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5 Basic KPIs to Track in Your Small Business: Follow the Signs on the Road to Success

A simple approach is always best when it comes to which KPIs (Key Performance Indicators) to track in your small business. Keeping things uncomplicated and manageable for small business owners is my mantra.

Why be complex when a simple approach can usually achieve so much more in much less time?

What is a Key Performance Indicator?

A key performance indicator is any important or relevant fact, number, circumstance, sign, or condition that will indicate how well a business or activity is performing. They usually take the form of trackable statistics or numbers that can be monitored and reviewed regularly for comparison with earlier periods in order to see the progress that’s being made toward the accomplishment of goals.

A key factor to consider when deciding which KPIs to track in your own small business, is to make sure that you don't overload yourself and have it become unmanageable. You won’t get far if you have so many statistics to track that it's not worth the effort, or they only provide an obscure picture of the business’s operation.

Think of your KPIs as though they were signs on a road. When you analyze them, you want them to be clear, easy-to-read, and lead you directly to the solutions you seek. If set up and tracked properly, KPIs will help you make the right decisions and take the precise actions that will better the company and increase profits.

Start with the Basic KPIs

When first starting to track them, start with the basics. You can always expand on them as you become more practiced, or as your operation grows and becomes more sophisticated.

Though small businesses in various industries may label or tally these KPIs differently, or even line them up in a different sequence than demonstrated here, they will all fall under these general categories.

Here are the basic KPIs that all small businesses should track:

Profit

Though the chart above shows profit last in the sequence, and in reality it usually comes at the end, I always look at this one first when I do a small business analysis for any client. It's the first (and last) major signpost that tells me how the business is really doing.

What percentage of profit is the business generating, and what percentage should it be generating according to the industry standards? What’s the total amount of profit? Is it increasing over time, or decreasing? Are the staff happy and well-paid? Is the owner taking home enough?

The stats that could be tracked might be: total profit, net income, profit %, the amount of cash on hand compared to bills due, and more.

Profits—as well as the satisfaction of the owner, the employees, and their customers—are the bottom line of any small business. When viewed first, it will give you a direction to go when tracking down the source of any difficulty.

Is the profit down? Is there a lot of dissatisfaction on the part of the business owner or the staff? Okay, then look at the rest of the KPIs in sequence to pinpoint which area of the company could be causing such a situation.

Customers

There are various statistics that you could track under this category. Leads, reaches, phone calls in, scheduled clients, new customers or patients, total clients—you name it. It all depends on your business and the industry you're in.

The point is, every small business needs someone to service in order to do any business at all. Without customers, there are no sales, no revenue, no production, and no profits.

I always review this statistic 2nd in sequence after the profit numbers. If there are not enough people reaching for your service or coming into the shop, you need look no further as to why your profits are not adequate.

Revenue

This is the category of KPI where the actual fuel, or energy, is provided to the business. In a logical approach of analyzing your KPIs, it would make sense to view this metric 3rd in the sequence. It’s hard to carry out any kind of service to the customers if there are no, or very little funds.

The various individual statistics that could be tracked under this category are sales, income, average ticket, number of closes, paid subscriptions, total revenue, and more.

Let’s say you have low profit, but plenty of customers coming in with a high demand for your services or products. You might then look at your total revenue and see very little money coming in.

Again, you wouldn’t need to look much further for the source of the difficulty, i.e., underperforming salespeople, insufficient pricing, ill-advised discounts, free service being given, etc.

Production

This KPI will help you document the volume and level of service or product delivery the business is doing.

Once you review your profits, volume of customers and the revenue from them, it makes sense to analyze how much of that product or service is being or has been delivered.

Much difficulty can result when a small business fails to deliver. Profits can be eaten into by a high churn rate, widespread cancellations, refunds, bad reviews, loss of contracts, etc. Most of the time this comes down to non-delivery of product or service in some form.

The statistics you can track for this KPI depend entirely on your industry. Some examples would be: completed treatment programs, billed hours, total manufactured products, packages shipped, consultations delivered, technical projects completed, and more.

If there is a low volume of production rolling out, or faulty and misrepresented products being delivered to customers, the company will falter one way or another.

Expense

This KPI is one of the most overlooked and forgotten metrics in small business. However it's just as important to track as all the others that are laid out in this post.

At any given time, a small business owner should be able to compare their financial outlay (or commitments) against their income. This is the very basic formula for calculating and predicting profitability.

Statistically, the best way to keep track of this is to tally up all your monthly expenses (get it from your P&L if you’re sure it’s accurate; many times it’s not), and compare it to the monthly income.

This monthly expense figure can be divided into a weekly amount. This will give you the bar by which you can quantify exactly how many customers, how much revenue, and what volume of production needs to be hit on a weekly basis to meet and surpass your expenses.

A tremendous management tool. And very uncomplicated!

Summary

If you start with these basic KPIs to monitor the performance of your small business, you'll be sure not to miss any of the important signs along the road to success.

And as your business grows, so will your dashboard of KPIs. If you'd like to learn more about how to set up your KPI dashboard and analyze your own small business, read the following posts: