Key performance indicators, or KPIs, are a way to track and measure your company’s performance and progress in different areas. KPIs help you identify where adjustments can be made to improve the health of your business.
By tracking the right key performance indicators, you can ensure that you are strategically optimizing your business so that you meet your goals and objectives more efficiently.
Types Of Key Performance Indicators
There are several different types of KPIs, but they can be divided into two categories – leading and lagging indicators.
Leading indicators tell you what is going on now and help you plan for the future, while lagging indicators show you what patterns and trends have happened in the past.
What Are Key Performance Indicators Examples?
In order to properly measure the effectiveness and success of your business, you need to focus on the KPIs that matter for your specific goals.
While KPIs may differ across companies, there are 5 key performance indicators that every business, no matter the industry, should be tracking.
- Net Profit
Net profit shows how much money your company has earned after subtracting all costs and expenses from its total revenue.
This metric is important because it gives you an idea of how successful your business is at generating an ROI. It helps you make better decisions about where to allocate your resources in order to improve your bottom line.
You can also use this information to compare your company’s performance against industry benchmarks or against the performance of other companies in your sector. This will help you identify areas where you can make changes while still staying competitive.
- Net Profit Margin
Net profit margin is the percentage of revenue that remains after subtracting all costs, expenses, and taxes.
If this number is too low, it might mean that it’s time to cut back on certain expenses or increase prices in order to make more profit. Companies can use their net profit margin to help them make better business decisions and improve their operations.
You can calculate this by dividing net income (the amount of money left over after paying all bills) by total revenue (the total amount brought in through sales).
- Cost Of Customer Acquisition
Customer acquisition cost (CAC) is a metric that measures the amount of money spent to acquire new customers. It’s an important KPI because it helps you understand how much you need to spend in order to make a profit on each sale. This information can be used to make decisions about marketing campaigns, sales strategies, and more.
The CAC KPI is calculated bydividing the total costs associated with acquiring new customers (including advertising, salaries, etc.) by the number of new customers acquired during a specific time period (usually one month).
If your customer acquisition cost continues to rise, then either your product isn’t resonating with potential buyers or there’s something wrong with your marketing strategy. Either way, this information will help guide future decisions about where to best invest resources such as budget dollars in order to drive more sales.
- Your Quick Ratio (Cash Flow Analysis)
The quick ratio key performance indicator is a liquidity ratio that measures a company’s ability to meet short-term obligations with its most liquid assets.
Quick ratios are important because they show how easily a company can pay its debts as they come due. This information is especially useful for creditors, who want to know the likelihood of being paid back in full.
A high quick ratio means that a company should be able to cover its short-term liabilities without any trouble. This gives creditors peace of mind and may make them more likely to lend money to the company.
To calculate your quick ratio add up your cash, accounts receivable, and marketable securities then divide it by your current liabilities.
- Lifetime Value Of Your Customers
Lifetime value is the total revenue you can expect to receive from one single customer over their entire lifecycle with your company. This includes all revenue generated by the sale of your products and services as well as any other sources such as cross-selling opportunities.
This can also be used as a benchmark for other customers who have similar characteristics or profiles. This metric helps businesses understand how much they should spend on acquiring new customers and how much they can afford to spend in order to retain them.
You can calculate the lifetime value of a customer by taking your average transaction value and multiplying it by the average number of months a customer does business with you.
Tracking Key Performance Indicators For Small Businesses
At The Alchemy Consulting Group, we specialize in developing business growth plans and tracking the KPIs that matter most for small businesses.
We can show you how to use KPIs to determine a marketing budget, as well as how to allocate the budget – learn more here.