How can you know if your business will be successful? Data and metrics in business are crucial factors in informing you if your business is on an upward trend or if you are almost going bankrupt.
Key Performance Indicators (KPIs) is a metric system you can use to measure your business performance. For a long and successive business, you need to have a grasp on the financial KPIs that drive your business.
However, it is best to be cautious and always alert to avoid focussing on the wrong metrics. Remember, you are spending a lot of time and money to optimize the parameters. If it is too costly to obtain or monitor, then it can hurt your business.
Before you can learn how to track your business success, as a business owner, how do you identify between the right KPIs to measure your business performance from value diminishing KPIs?
The right KPIs for your business should fit well with the strategic objectives of your business. The performance of an organization is measured relatively against your business goals and missions.
Additionally, you should only choose a KPI that you can attain and present to your stakeholders. The benefits should be more than the cost. They should also be accurate and actionable.
Financial and market KPIs that should be on your radar
Operating cash flow
Your operating cash flow determines whether or not you have the ability to meet the daily operational expenses. You can also compare this KPI to the total capital to reveal the amount of money your business generates and whether it can support the investments that will help grow your business.
You can tell if your business is financially healthy when you compare the total capital to the operating cash flow. You can, therefore, make investment decisions that are not influenced only by the profit your business makes.
Tracking the success of a business is not only done on a spreadsheet. Though there may be other financial KPIs you need to keep an eye on, you also need to track your marketing KPIs to get a different view of how your business performs in the market. Such include:
Traffic to lead ratio
By tracking your website traffic to lead ratio, you can tell how many people visit your site and how many convert into leads within a specific timeframe.
You need to understand where your traffic is coming from, whether it is organic, or if it comes from external links and ads. More importantly, once they land on your website, are you able to convert them?
You may have the best user-friendly and intuitive website and receive numerous visitors, but if you are not converting, then there must be a problem with your site. You can get your data from a Google Analytics reporting software and analyze your numbers to get the result.
How much money does your inbound marketing campaign bring into your business? You should never spend money on anything that does not help you generate your money back.
Your sale revenue KPI enables you to avoid marketing campaigns that are not effective. It allows you to focus on those that are bound to make you money.
Cost per lead
The cost per lead metric helps you to determine the cost-effectiveness of your marketing campaigns when you want to generate a lead. A lead is anyone that shows interest in purchasing your products and services. The cost per lead metric helps you identify how much your business has to spend to find a new lead.
You can use the data from your cost per lead in your calculation for the return on marketing investment. The ultimate goal for your business is to figure out ways you can reduce the amount you spend to acquire a lead. Your marketing campaign will be performing well only if you can get high quality leads at a low cost.
As a goal for many businesses, you should strive to acquire as many people visiting your website organically and convert into leads. When your website receives high traffic naturally, it will help minimize your marketing spend, and you can utilize the amount on something else that matters.
If you want your business to grow and become successful, you need to generate leads and sustain them. You have to track them and measure customer acquisition spends. If you are spending too much, you need to change your marketing campaign.
Profit and loss
They are a valid measure of your success over time. The metric carefully analyzes your income and expenditure through a specific time. The result will either be a profit or loss.
Such a KPI can help you monitor how you spend funds in your business and help you direct funds only to the essential areas when cash is tight. You will also get to learn on which months your sales are low, allowing you to determine strategies you can reduce costs.
Overall, it tells you of the position of your business compared to the previous months or years. Is it a steady rise or decline?
This is the finance that you can immediately find for the smooth running of the business. Your working capital is the difference between your existing assets and liabilities. The equation contains accrued expenses, loans, and accounts payable, as well as accounts receivables, investments, and cash at hand.
The KPI helps you keep track of the number of funds available to run the business for a short term financial liability.
Income by customers
Your clients are the most valuable assets for your business. While it is essential always to be grateful to them, you should learn to value their worth. This KPI helps you identify your customers by the amount of money they get to spend in your business.
You should identify them and nurture a good working relationship. You can use the list to identify the most profitable prospect and make plans on how you will indulge them.
You can never fall short of KPIs to track your business progress. However, you have to choose the right KPIs, depending on your business objectives and goals. You can run a better business by including the right KPIs in your business strategy if you want to achieve long term success.