of a business to pay its bills. It can be calculated like this: Current ratio = current assets/current liabilities. The resulting number should ideally fall between 1.5 and 3. A current ratio of less than 1 means you don’t have enough cash coming in to pay your bills. Tracking this indicator may give you advance warning of cash flow problems, especially if your current ratio dips into the danger zone between 1.5 and 1.
Additional KPIs for most businesses.
- Sales funnel: Number of new prospects added to funnel per month. Time in Sales funnel. Average size of deal in funnel. Number of leads generated per month. % that convert into sales funnel. % that convert to customers.
- NPS: Net promoter score. Indicates the ratio of customers willing to recommend the company to others.
- Customer lifetime value: How much a customer on average spends with the company. How long an average customer stays with the company.
- Customer care: Issue count per month. Time to solve issue. Open issue rate.
- Employee Engagement: Ratio of management issues versus operations and customer issues. Indicates undercurrent of employee disengagement.
It is time to identify your KPIs
As an executive business coach I help clients identify their KPIs to achieve their goals.
Let’s see if I can help you too!
Contact me to set up a 30-minute complimentary time to discuss your situation.
Give me a call at 503-753-9971 or email me at phil@PhilBride.com.