The definition of success can vary significantly across small businesses. However, the mutual benefit that all businesses gain by defining what success means to them and knowing how to measure it is undeniable.
There are a multitude of ways to track your business's performance, and discerning the most helpful metrics to start with can seem daunting. To aid you, we've compiled some of the most frequently utilized financial and non-financial measures.
Setting clear goals is crucial for effective measurement Before deciding what to measure, it's essential to ponder on your aspirations and establish clear goals. Do you want your business to just maintain its current momentum, or are growth and increased profits your ultimate goals? Maybe, your vision for your business extends beyond profits to positively impacting your customers, local community, or even society at large.
With your goals defined, you can break them down into smaller, more manageable objectives and subsequently identify the key metrics to measure your progress towards them. If you're new to this process or need a refresher on the basics, check out our beginner’s guide to business metrics.
Defining your business’s key performance indicators Clear goals enable you to establish targets or key performance indicators (KPIs). These targets elucidate everyone's role in the business's success.
Being aware of how different sectors of your business are performing helps identify strengths and weaknesses, and informs you about the necessary changes.
Methods to measure your business’s financial performance Financial metrics are the starting point if you want to gauge your business's health. There's a plethora of financial KPIs to track, from simple measures like net profit to more complex ones like average customer acquisition cost. Here are some key measures you might find useful.
Net profit
Net profit, often the bottom line for a business, is the total income of your business subtracted by its total operational costs. For a detailed understanding of determining a business's profitability, explore our blog post on finding out if your small business is profitable. If you’re a FreeAgent user, you can monitor your business's profit and loss in real-time via the software’s small business dashboard.
Cashflow
Cashflow, the difference between the income your business has received and the amount spent over the same period, can be a reliable indicator of your business's performance. FreeAgent can automatically track your 90-day cashflow forecast. For assistance with tracking your long-term cashflow, consider our guide to making a cashflow forecast.
Business expenditure
Closely monitoring your business's expenditures is crucial for profitability. Running costs can range from utilities to supplies or insurance. By keeping a close eye on all outgoings, you can get an early warning if they begin to rise and take steps to curb unnecessary costs. Over time, you might notice seasonal trends that can assist with budgeting.
Working capital
Working capital is the difference between a business’s current assets (what a business owns) and its current liabilities (what a business owes). The amount of working capital your business needs may change over time. Keeping a close eye on it can alert you if you need to find additional capital.
You could also monitor other financial performance areas like business growth, borrowing levels, or your efficiency.
Methods to measure your business’s non-financial performance If your business goals are not solely tied to your bottom line, it's important to consider non-financial measures and targets.
You could choose to set targets in many different areas depending on your definition of success. Two vital areas to consider are your customers and your competition.
Keeping customers satisfied Satisfied customers can be one of the most potent marketing tools your business possesses. Many businesses set specific customer satisfaction KPIs to track how pleased their customers are with their product or service. One example is the Net Promoter Score (NPS), which gauges customers' readiness to recommend a business to their acquaintances.
Customer churn is another useful measure of customer satisfaction. This indicates the rate at which customers cease buying your product or using your service. Your business’s customer churn rate can be calculated by dividing the number of customers who stopped buying within a certain period by the total number of customers at the start of that period. If the rate is on an uptrend over time, it's worth investigating and addressing the issue.
Review sites like Trustpilot can offer you direct customer feedback. Google reviews for your business not only appear alongside your Google business profile, contributing to your business’s star rating on Google, but they also help you stand out in online search results and earn the trust of potential customers. It's therefore beneficial to request your existing customers to write an online review of your business on these platforms.
For additional feedback, you could also consider face-to-face interactions, conducting interviews (offering a small incentive might encourage participation), or deploying questionnaires or surveys.
Benchmarking against your competition Benchmarking allows you to compare your business's performance with the competition. Identify your primary competitors and dedicate some time to learn about them.
While you might not have access to all the competitor data that you’d like, you should be able to find information about their product offerings, pricing, and perceived strengths. Sales literature, advertising, and social media can all offer insights. You may also find additional data through industry market reports or sector-wide statistics compiled by organisations like trade bodies. You could even consider hiring a specialist for market research.
Knowing your key objectives and the data by which you're measuring success is vital. Analyze the competitor data you've found, compare it with your own, and set benchmarks in these key areas. This comparison will allow you to introduce targets for your business to achieve.
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