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bsuWhat are the metrics by which you measure your business performance? How do you know if you’re more successful than usual or falling behind? If you don’t have an answer, you’re not maximizing your chances for success, and you’ll want to consider establishing Key Performance Indicators (KPIs).
We believe that every small business should understand how to measure KPIs. As your knowledge of your business KPIs grows, so will your perspective on financial health and the choices you can make to generate growth and build success.
What’s a KPI?
KPIs are metrics that help you understand your performance in various areas. Business KPIs can be company-wide, department-wide, or even specific to certain employees. They are distinctly quantifiable and provide a clear picture of progress towards your goals.
KPIs are there to serve you. In all likelihood, no one will see the results of your KPI tracking except for you, your team, and your advisors. Similarly, no one will hold you accountable for your business’s performance except you. So, you’ll be well served to pick KPIs that give you a real feel for how things are going—and whose results you can use to implement meaningful growth strategies.
How to Measure KPIs
Having your business KPIs sorted and measurable is just the start. Here’s how to measure them effectively:
Data collection
The lynchpin of KPI tracking is data. Without reliable data, your KPIs are just numbers on a page. So, where do you get this data? Well, that depends on the KPI you’re tracking. You might use reporting dashboards built into analytics tools that automatically pull in data from various sources, like Google Analytics for website traffic or CRM software for sales metrics.
Financial professionals, like your accountant or financial advisor, can provide detailed reports on your financial KPIs. Sometimes, you’ll need to roll up your sleeves and collect data manually, especially for qualitative metrics, which might mean sending out surveys or logging customer feedback. The key is to ensure that the data you collect is accurate and consistently gathered from reliable sources.
Establish baselines
Before you can measure progress, you need to know where you’re starting from. This is your baseline. For instance, if your KPI is to improve operating cash flow, look at your cash flow statement to see your current cash flow. This baseline is your point of reference for measuring improvement. Think of it like starting a fitness journey. Before you can celebrate how much weight you’ve lost or how much faster you can run, you need to know your starting weight and current running speed. Establishing baselines helps you set realistic and achievable goals and provides a clear comparison point to evaluate your progress.
Systematized reporting
Once you have your data sources and baselines, set up a system to regularly record this data. The frequency depends on your specific KPIs—weekly for short-term goals like sales targets, monthly for longer-term metrics such as customer acquisition cost or quarterly revenue.
How will you record this data? Simple spreadsheets can work for straightforward metrics, allowing you to log data points and visualize trends. For more complex KPIs, consider using specialized software like Tableau or Amalgam, which can help you create detailed dashboards and reports that update automatically. Regular and systematic reporting ensures that you stay on top of your KPIs and can make timely adjustments as needed.
Frequency and details matter
The more often you record your data, the better you’ll understand your business KPI trends. Some metrics, like daily website visits or e-commerce sales, really benefit from being tracked every day. Others, like customer satisfaction scores or lead generation numbers, might only need weekly or even monthly updates.
For slower-moving metrics like monthly revenue, cash flow, or employee turnover rates, tracking them monthly should be enough. Using Forwardly’s cash flow forecasting tool and financial reports integrated with your accounting software, like QuickBooks or Xero, can automate data collection and give you real-time insights and projections.
Automate when possible
Automation can save you a ton of time and cut down on errors. If you can automate data collection through tools or software integrations, go for it. Many platforms offer APIs or built-in integrations that can automatically pull data into your reporting systems. For example, integrating your e-commerce platform with your accounting software can automatically update your sales figures and financial metrics. This not only streamlines the data collection process but also ensures your data is updated in real-time, giving you the most accurate and up-to-date information to make informed decisions.
Review and adjust
Keep tabs on your business KPIs and data regularly. Are you hitting your goals? If not, tweak your strategies and KPIs based on what you learn. KPIs should evolve with your business and market changes. This ongoing process helps you spot trends, celebrate successes, and address areas needing improvement. It ensures your strategies stay effective and your business stays on track for success.
The bottom line
So, there you have it—business KPIs aren’t just fancy acronyms; they’re your key to business success. Keep those metrics in check, adjust your game plan as needed, and watch those profits soar. At Forwardly, we’ve got your back when it comes to managing cash flow like a pro. Our modern payment solution synced with QuickBooks or Xero, gives you instant financial insights—no crystal ball required!
Get paid faster, handle business bill payments like a champ, and keep that cash flow healthy and thriving. Ready to take charge of your business finances? Get started today for free and see how Forwardly can help you reach your goals.
