Friday Financial Freedom Finder newsletter
Key KPIs to track in a small business to support its financial success
As a small business owner, it's crucial to track key performance indicators (KPIs) to measure the success of your business and identify areas for improvement. While there are many different KPIs that you can track, some are more important than others when it comes to supporting the financial success of your service business.
Here are five key KPIs that you should be paying attention to:
This is perhaps the most obvious KPI to track, but it's important to keep an eye on how your revenue is growing (or declining) over time. This can help you identify trends and take action to improve your business's financial performance.
Cost of goods sold (COGS):
COGS refers to the direct costs associated with producing your products or services, such as materials, labor, and other expenses. Keeping an eye on your COGS can help you identify areas where you can reduce costs and increase profitability.
Gross profit margin:
Gross profit margin is calculated by dividing your revenue by your COGS. It's a key indicator of your business's profitability, and tracking it over time can help you identify trends and take action to improve your bottom line.
Customer acquisition cost (CAC):
CAC is the cost of acquiring a new customer, and it's an important KPI to track because it can help you understand the efficiency of your marketing efforts. By comparing your CAC to your lifetime value (LTV) of a customer, you can determine whether you're spending too much (or too little) to acquire new customers.
Net promoter score (NPS):
NPS is a measure of customer satisfaction and loyalty, and it's an important KPI to track because it can give you insights into how happy your customers are with your products or services. A high NPS can lead to increased customer retention and referrals, which can help drive growth and profitability.
In addition to these key KPIs, there are a few other metrics that you might want to track, depending on your business and industry. For example, if you're in the service industry, you might want to track metrics such as:
Average order value (AOV): AOV is the average amount that customers spend per order, and it's an important KPI to track because it can help you understand the value of your customer base. By increasing your AOV, you can increase your profitability.
Customer retention rate: Customer retention rate is the percentage of customers who continue to do business with you over time. This is an important KPI to track because it can help you understand the loyalty of your customer base and identify areas for improvement.
Lead-to-customer conversion rate: If you generate leads for your business (for example, through a website or marketing campaign), it's important to track your lead-to-customer conversion rate. This KPI can help you understand how effective your sales process is and identify areas for improvement.
Tracking these key KPIs can help you understand the financial health of your business and identify areas for improvement. By keeping an eye on these metrics and taking action to improve them, you can increase your profitability and set your business up for long-term success.