Establishing KPIs for a Small Business

There are literally hundreds of Key Performance Indicators (KPIs) that businesses can use to measure whether they are attaining their goals and objectives. However, it’s not necessarily true that the more data you have the better you can make decisions, especially when that data becomes overwhelming. Instead, focus on five to ten KPIs that can give you a good overall view and that are quantifiable and measurable.

The Ideal KPI

How do you narrow down what KPIs are in your best interest to track? You can look at your annual goals and see what KPIs impact them the most and which are easily quantified with data that tells the story of your performance at a glance. Then, put in place ways to measure the data regularly and compare it over time. For instance, if your goal is to increase your customer base this year as compared to the previous year by a set number, you will need to track things like conversions, referral rate, attrition rate, and customer retention rates to figure out how you did for that particular goal. The KPIs that you choose should also lead to some actions on your part as the data comes in to make sure you are continuing to improve your overall performance throughout the year.

Important KPIs Linked to Your Bottom Line

Businesses are keenly interested in how their performance is impacting their bottom lines. Several popular KPIs that are linked to the financial aspects of business goals can help them get a clear picture of their expenditures and how to properly budget for the costs of doing business. These include:
Cost of Customer Acquisition (COCA) – This is the amount you spend to acquire a customer. It can be estimated based on the cost of marketing and advertising when compared to the number of actual new clients these campaigns generated. By dividing the number of clients into the cost of the campaign, you get a good ideas of how many dollars you spend to acquire each customer.
Revenue – This can be segmented by product lines or customer demographic grouping or it can be overall revenue. This is one financial metric that is always tracked to determine not only how much money is coming in and from where, but it also helps to figure out other KPIs, like Customer Lifetime Value.
Customer Lifetime Value (CLV) – This is how much money you can expect to make from any one customer over the life of the relationship. This metric is obtained by taking the revenue you generate from a sale and multiplying it by the gross margin to get the actual amount you make every time someone decides to buy that item. Then, you multiply that number by the average number of times people are repeat buyers and you have the total CLV.

Other Types of KPIs

You may want to also learn more about your business processes, not just how much things cost or what you are making for a particular item. There are plenty of KPIs that can help you track email campaign goals, traffic generation, and how fast your sales or developer teams respond to feedback on needed improvements for products and services. Some of these types of KPIs are as follows:

For Email Campaigns – You can track open rates, click-through rates, and bounce rates. It’s not always as straightforward as knowing cost per email, but you can certainly track performance of the overall campaign and the conversion rate for specific emails. This can help businesses fine tune their email copy so that they get better over time and open rates and conversions increase.

For Traffic Generation – This type of date is usually tracked via dashboards using Google Analytics. You can tell what location you best customers are coming from and this can help to generate advertising campaigns targeting specific geographic areas or excluding countries that are not profitable. You can find out what areas of the web generate massive traffic either through social networks or third-party leads and whether they are visiting on smartphone or other mobile device.

For Product Improvements – You may want to track response rates for salespeople on callbacks or how long it takes your development team to include new product features after the initial demand is noted in sales communications. You would have to have some system to document customer feedback, whether it is through periodic surveys or just a customer service system that tracks issues.

Try To Issue Relevant Reports and Take Action

Reports that can offer insight at a glance are essential to understand what is going on in your business with the KPIs you are dedicated to tracking over time. Many businesses create dashboards, like that used in Google Analytics, that track their own internal KPIs and then use them in the decision-making process. Once the information is known, take action to increase your performance and profits over time.

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