For establishing startups and small businesses, it is essential to know their key performance indicators (KPI). Business owners think they have it ‘all covered’; however, most of them overlook some crucial KPIs and make critical errors like,
- Not aligning KPIs to business strategies
- Measuring irrelevant factors
- Blindly follows others
- Do not involve executives in KPI selection
- Not updating existing KPIs
It is easy to get buried in day-to-day activities and miss out on the big picture, and many new entrepreneurs may not realize some key data points and their significance. However, knowing which to track can be perplexing with many potential KPIs.
List of important KPIs all entrepreneurs might not be taking into consideration.
- Cash flow management
For every business, cash is of great importance. However, many companies with more than million-dollar sales annually end up bankrupt. This is because they fail to keep their financial position in check. A simple metric to track is accounts receivable days sales outstanding or DSO.
- Customer retention
Entrepreneurs focus on securing new consumers but forget that regular and loyal customers are vital factors. They are powerful vocal brand advocates who buy the products repeatedly and provide valuable word-of-mouth marketing.
- Gross profit and net income
Every business owner knows that gross profit calculation is a fundamental factor but somehow fails to do it properly.
Gross profit = (revenue – cost of goods sold) / revenue * 100
Net income is the overall profit or the actual money made by the business after deducting all the costs and expenses. It is more inclusive than gross profit and covers all the components of an income statement.
- Employee utilization
Employee utilization is the number of employees’ hours spent doing billable work. It is often an overlooked factor to which entrepreneurs should frequently pay attention. Focusing on the ratio of revenue to employee indicates the health of the business, and if a company grows in this factor, it is considered sound and efficient.
- Accounts receivable and payable
Accounts receivable is a balance of payments that customers have not yet paid for, or it is the money that third parties owe you. It is necessary to regularly track accounts receivable because most businesses sell products on credit. Moreover, regular check-ins of accounts receivable ascertain the company’s overall financial health.
Entrepreneurs can initiate corrections in the account receivable management by a simple metric, average account receivable for a period / total sales for the same period
Account payable is the money to be paid by businesses to the vendors, which is a liability on the company’s balance sheet. This KPI gives clarity about the financial condition of an enterprise and its relation to suppliers as it has a direct bearing on working capital.
KPI measurement tools to help entrepreneurs
There are a number of tools and software that can make KPI tracking easier. However, some of it might be a better fit than others, depending on your business model.
- Tableau
- SimpleKPI
- Salesforce
- Geckoboard
- Scoro
- Datapine
- Smartsheet
- Bilbeo
Key performing indicators (KPIs) are indispensable factors to determine the success and failure of a business. In addition, they monitor the company’s health, help to make adjustments, solve problems, and analyze patterns over time. KPI measurement tools make all of the work easy for entrepreneurs.
