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How do you feel when you see your company’s progress and all of the profits you receive after a lot of hard work? Let me tell you one thing, profits are one of the main elements that affect your company’s progress.

In order to maintain your company’s progress, key performance indicators (KPI) help you assess your business’ success and build strategies in achieving your goals. As a business owner, you must keep track of your KPIs, as they affect your company’s progress.

We have listed seven of the most important KPIs for small business owners that can help you identify your business progress.

1. Gross Profit

The main element for every business is its profit. If your business is spending more on suppliers and netting less in sales from customers, then it is high time to change the strategy of your business. To find out your company’s profit margin, multiply your gross profit by 100; divide it with your sales.

 It is extremely important to keep track of this KPI as it will tell you how much profit you are generating contrary to the amount paid to suppliers. If your business’ profit margin is increasing, then continue with your strategy. However, if you see a decrease, it means that you need to reduce your company’s extra costs like utilities or wages or increase the cost of goods.

2. Flow In and Flow Out

This is one of the most important key performance indicators for small businesses. Flow in and out helps business owners assess whether their sales and margins are appropriate or not. The first step is to estimate your sales for each week and month. Once you have an idea of what your sales history looks like, estimate your payment timings and likely costs. Generally, this process covers 12 months which is why it is also called Cash Flow Forecast. It also helps in tax preparation, new purchases, or identifying any cash surpluses. For example, if you plan to purchase any equipment for your business, you add the cost into your forecast. The new statistic will tell you whether purchasing the equipment will help your business in profits or not.

 3. Revenue Ratio

A company’s revenue depends on the company’s profit or sales growth. If your business income or sale is increasing, it is obvious that revenue rate is also increasing. To ensure your company is progressing well, make sure to check the difference between the revenue growth rates of the present year from the previous year.

4. Inventory Gross

Inventory gross tells the company how much inventory it has sold over time. It is important to keep track of your inventory, as it will help you plan any adjustments, if needed. 

5. Funnel Analysis

Funnel analysis allows you to see how users move through a series of steps. It is a great way to keep track of where users are dropping out – known as the funnel drop off rate. It tracks the number of visitors who left the conversion process (funnel). The conversion process depends on what type of business you run. Examples of conversion could be a shopping cart, subscriptions, and more. Once you identify where customers are dropping out, make strategies to boost your sales. In this technology age, many businesses rely on the internet as a sales tool, due to which, funnel drop off rate has become a key performance indicator to track.

6. Accounts Payable Rate

If you want your business to continue operating, make sure that you have paid all of your suppliers. Accounts payable measures the cost given to suppliers. For most business owners, it is hard to track all of their financial transactions. To make your life easier and ensure there are no errors in your company’s accounts, it is wise to hire someone to overlook your bookkeeping. This key performance indicator will help you identify whether you have to reduce the spending on suppliers to boost the company’s future profits.

 7 .Market Share

The purpose of this KPI is to access a company’s success and position in the market. How is your business performing compared to your competitors? This is the only KPI that needs regular tracking. If you do not know how your company’s progress looks like compared to others, then it is impossible to make any changes in the strategies and policies.

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About Complete Controller® – America’s Bookkeeping Experts Complete Controller is the Nation’s Leader in virtual accounting, providing services to businesses and households alike. Utilizing Complete Controller’s technology, clients gain access to a cloud-hosted desktop where their entire team and tax accountant may access the QuickBooks file and critical financial documents in an efficient and secure environment. Complete Controller’s team of  US based accounting professionals are certified QuickBooksTMProAdvisor’s providing bookkeeping and controller services including training, full or partial-service bookkeeping, cash-flow management, budgeting and forecasting, vendor and receivables management, process and controls advisement, and customized reporting. Offering flat rate pricing, Complete Controller is the most cost effective expert accounting solution for business, family office, trusts, and households of any size or complexity.

