Key Performance Indicators (KPIs) You Should Use to Evaluate Your Business
Many business owners spend so much time trying to scale their business they often fail to evaluate along the way. When building a company it’s very important to measure success using quantitative data over qualitative data. That’s when key performance indicators (KPIs) come into play. KPIs help you measure the success of your efforts and determine where you need to make changes. It’s estimated that about 50 percent of small business owners fail to identify any key performance indicators. Don’t be part of that 50 percent.
Here are some key performance indicators you should be using to evaluate your small business by category:
Profit and Loss: Profit and loss reports are one of the simplest and most effective measures of success. On a basic level this KPI will give you an idea of your business income less expenditures over a period of time. Either showing a profit, or a loss. This KPI is good for several reasons:
- This report will force you to monitor your cash expenditures.
- This report will help you identify which months your business performs well and which one’s it doesn’t. I suggest running this report monthly with quarterly and annual evaluations.
- This report will also give you an overall sense of your growth over time.
Revenue vs. Target: This is a basic comparison that measures your actual revenue versus what you projected to make. By analyzing the discrepancies between these numbers you can determine how your business is performing towards it’s revenue goals.
Expenses vs. Budget: Here you can compare your actual overhead costs with your allotted budget. Measuring this will help you become more financially responsible with the company’s capital over time.
Customer Acquisition Cost (CAC): This metric essentially tells you how much it costs to bring on a new customer. This is an extremely important metric that you should have on hand at all times. This can be calculated using the following formula over a given period of time: (total amount spent acquiring new customers) / (number of new customers) = (Customer Acquisition Cost).
Customer Churn Rate (CCR): This metric measures the percentage of customers that fail to become a repeat customer or discontinue service during a period of time. This can be calculated using the following formula over a given period of time: (Number of Customers lost) / (Total number of customers) = (Customer Churn Rate).
Customer Lifetime Value (CLV): This metric lets you measure the total value you’re getting from a long-term customer relationships. This will help you focus your sales and marketing efforts on the most valuable channels.
Success of Customer Training: This essentially shows you how effective your employee trainings are. Hiring and training new employees can be expensive regardless the size of your business. The most effective way to do this is to create a before and after test measuring overall knowledge. The more employees you’re churning in and out the more accurate this measurement will be.
Employee Turnover Rate (ETR): This can be found by dividing the number of employees who’ve left the company by the average number of employees. If you have a high ETR then it’s probably a good idea to examine your company culture and work environment.
Employee Satisfaction: This can be determined using a multitude of strategies. The easiest way to do so is to create a basic survey. Happy employees will produce more results.
When measuring the success of your company it’s important to use several key performance indicators. The KPIs listed above are a very basic set of measurements that will help you make data-driven decisions. If you haven’t done so already, start by measuring a few then keep adding more to your company evaluations. From there you’ll be able to determine which KPIs help you and your organization achieve it’s goals.