Staying on Top of Your Most Important KPIs: A Guide for SME Owners
No matter how large their organizations are or what industry they’re part of, business owners should always have a clear picture of how well their operations are faring. This is typically done by tracking key performance indicators (KPIs) that measure business performance on various levels.
In this sense, KPIs aren’t just limited to sales and revenue. It would be good to look at other metrics such as customer retention rate (the percentage of customers who return for repeat business), average order value (the average amount a customer spends per transaction), and inventory turnover (how often inventory is sold and replaced over a period) if you’re a small- or medium-sized enterprise (SME) owner looking to optimize your operations.
You also shouldn’t fall into the trap of thinking that KPIs are only needed by large businesses. This isn’t exactly the case—in fact, KPIs are extremely beneficial for all kinds of business owners because these metrics can guide them to maximize their already limited resources. Financial tools and applications that you may already be using, such as your Maya business banking account’s transaction history, can even be leveraged for supplementary information to determine whether you’re meeting your KPIs or not.
To help you more efficiently track important KPIs for your business, here are several other tips to keep in mind:
1) Identify the Relevant KPIs for Your Business
Not all KPIs are equally important for all businesses. For instance, a service-based business most likely won’t need KPIs such as average order values or inventory turnovers. More valuable insight may come from KPIs like referrals or customer retention rates.
Thus, your first step should be to determine which KPIs you consider important for your business performance. Look at KPIs that align with your business goals, and don’t worry about tracking irrelevant KPIs that may put you in danger of losing the “bigger picture” regarding what your business success should be rooted in.
2) Set Specific and Measurable Goals
The goals tied to your KPIs should also be clearly defined to give you a specific target to aim for. When setting goals, consider the SMART approach, meaning that these goals need to be specific, measurable, achievable, relevant, and time-bound.
For example, rather than setting your goal as “increase sales this month,” consider making it more specific, such as “increase sales by 15% this month.” The latter goal makes for more accurate tracking of progress and can give you a better idea of how well your sales are doing at the minimum.
3) Use Digital Tools and Dashboards
Manual tracking of KPIs is time-consuming and prone to errors. For this reason, you may want to invest in digital tools or software that can help make the task easier. One example is a customer relationship management (CRM) solution to measure essential customer metrics such as customer acquisition cost (CAC), conversion rate, and sales growth rate.
CRM solutions and the like also have dashboards where you can view the collected data at a glance and get valuable business insight in real time. Take advantage of the technology to focus on other aspects of your business and retrieve data from the software when it’s time to review your KPIs.
4) Establish a Regular KPI Monitoring Routine
Failing to regularly track your KPIs can lead to delayed insights and missed opportunities. It’s important for you to establish a regular routine on when you should be reviewing each KPI. Doing so ensures that you’re always informed of your business’s progress or setbacks and that you’re well-positioned to make adjustments as necessary.
Note that monitoring frequency can depend on the KPI. A café business, for one, may review daily sales and customer counts at the end of each day, but choose to analyze food cost percentages monthly to better guide staff when they’re putting in supplier orders.
5) Involve Your Team
KPIs aren’t just for business owners to be aware of. If you run an SME, it’s important to involve your staff so that they fully understand their role in fulfilling your business’s goals. Let them see how their actions affect the business’s KPIs so that you can also foster a sense of accountability and inspire motivation over their daily tasks. Accomplish this by scheduling regular team meetings that include discussions on progress and ways to improve.
6) Compare Performance Against Benchmarks
Having a clear benchmark—whether it be based on industry standards or past performance—will help you identify whether your business is underperforming, meeting expectations, or excelling. Without one, a KPI would remain a simple number with no clear indication of success.
If the customer retention rate standard in your industry is around 70% and your business has only hit 50%, then you may need to work on your customer retention strategies. Perhaps you can offer a loyalty program or improve customer service response time to encourage buyers to be repeat customers.
7) Analyze Trends and Take Action
The process of tracking your KPIs should always involve analyzing trends and acting on them. After all, these patterns can clue you in on specific areas where your business needs to improve. Spotting trends early on also enables your business to proactively address challenges rather than reacting after they happen.
If you notice a trend of high cart abandonment rate in your online store, for instance, then you may want to look into the factors that potentially cause this. Perhaps you’ll find that many customers abandon their cart because your accepted payment methods are limited—in which case, you can take action by switching to a payment gateway that allows you to accept more payment methods and prevent your cart abandonment rate from further rising.
Your diligence in monitoring your KPIs will help you gain a deeper understanding over how your business is performing and allow you to make the best decisions to propel its growth. Let the tips above be your guide for properly tracking your KPIs, thus empowering you to put any insights you get from them into good use.