Key Metrics for Small Business

It’s easy to get distracted as a small business owner or entrepreneur. After all, you’re focusing on your product or service, growing your team and managing the day-to-day. So how do you know what’s important and what you need to pay attention to?

Determining key metrics for your specific business is a process. However, the end result should be 3-10 quantifiable metrics (your metrics need to be measurable, even if they are based on non-financial data) that can tell you if your business is heading in the right direction, or if you need to make adjustments.

There are a few more important keys to successfully developing metrics for your business…

  • Keep it simple. If you have too many metrics to track or your metrics are too complex, you’re setting yourself up for likely failure. Plus, you won’t be able to get the right information you need.
  • Have a benchmark. You want to be able to measure your actual performance against a budget or a goal. If there is no target, what’s the point?
  • Make people accountable. Assign each metric an individual in order to establish accountability. Accountability is what gives the key metric traction.
  • Consider incentives. It’s motivation. Incentives generally lead to increased drive to achieve the metric assigned.

Still not quite sure what metrics you should be tracking? Here’s a list of common areas that we think small businesses should develop key metrics around and review on a regular basis:

Cash Balance | How much money do you physically have right now? Don’t forget to be cognizant of deposits in transit (money you have receipt of, but hasn’t been deposited in the bank) and outstanding checks (checks that you have written but haven’t cleared the bank).

Accounts Receivable | How much money is owed to you by your customers? What portion is greater than 30 days past due? How is this affecting your cash flow?

Accounts Payable | How much do you currently owe? How is this affecting your cash flow? Are you paying these in a timely fashion?

Inventory | How many days, on average, is your inventory sitting on your shelves? Are there any slow moving inventory items? Do you have any significant back orders? What is your return rate? What about shipping and delivery times or issues?

Sales Revenue | What are your gross sales? How is each sales individual doing? How many leads have you turned into opportunities won or lost? What does your sales cycle look like?

Gross Margin & Net Income | How high is your gross margin? Are you turning a profit on the goods you sell? Are you continually working to lower your cost of goods sold? Is your gross margin enough to cover your cost of operating? Speaking of gross margin, do you know your gross margin by profit center (ex. product line, customer, job, etc.)?

Reminders:

Total Sales – Cost of Goods Sold = Gross Margin

Gross Margin – Operating Expenses +/- Other Income/Expenses = Net Income

Customer Service | What ratings are you seeing via customer service surveys? How many incidents were reported? How many support tickets are open or have been resolved? How many new customers did you win? What does your retention of existing customers look like? Did you receive any referrals?

Marketing | How many active campaigns are you running? How many social media followers do you have? How many website hits have you had? What was the duration of each campaign?

In summary, there are hundreds of metrics out there. That’s why it’s important to understand what drives the success of your business. Once you know the key areas you would like to focus on, you can develop key metrics. And remember…keep it simple, have a goal, assign each metric and consider incentives.

Still confused? We can help!

One comment on “Key Metrics for Small Business

  1. […] at your books. When things go wrong on the books, you can often look to the balance sheet (or these other areas) to see where those pesky problems are coming from. If you can catch these errors soon […]

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