That’s the perfect question to ask! And we’re here to give you some tools to find the answer. There are two key metrics that are essential in tracking your progress in business— your KPIs and your ROI. Unfamiliar with these acronyms? No sweat. Here’s a short overview of these metrics and how you can use them to achieve your business goals.
KPIs for small businesses
A key performance indicator—more commonly known as a KPI—is a measurable value that indicates how well your company is achieving your specific business targets. Being able to track these KPIs will help you reach those goals more efficiently, so consider them a must in your future business strategies.
The best part is that KPIs can be used to measure performance of all kinds since they don’t rely on one formula. For example, if one of your objectives is to move inventory faster, your KPI will be an inventory turnover rate. But you could also use a KPI of abandoned shopping carts for your ecommerce site to help you achieve your goal of decreasing abandoned carts. KPIs can be as diverse as the goals you have and will give you more clarity on how to achieve them.
How to select KPI’s
To figure out which key performance indicators you’d like to use, you’ll need to conduct an assessment to see what performance data you have readily available to start with. Then, it’s time to figure out how to collect data that isn’t available. Once you’ve nailed down which KPIs make the most sense for your business, they’ll need to be tracked regularly to make sure you’re making progress.
On top of basing your KPI choice on data, here are a few other criteria to consider:
- The relevance of your metrics to your industry
- The ability for your metrics to analyze both your short and long term goals
- The simplicity of your chosen KPIs so that your entire team understands the measurement and how to track it
While these tips still leave a wide range of potential metrics, make sure to limit the amount of KPIs you’re tracking. Too many KPIs can become confusing, especially as your company grows.
If you’re considering which metrics you’ll need to get started, one of the more popular is the rate of revenue increase. This is a clear metric to determine how quickly your business is growing. Additionally, revenue per employee, client satisfaction and repeat business are all good metrics to track as a small business owner.
Return on investment
One of the most common profitability ratios is your return on investment, or ROI. This is typically a calculation of your net profit divided by your total assets. Keep in mind that your ROI isn’t the same as your profit—it represents the amount you’re getting back as a result of your investments.
Your ROI is one of the most popular metrics because it’s easy to calculate and interpret—and who doesn’t want that! Your return on investment can help you determine which opportunities will be worth it, and which you should pass on.
If you’re looking to track more intangible benefits, you can always track SROI, or the social return on investment. This can more accurately measure things like the net benefit to society, when a monetary value may come later.
With these key metrics in mind, you’ll be well on your way to set KPIs and measure the ROI for your own business. Consistently aligning these KPIs with your business goals will keep you on track to meet your targets and further the success of your business.