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How Healthy is my Business?

As your business grows, you may be wondering… how healthy is my business? Perhaps you are keeping track of a few key numbers to confirm your feelings of a positive trend.  Or maybe you are so focused on the daily operations that measuring your success has fallen to the wayside.  The thing is, if you don’t keep track of key performance indicators (KPIs), you won’t have all the information you need to successfully manage your business.  Let’s have a look!

What Are Key Performance Indicators (KPIs)?

A key performance indicator is a measurable value that shows  your progress toward a goal.  It is a way of measuring the effectiveness of your efforts.  Keeping track of your KPIs will help confirm you are on the right track, and will let you know when things aren’t working so that you can make changes before it becomes an issue. 

How to Choose the Right KPIs

The KPIs that you choose should align with your current business objectives.  There will be the obvious ones (such as net profit), but there are many others that you can use to measure more specific outcomes.  For example, if you are focused on enhancing your marketing efforts, then you should choose a KPI that measures your website traffic or your conversion rate.  When choosing your KPIs, consider including a mixture of ‘lagging’ and ‘leading’ indicators.  A lagging indicator will show you past results (i.e. net profit), whereas  leading indicator is forward-looking and is used to predict future results (i.e. customer satisfaction).  

Common Core KPIs

Net Profit = Revenue – Expenses

This one is an important one to keep track of!  You can expect that this number will fluctuate when you make a large investment into the business, or if your business has seasonal highs and lows.  But you certainly want this metric to rise in the long run.

Quick Ratio = (Cash + A/R) / current liabilities

This metric measures your cash flow, and is especially important as poor cash flow is one of the main reasons small businesses fail.

A quick ratio of 1 or more will indicate that you have enough money to cover your current bills. 

Customer Acquisition Cost = (Sales + Marketing) / # New Clients

This indicator tells you how much it costs to get a new customer for your business.  Reducing this number is a sign you have healthy sales, marketing, and customer service programs.  

Other KPIs to Consider

Website traffic

You may want to include this KPI if you are focused on increasing your reach and want to see the results of your new marketing plan. You can measure this by recording the number of unique visitors to your site each month, for example.

Conversion rate = # sales / # unique visitors

This is the percentage of visitors who complete the desired action (i.e. make a purchase).   Keeping track of your conversion rate will tell you how effective your website is; how easy it is for a potential customer to make a purchase. 

Social media engagement

If your business relies on social media to generate leads, then this can be a worthwhile indicator to track.  You can track likes, comments, and shares for each type of post to determine where you should focus your efforts. 

Customer satisfaction

This is an important metric, and a great example of a leading indicator.  A simple customer survey can help you track satisfaction over time and alert you to potential problems.  It’s a good idea to include a question about whether they would recommend your business to friends. 

How to Track Your KPIs

The best way to keep your business on track is to create a KPI dashboard and review it regularly.  You want to see your performance over time, so it is important to be consistent. Whether you use a specific software or a spreadsheet, keep it as simple as possible.  And be sure to carve out time at least once a month to review it. There are many tools out there that can help you track your KPIs. For example, your accounting software may already provide the information you need.  Or your social media management tool may already indicate the relevant information for your KPIs.

Measuring the health of your business with KPIs is vital to your success.  Providing you with the details you need to make data-driven decisions, KPIs are essential to steer your business strategically.  If choosing and tracking these indicators seem completely out of reach, then perhaps your business needs a better foundation of systems.  A systemized business provides consistent results, KPIs that you can trust, and allows new opportunities to shine through.   We have an amazing opportunity right now for 3 business owners to participate in a FREE Simplified Systems webinar.  In this session we will provide all the tools required to create and implement systems in your business, allowing you the time to track your KPIs and find your best success!  Email me to book your spot!  With only 3 places available, be sure to book early!

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