How to Use Key Performance Indicators (KPIs) to Grow Your Business


As any responsible business owner will tell you, setting growth goals is an essential part of growing a business. However, you can’t do it if you don’t have a full picture of your business’s financial health.


This is where key performance indicators (KPIs) come in. By keeping track of your business’s KPIs, you can gain insight that will allow you to proactively correct issues and adjust your business goals. Here’s what KPIs are and which ones you should focus on.


What Are KPIs?


In simple terms, KPIs are quantifiable goals intended to measure the potential or scope of a company’s success. KPIs can help you indicate which components of your business are the most beneficial to its progress and which ones can optimize its performance. KPIs also help you identify the areas in your company that may need work.


For best results, KPIs should be measured regularly to chart the success of any element of your company. These include financial health, marketing, employee satisfaction, customer service, and so on.


Common Types of KPIs


The easiest KPI to track is your net profit, which tells you if your business is showing more or less profit per year. Net profit is calculated as Revenue – Expenses. Your net profit won’t go up all the time, which is important to keep in mind when you encounter seasonal sales slumps or economic turbulence.


The similarly named net profit margin indicates how well you’re using your business revenue. The formula to calculate it is Net profit / Revenue. For example, if your business has a yearly revenue of $200,000 and a net profit of $50,000, your net profit margin is 25 percent. In other words, for every dollar you earn, you keep $0.25.


Then there’s customer lifetime value, which tells you how much a customer is worth to your business. If a customer is worth, say, $500, you’ll want to make sure that the cost to acquire them is below that. This is an easy KPI to track if you’re working with customers on a retainer model. If not, consider contacting a professional accountant.


Conversion rate helps you measure how many prospects turn into paying customers. Tracking this KPI will depend on your business model. For instance, if you have an online store, you can compare the number of visitors to the number of buyers.


Choosing the Right KPIs for Your Business


The above examples are just some KPIs you can track. As for which ones you should focus on, that depends on several factors. One way to think about it is to consider your business goals and opt for the metrics that are particularly important for those goals. For example, measuring customer lifetime value is all but essential for eCommerce stores.


Keep in mind that different KPIs matter more at different business stages. A new company looking to stabilize cash flow may want to focus on a KPI called days sales outstanding (DSO), which tells them how quickly they can turn receivables into cash. An established company, on the other hand, would put a bigger emphasis on factors like employee retention.