DISCOVER IF YOU ARE TRACKING THE MOST VALUABLE KPI’S AND IF NOT, LEARN WHAT THEY ARE AND HOW YOU TACK THEM.
While profit is a good indicator of success there are many more components to a successful business. Identifying these can be challenging but here is a start.
Every business should track two sets of KPI’s, these are universal KPI’s and industry KPI’s.
This article will explore universal KPI’s that are vital to understanding your business performance.
To start us off nice and easy is sales revenue. This can inform you of market demand and your success in reaching that market.
Sales revenue is all income from customer purchases.
You can further split this into revenue per employed or revenue growth.
Revenue per employee can indicate each employee’s value and productivity. This information can help in determining whether changes to employee numbers is needed.
Revenue/ number of employees
Measuring revenue growth means examining revenue in one period vs another. If your revenue is seasonal or if possible best to compare same month or quarter to previous year’s performance.
NET PROFIT AND NET PROFIT MARGIN
Net profit is the amount of money made minus all associated costs and expenses.
Net profit = Revenue – The cost of goods sold – Operating and other expenses – Interest – Taxes
Knowing your net profit is key to identifying overall profit the margin gives a more valuable insight into the state of your business.
Net profit margin = Net profit / Revenue
Low margins are risky and if this does improve over time changes may be required.
GROSS PROFIT PROFIT MARGIN
As without any profit your businesses days could be numbered. Although certain stages of business, partially growth, lack of profit can be acceptable.
Overall, however companies spending more than they earn in the long run are likely doomed.
To worth this out divide the gross profit by gross sales. Then times this by100 to express it as a percentage.
Profit margin = gross profit/ gross sales x 100
If your profit margin is increasing awesome! But if there are changes under the same conditions, there could be an issue to address.
CUSTOMER ACQUISITION COST
As the title suggest this is how much money is spent on acquiring new customers.
CAC = Total customer acquisition expenses / # of customers acquired
Focusing just on the benefit of a new customer can lead to inefficiencies in your marketing or sales process. This can impact your profit and is often rectifiable.
Conversion rate can be overall meaning what number of people you talk to convert to customer. It can also go more micro and explore the number of total calls and number of customers.
Depending on your business identify which rates would be best to examine. With this information you can track the impact of changes to your outreach process.
TRACK, TRACK, TRACK
Understanding your KPI’s is vital to understanding your business and where it can be improved.