 

 

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KPIs, key performance indicators, are essential metrics that allow you to monitor and track your business performance. They help you navigate your way to success and growth that is crucial when it comes to exploiting new opportunities and tapping into new markets. Unfortunately, most companies get their key performance indicators completely wrong by copying the metrics others are using, which may be ideal for them but not you. This often results in a business losing its competitive advantage or a significant market share, which ultimately kicks the business out of the competitive race.

Don’t Copy the KPIs of Others, Follow Your Own

Although, your gut feeling matters and often yields prominent results, this is now an old strategy that no longer defines your company’s success. Running a business is no easy feat as it requires a thorough analysis of financial results. Businesses who are good at examining and evaluating their finances mostly succeed and survive in the market for long durations. According to a study, “Business metrics or KPIs display a measurable value that shows the progress of a company’s goals.” To evaluate the health of your business, specific KPIs suitable to your industry provide an ideal snapshot of where your firm is going— and whether or not it’s going in the right direction. The point is, every business is unique to some degree and businesses can’t just copy similar metrics used by others in your industry.

Profit, Alone, is No Measure of Success

Profit is not a measure of success for your business. Although it can define the financial health of your company, it is not the only thing that contributes to a company’s success. Companies have short and long-term goals and KPIs can help you make more confident decisions regarding your company’s growth and development. Profit, along with KPIs, play an integral role in defining the success of your company as a whole. Since every business is unique and has a different business model, companies need to customize the KPIs that are the best fit for their needs and purposes.

Well-Known KPIs

There are tons of KPIs you can follow to track and monitor the performance of your company, but core KPIs can really provide you the insight you are looking for. At the end of the day, what matters most is your company’s performance and how much profit it makes.

To measure and understand your customers, you need to know KPIs such as customer retention rate, conversion rate, relative market share, customer profitability score, net promoter score, etc. To measure and understand your financial performance, you need to know KPIs such as net profit, revenue growth rate, net profit margin, gross profit margin, operating profit margin, return on investment (ROI), cash conversion cycle, etc. To measure and understand your internal process, KPIs that can be used are order fulfillment cycle, project schedule variance, project cost variance, capacity utilization ration, bookkeeping accuracy level, quality index, and process downtime level. To measure and understand your employees, KPIs such as staff advocacy score, employee engagement, absenteeism level, human capital value, and 36-degree feedback score can be used.

Basic Level KPIs

Small business usually have human resources, capital, and finances to evaluate their performance against all of the KPIs mentioned above. Therefore, they usually go with the basic, yet most effective, KPIs, which include the following:

Revenue

Whether small or large, businesses track their revenue to ensure that their income maintains a steady pace. When the revenue trend shows a downward sloping, this indicates that the business needs a new marketing strategy to boost their revenue. Similarly, when revenue shows an upward trend, it means that the business’s revenue is increasing and that’s the point where businesses need to maintain the trend.

Expenses

When businesses evaluate expenses in terms of a KPI, they consider spending trends. The reduction in expenses is actually healthy for a business because fewer expenses mean a stronger income statement.

Gross Profit Margin

Gross profit margin is the percentage of each dollar you earn after subtracting direct expenses. It reveals how well you are doing in keeping a balance between your income and expenses.


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About Complete Controller® – America’s Bookkeeping Experts Complete Controller is the Nation’s Leader in virtual accounting, providing services to businesses and households alike. Utilizing Complete Controller’s technology, clients gain access to a cloud-hosted desktop where their entire team and tax accountant may access the QuickBooks file and critical financial documents in an efficient and secure environment. Complete Controller’s team of  US based accounting professionals are certified QuickBooksTMProAdvisor’s providing bookkeeping and controller services including training, full or partial-service bookkeeping, cash-flow management, budgeting and forecasting, vendor and receivables management, process and controls advisement, and customized reporting. Offering flat rate pricing, Complete Controller is the most cost effective expert accounting solution for business, family office, trusts, and households of any size or complexity.

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KPI (Key Performance Indicator) -measurable values which demonstrate how efficient a corporation is at attaining key objectives of the business. KPIs are used for evaluation of success in the attainment of targets.

