Check On These Important KPI's To Boost Your Business Strategy
As a small business owner, you understand the day-to-day operations your company values and are oftentimes the main person ensuring those operations are running smoothly. That’s only half the equation when it comes to being an owner and putting together a business strategy.
The other half of the equation involves utilizing the top KPIs for business success. This allows you to observe the ‘big picture’ of running a business and ensures you understand where your company currently stands.
If you want to not only implement your business strategy but set your strategy up for long-term success and sustainability, you need the following:
- Not just goals, but specific goals. Don’t sugar coat anything and don’t beat around the bush. Say what you want and want what you say.
- A way to measure your goals and success. If you want to be the best business in your industry, how long do you expect it to take?
- A strategy designed to help you achieve the goals and milestones you wish to accomplish. Successful strategies are precise and detailed.
- An ever-growing list of things to improve on, learn, and continue building. Businesses never stop, strategies never stop, and your customers never stop.
Without having the four things listed above, it’ll be difficult to grow your business. Not only that, but it won’t allow you to measure the growth and won’t give you a way of knowing where your company stands.
Why Are KPIs Important to Small Business?
KPIs, also known as key performance indicators, are a small business owner’s best friend when it comes to tracking their business’ current status. The beauty with tracking KPIs is that they’re used for everything, including measuring both long-term and short-term goals.
Let’s take a look at some of the major reasons why are KPIs important:
- They let you know if you’re on track to meet, surpass, or fall short of your expectations.
- They show you how successful you are in specific areas, making it easy to find a solution.
- Spotting signs of improvement helps ensure your business is always evolving.
- Identify opportunities and roadblocks well before you approach them.
- Understand how your customers feel about the products or services you offer.
Another reason why are KPIs important is because they’re always updated. You don’t have to wonder whether you’re looking at old numbers or new numbers. In fact, they make it extremely easy to look at old numbers, if that’s what you’re interested in.
They also make it extremely easy to form projections about the future.
Top KPIs for Business Owners to Track
Any productive business owner is going to have a list of key performance indicators that matter most to their specific industry, but there is also a wide range of KPIs that are important for every business owner to understand -- no matter your industry.
Let’s take a look at some of the top KPIs for business owners to keep track of on a daily, weekly, monthly, and yearly basis.
1. Revenue Growth
One of the most basic, yet important KPIs to understand when running a business is revenue growth. It tells you whether you and your team are finding sustainable ways of earning revenue over time.
In order to calculate revenue growth, use your favorite accounting software to track and compile sales reports over a given period of time. For starters, use a one-month sample size. Once you have a second sample size, subtract the first sample size from the second one. Finally, divide the number you come up with by the total of last period’s revenue.
The goal is to see positive growth over time. When you start to see the numbers go in the opposite direction, it means there’s something wrong with one of your products or services that used to do well. Find the underselling item, work on a solution, and watch the numbers start going the right way.
2. Revenue Concentration
Revenue concentration refers to tracking the percentage of revenue each of your clients is responsible for over a given period of time. The main goal is to have your revenue come from a wide range of sources, instead of having a majority of your revenue come from one or two clients.
The reason for this is because you don’t want to be left in a difficult position when your top client stops using your service and you lose a majority of your revenue.
A diverse client and customer portfolio is the key to success in this area. You should always be looking for new clients and opening the door to new opportunities because you never know when you’ll be scrambling around desperate for revenue.
In order to calculate your own revenue concentration to ensure you have a diverse portfolio, all you need to do is take the amount of revenue you receive from each client individually and divide it by the total amount of revenue your business receives over the period of time.
For example, let’s say you earn $20,000 in revenue over a month and you had 4 clients over that time. Let’s say those four clients contributed $2,000, $1,000, $15,000, and $2,000. Those clients will be contributing 10%, 5%, 75%, and 10% to your overall revenue, respectively.
You can see how losing Client 3 can leave you in a difficult position and could threaten the future of your business without a backup plan.
3. Income Sources
Your sources of income are extremely important to understand and make this another one of the top KPIs for business owners to follow religiously. There are multiple different ways to track income sources -- by product, by service, by client -- and they are all just as important as the last.
Having an easy way to glance at your income sources and filter through them however you need to is essential to tracking these KPIs. It allows you to see which clients, products, or services are more profitable or popular compared to the rest.
This also opens the door to finding ways to boost the performance of some of the less popular products, services, or clients.
Revenue is good because it shows you have money coming in, but it doesn’t amount for the money you see leaving every month. That’s where profitability plays a large role, allowing you to take your expenses into consideration when evaluating your company.
By being able to view your expenses and how they compare to your revenue or income, you allow yourself the opportunity to:
- Evaluate whether or not you need to cut costs to save money -- which would increase profit.
- Determine which costs need to be cut, if that’s the route you’re going. You’ll have a clear breakdown of where you’re putting too much money each month.
- Evaluate whether or not raising your prices would help offset a rise in expenses.
- Determine whether it’s time to expand your client portfolio or start looking for more high-quality clients to replace some of your weaker ones.
Being able to make money is important, but being able to turn that money into a profit is where business owners start to scratch their heads. With an accounting software that keeps all your reports under one roof, this becomes a breeze for any owner.
5. Working Capital
As a small business owner, your main goal is to grow your business into the powerhouse you know it has the potential to be. While that means being careful with your finances, increasing revenue, minimizing expenses, and much more, it also means taking advantage of opportunities when they strike.
That’s where working capital becomes a necessity for any business. Working capital is the amount of money you have to work with should you be in a position where you seek a loan or help from friends and family.
Having working capital means you can take advantage of those opportunities that seem too good to be true -- especially if you don’t necessarily have the cash flow to comfortably take the opportunity on.
In order to calculate working capital, you’ll need to understand your current liabilities and current assets. If your assets outweigh your liabilities, then you’ll be left with positive working capital. If your liabilities outweigh your assets, you’ll have negative working capital.
Positive working capital means you’ll be able to take a chance if you feel it’s necessary for the company’s growth and future success.
Using the five KPIs listed above to tailor your strategy to your needs is one of the most beneficial things you can do as a business owner. At a certain point, you have to learn how to act more like a CEO and less like a manager.
While managing is still important to the day-to-day operation, acting like a CEO is about setting your business up for the future by looking at what’s happened in the past.
If you need accounting software that makes it easy for you to track these five KPIs so you can take better control of your business, contact Consultants In-A-Box today!
- Jordan VanMaanen