Understanding KPIs

Understanding KPIs: What Should Your Business Be Working Towards?

Tracking and monitoring the performance of your business over time is crucial in ensuring that you hit your business targets. When you draft your business plan, you should have key milestones in place that you and your team will work towards. Using financial data, you can gain an insight into how your business is performing. However, it’s important to also have more tangible methods of measuring the performance of your business for even more in-depth insights. 

Key performance indicators (KPIs) are the most effective performance measuring metrics that business owners can use to gauge the progress of their business. Tracking the most relevant KPIs for your business can help you to make better business decisions moving forward and allow you to streamline your processes. You can also use this data to set strategic objectives and make changes to your business processes as required to ensure you stay on track towards your business goals. 

Let’s take a look at some of the most important KPIs that your business should be monitoring to improve performance. 

Revenue Growth Rate

The goal of every business is to generate more revenue and increase profits year on year. The revenue growth rate is a financial KPI that indicates at what rate that the income of the business is increasing. Regularly monitoring your revenue growth rate will allow you to see if your business is growing, declining or plateauing. With this information, you can adapt your approach accordingly. 

Cash Flow Forecast

The cash flow forecast is one of the most important KPIs for any business owner to monitor. This performance metric allows you to determine if your sales and profit margins are correctly aligned. Seasoned business owners will use cash flow statements to predict problems down the road so that they can get ahead of any potential issues. Knowing when there is likely to be a surplus or shortage in inventory, for example, means you can plan financially to deal with this situation in advance using the information gained from your cash flow forecast. 

Funnel Drop-Off Rate

When potential leads come to your business but don’t convert, you need to find out why this is happening. Perhaps more importantly, however, you need to determine how often this is happening. While it’s perfectly normal that not every lead will convert, if this is a regular occurrence, then you need to take action. The funnel drop-off rate measures the number of leads who leave the sales funnel before completing a sale. Tracking this KPI, you can make the changes required to increase sales and boost your revenue. 

Rate Of Inventory Turnover

The rate of inventory turnover tracks the number of units sold during a particular period of time. As a business owner, you will want as high a turnover rate as possible without having to drop your prices too low. Keeping an eye on the rate of inventory turnover KPI will allow you to determine how well your business is at moving physical products. This can help you to find the sweet spot with your pricing and drive more sales for your business moving forward. 

You Can’t Manage What You Can’t Measure

To succeed in business, you need to be honest with yourself in terms of how your business is performing at all times. In order to accurately determine if your business is progressing in the right direction, it’s important that you gather data that is most relevant to your business. As the old saying goes “you can’t manage what you can’t measure”. Key performance indicators allow you to accurately measure various aspects of your business performance so that you can adapt when necessary and manage your organisation with confidence. 

Christophe Rude
Christophe Rude
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