 KPI must be:

  • Well-defined and measurable
  • Well communicated to all departments of an organization
  • Vital to achieve goals
  • Valid to Line of Business

Financial Metrics

  1. Revenue: it is one of the most significant performance indicators to evaluate the success of the organization. Bookkeeping helps you in evaluating revenue.
  2. Expenditure: calculate cost effectiveness to find out the best methods for reduction and managing of costs. Expenses are determined from good bookkeeping practices.
  3. LOB profits vs. objective: it is an evaluation of actual profits and projected profits to identify the performance of a department.
  4. Expenditure Of supplies Sold: evaluate profit margin by calculation of production costs and assess product markup and actual profit margin.
  5. Day transaction Outstanding:  better the accounts receivable, better is the efficiency of the organization.
  6. Sale by area: analysis of sales area-wide helps in making better strategies in areas where sales objectives are failing to achieve.
  7. LOB operating expense Vs. Budget: comparison of forecasted budget and actual overheads helps in creating an effective budget for the future.

Customer Metrics

  1. Client Lifetime Value (CLV): CLV is helpful in determining the value received from a long term client of the organization. This is useful in keeping the best customers.
  2. Client Acquisition Cost (CAC): it helps in evaluating the cost effectiveness of a marketing campaign.
  3. Client Satisfaction & custody: by making customers happy and satisfied, you encourage them to become permanent customers.
  4. Net Promoter Score (NPS):  make a survey quarterly and evaluate company’s growth for long periods.
  5. Number Of clients: this is simple and straight forward KPI like Profit. Number of customers gained or lost determine whether customers’ needs are met or not.

Process Metrics

  1. Client Support Tickets: analysis of CPT helps in creating a successful customer service dept.
  2. Percentage Of manufactured goods defect: lesser the number, the better is performed.
  3. LOB effectiveness evaluates: Efficiency is measured by the number of products manufactured in specific periods.

People Metrics

  1. Employee Turnover Rate (ETR):  high ETR requires investigation and evaluation of packages and organization culture.
  2. Percentage of Response to Open Positions: large number of applicants depict that the organization is doing well and people want to work with you.
  3. Employee Satisfaction: the larger the number of happy employees, the healthier the organization.
  4. Retirement Rate: This  is important for developing strategic workforce plans.
  5. Knowledge Achieved With Training: determines the value of employee training and knowledge enhancement.
  6. Internal Promotions vs. External Hires: this metric is valuable for determining succession planning of the organization.
  7. Salary Competitiveness Ratio (SCR): used to assess the competitiveness of compensation options.

Customer Metrics

  1. Customer Churn Rate: determines percentage of customers who stop purchasing or availing the service.
  2. Contact Volume By Channel:  determines the number of customer requests and also the method adopted by customer for communication i.e email, phone or other.
  3. Percentage Of Customers Who Are “Very” Or “Extremely” Satisfied: Determines the opportunity to survey the expectations of customers.
  4. Number Of New Vs. Repeat Site Visits:  provides a differentiation of prospective clients and website traffic.

Financial Metrics

  1. Cash Flow from Financing Activities: demonstrates financial strength.
  2. Average Annual Expenses To Serve One Customer: the average sum required to serve one customer.
  3. EBITDA (Earnings before Interest, Taxes, Depreciation, & Amortization): Formula: (Revenue) – (Expenses Excluding Interest, Tax, Depreciation & Amortization) = (EBITDA).
  4. Innovation Spending:  the higher the spending figure, the more the value of innovation in an organization.
  5. (Customer Lifetime Value) / (Customer Acquisition Cost):  this value should be greater than one.

Conclusion

Periodic evaluation of KPIs is helpful in making a better strategy for entrepreneurship. It guides in making adjustments necessary for growth and expansion.

