Master Your KPIs for Small Business Growth

“If you can measure it, you can manage it.” – Robert Kaplan

For small businesses, Key Performance Indicators, or KPIs, are not just numbers. They’re insights into performance and growth. And they’re indispensable when it comes to setting goals that will move you forward. This article will introduce you to KPIs and explain how they can be used effectively in your business operations.

Running a healthy small business often hinges on effectively managing Key Performance Indicators (KPIs), which have become even more crucial given the challenges faced by business owners in recent years.

However, small businesses are renown for being agile, resilient, and proactive. If you are working hard to achieve the success you aspire to, now might be a good time to have a think about what success means to you and how you can measure it.

After all, how can you achieve your goals if you don’t have a clear idea of what success looks like and a way to measure how your business is performing in relation to achieving your business goals?

How do you define success?

Success can be something that’s very hard to quantify and your definition of what makes a successful business will generally be quite different to someone else’s. Every small business owner will have their own individual idea of what success means to them based on their values and objectives for the business.

Common measures of success

In the realm of small business KPIs, while financial measures are commonly used, owners often also include ‘softer’ measures in their KPIs to gauge success…

Many small business owners are motivated strongly by the desire to provide quality goods and/or services and running a business that is a good place to work – both for the owner and the employees.

This is reflected in a report conducted by National Australia Bank which found that only 11 per cent of participants ranked large turnover as a measure of success.i One in 3 (32%) rated high profits as an important measure but this was well behind other things such as good financial management (58%), positive word of mouth (56%), productive staff (49%) and happy staff (45%).

Crunching the numbers

But let’s not overlook the financial side of your business when talking about KPIs. It’s critical! From cash flow to profit margins, these financial indicators are key to understanding where your business stands.

The most common measure to track how your business is tracking financially is profitability. While it’s possible for companies to survive for a time without being profitable, operating on the goodwill of creditors and investors, to prosper, a company must eventually attain and maintain profitability. It’s a good measure of how successful your company is.

It’s important to acknowledge that no single metric will provide you with the full picture of your company’s financial and health. There are many financial metrics you can use to track your businesses’ health and progress. Metrics you may wish to look at are liquidity which measures a firm’s ability to ride out short-term difficult patches, and solvency which informs how readily longer-term debt can be supported. Companies can have high debt but still perform well if they have used their debt to purchase assets such as equipment or other companies so calculating your debt compared to your assets can be of benefit.

Coming back to your, unique goals

Given that there are so many aspects of business success you can monitor, it comes back to how you define success. That means working out what you want to achieve, what business success means to you and then coming up with the financial and nonfinancial drivers of that objective.

The next step once you have come up with your drivers is to determine how best to assess these. For example, if one of your main objectives is customers who are pleased with your products or services, customer satisfaction surveys will be a good tool to determine how you are tracking and where there is room for improvement. Or if your focus is on improving your turnover, you can look at measures to track your sales volumes, lead conversions and other matrix that support revenue.

You must also regularly re-evaluate your metrics, as well as your business goals as these change over time.

Whatever you want to achieve in your business we wish you a successful 2024.

i https://business.nab.com.au/part-1-moments-that-matter-understanding-australian-smes-24841/

This article is intended as an information source only and to provide general information only. The comments, examples, words and extracts from legislation and other sources in this publication do not constitute legal advice, financial or tax advice and should not be relied upon as such. All readers should seek advice from a professional adviser regarding the application of any of the comments in this article to their particular situation.