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.
To maintain your company’s progress, key performance indicators (KPI) help you assess your business’ success and build strategies for 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 critical KPIs for small business owners to help you identify your business progress.
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 your business strategy. To find out your company’s profit margin, multiply your gross profit by 100; divide it with your sales.
It is essential 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.
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 buying the equipment will help your business in profits or not.
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 evident that the revenue rate is also increasing. To ensure your company is progressing well, check the difference between the revenue growth rates of the current year from the previous year.
Inventory Gross
Inventory gross tells the company how much inventory it has sold over time. It is essential to keep track of your inventory, as it will help you plan any adjustments if needed.
Funnel Analysis
Funnel analysis allows you to see how users move through a series of steps. It is a great way to track where users are dropping out – known as the funnel drop-off rate. It tracks the number of visitors who left the conversion process (the 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. Many businesses rely on the internet as a sales tool in this technology age, due to which, funnel drop-off rate has become a key performance indicator to track.
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 no errors in your company’s accounts, hiring someone to overlook your bookkeeping is wise. This key performance indicator will help you identify whether you have to reduce the spending on suppliers to boost the company’s future profits.
Market Share
The purpose of this KPI is to assess 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, it is impossible to change the strategies and policies.
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