Check out America's Best Bookkeepers

About Complete Controller® – America’s Bookkeeping Experts Complete Controller is the Nation’s Leader in virtual accounting, providing services to businesses and households alike. Utilizing Complete Controller’s technology, clients gain access to a cloud-hosted desktop where their entire team and tax accountant may access the QuickBooks file and critical financial documents in an efficient and secure environment. Complete Controller’s team of  US based accounting professionals are certified QuickBooksTMProAdvisor’s providing bookkeeping and controller services including training, full or partial-service bookkeeping, cash-flow management, budgeting and forecasting, vendor and receivables management, process and controls advisement, and customized reporting. Offering flat rate pricing, Complete Controller is the most cost effective expert accounting solution for business, family office, trusts, and households of any size or complexity.

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A Key Performance Indicator helps a company or organization in measuring their performance. The goal is to achieve key business objectives. With the help of key performance indicators, a business would be able to set up an objective and measure whether the company is on the right track to achieve their goals or not. Different businesses use different KPIs to evaluate their success. However, there are some high-level and some low-level KPIs, both are equally important. High-level KPIs focus on the overall performance of the organization. Low-level KPIs focus on processes/areas like marketing, call center, sales and more.

How To Set Up Key Performance Indicators

Setting up KPIs for your business can be tricky. It is important to keep in mind that there are financial and non-financial KPIs that almost all businesses have. In order to develop strong KPIs, first, you have to make sure to understand what your company’s objective is and how you plan to achieve it. This process involves feedback from all board members and department heads. Once you have a better understanding of the company’s objective, your next step is to find out which process/areas need to be measured with key performance indicators. Keep a few questions in mind when deciding on the KPIs:

  • What is your company’s desired outcome?
  • How to measure company’s progress?
  • Who is accountable for the outcome?
  • How to influence a positive outcome?

Different processes or departments need different KPIs. For example, let us say the goal is to increase sales revenue this year; it will be known as the Sales Revenue key performance indicator. The question is how are you going to define this KPI?

  • Increase sales revenue by 25%
  • Hire an accountant for bookkeeping
  • Motivate customers to buy new products
  • Sales officer is responsible to review KPI, which will be reviewed on a monthly basis
  • Achieving the target will be beneficial for the business

The most important factor in any business is bookkeeping. Keeping a track of the business accounts could be challenging, however, if you already have a good track of your funds, it will be easier for you to come up with KPIs.

Do Key Performance Indicators Define Success?

Whether it is a small business or a huge organization, both need KPIs to set up their objectives. In order to follow their objectives, they need a strong strategy that will help them in achieving their goals.

Many business owners believe that KPI practice is old-fashioned; however, they do not realize that it is only effective when it is an inspired action. Some businesses just adopt KPIs without even practicing them and then wonder why it did not reflect any positive outcome for their business.

Key Performance Indicators are a form of communication. For example, when you are planning for a new project, you discuss the pros and cons with the team. Next, you come up with the strategies that will help you obtain success; the communication that you and your team hold is similar to setting up key performance indicators. You have to communicate with your team and different departments in your organization to achieve the successful outcome; the more clear and relevant the information is, the more easily it is acted upon.

The fact is that KPIs are effective when you make them valuable, as it requires time and effort. Best-selling author Bernard Marr wrote in his article, “What the heck is a KPI?” This topic sparked an interesting conversation among the audience. However, conclusions remained the same – that KPIs value remains in favor of those that use them.

Keep in mind that every action in the business counts. Your business strategies should be strong and must be followed to produce a positive outcome for your business. Your key performance indicators could be a door to success if you understand their value and find a way to implement them.  

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About Complete Controller® – America’s Bookkeeping Experts
 Complete Controller is the Nation’s Leader in virtual accounting, providing services to businesses and households alike. Utilizing Complete Controller’s technology, clients gain access to a cloud-hosted desktop where their entire team and tax accountant may access the QuickBooks file and critical financial documents in an efficient and secure environment. Complete Controller’s team of  US based accounting professionals are certified QuickBooksTMProAdvisor’s providing bookkeeping and controller services including training, full or partial-service bookkeeping, cash-flow management, budgeting and forecasting, vendor and receivables management, process and controls advisement, and customized reporting. Offering flat rate pricing, Complete Controller is the most cost effective expert accounting solution for business, family office, trusts, and households of any size or complexity.