Guide on setting the right KPIs for your small business by small business accountants
When running any type of business, it is important to have short-term and long-term goals. A KPI is a performance indicator and evaluate the success of an organisation of any particular activity. KPIs can indicate your performance on efficiency, customer satisfaction, sustainability, and finances. We at M.A.S Partners, the leading small business accounting firm in Sydney Zetland, understand the importance of KPIs, and the impact it can make on a business’ growth. Without setting appropriate KPIs, it can often be difficult to single out if you are underperforming in a particular area, As such, we have provided a guide on choosing the right KPIs for your business.
Types of KPIs
Before you decide on the KPIs for your business, you must understand the different types of KPIs and how they can affect your business.
The main types of financial KPIs used in small businesses are revenue growth which can be achieved from making more sales or making higher priced sales; profit growth which can be done through increased sales, decrease costs, or higher priced sales; profit margins which indicates how effective your business is at generating profit from revenue; cash flows; and accounts receivable turnover which shows how many invoices are paid in a given period.
Retail KPIs generally applies to the customer’s end. This could include average transaction value, which shows how much a customer spends per transaction with you; inventory turnover, telling you how much stock is reordered in a time period; and foot traffic, which is the number of people who walk into your store. All these can be applied in both online and bricks and mortar stores.
Manufacturing KPIs usually refer to your production or transportation. KPIs used to measure this is production volume, indicating how much you can produce in a certain period; production costs, measuring all costs of delivering your merchandise or service; and on-time delivery, showing the percentage that your orders are delivered on time impacting a customer’s satisfaction.
Choosing your KPIs
In the early stages of your business, it is often a good idea to use a wide range of KPIs, seeing which metrics have the most impact. Make sure that you have at least one KPI that measures efficiency, customer satisfaction, sustainability, and finances, to maximise business growth. Regardless of what KPIs you choose, you must ensure that they are understandable, where everyone in your business knows what it means; shared, where everyone knows why it is important; relevant, where the metric makes a large impact; and balanced, where you have both short-term and long-term KPIs.
Hire a small business accountant
Often it can be difficult to decide what KPIs your business needs, and how to analyse them. A small business accountant will be able to analyse your KPI metrics in an effective matter, in which it will give you an understanding as to what your business is lacking, and can give you advice on how to improve these aspect. Our small business accountants at M.A.S Partners have experience working with hundreds of different businesses and aim to help every business grow through our advisory. For more information on our small business accounting service, click here.