Sophisticated fighter jets and now even some expensive automobiles offer a “heads up” dashboard display. It enables pilots and drivers to look out the windshield and still see all their crucial gauges.
In the same way, you should have a dashboard of key performance indicators (KPIs) that you can see while you’re in the trenches running your business every day.
Well, almost every day, and that brings me to my first important point:
- Don’t wait for quarterly reports. Your KPI dashboard should be available to you at least on a monthly basis, and in many cases, weekly or biweekly would be even better. You might benefit from seeing some KPIs on a daily basis. With the accounting and inventory control software available today, this should be possible. If you only see these figures on a quarterly basis, you’ll always be navigating by squinting into your rearview mirror.
Businesses come in a startling variety of “flavors” today: service, retail, business-to-business, online, mail order, direct sales, brick-and-mortar, etc. There is a wide array of KPIs, therefore, that should be closely measured and watched. I’m going to suggest a few here that cut across most businesses.
You may think of others. But before I list mine, I want to share one more important truth:
- If you can’t measure it, you can’t control it. This is one of the foundational principles of quality assurance, and it applies to business in general. Be sure you can accurately generate all the important metrics required to understand where your business stands. Without that information, or with incorrect information, you will make bad decisions.
Now let’s list some KPIs to help you measure, control, and improve your growth:
- Lifetime value (LTV). You need to know how much your customer is worth to your business. This is going to help you with various decisions you’ll need to make.
- Customer retention and customer attrition. How long are you keeping your customers? Always take at least two “snap shots” of this figure, at 30 days and at 90 days. When customers seemingly fall out at 30 days, how often do they come back within 90 days?
- Customer acquisition cost. How much does it cost your business to get a new customer? Compare it to LTV. If your acquisition cost is near to or greater than your LTV, you need to go back to the drawing board. Also, what’s your “customer retention cost?” What works to maintain customer loyalty?
- Sales or revenue by category, product, or service. Here’s one you need to monitor as closely as possible in real time. Understanding what is selling and what isn’t allows you to better control inventory, find opportunities to bump up prices, and know when it’s time to have a “fire sale.”
- Your growth versus your industry’s growth. Are you on par, lagging, or leading your competitors in growth? You might be happy with 3 percent yearly growth. But if everyone else is doing 5 percent, you’re doing something wrong.
It’s virtually impossible to manage and grow your small business without understanding what’s really going on from a financial perspective. Take time to familiarize yourself with these key indicators and utilize them to help you make the right growth decisions.