Key Performance Indicators (KPIs) are measurable values that help businesses track progress towards their goals and can be used to measure the success of a specific project, department, or the overall business performance.
How do you calculate and measure KPIs in your business?
We share 25 different KPI calculations you can use in your business to help you measure your performance.
These are grouped below in 4 key areas of business (click on images below to access and download KPI calculation worksheet packs).
Our top 10 KPIs to track in your business
The KPIs to track in your business will all depend on the nature of the business and your specific goals. However, here are our top 10 KPIs for businesses to track:
(If calculations are not provided below, you will find them in the download packs above)
Lifetime value of a client (LTV)
LTV shows the total financial benefit you can expect from a client over the course of your entire relationship with them.
Cost of client acquisition (CAC)
The metric tells you the average amount your business is spending to acquire a new customer/client.
To calculate LTV:CAC = (Customer Lifetime Value) / (Customer Acquisition Cost). This metric is useful for assessing the overall effectiveness of your customer acquisition strategy and determining whether you are generating enough value from your customers/clients to justify the cost of acquiring them.
Sales growth rate / revenue growth rate
Measures the ability to increase revenue over a fixed period of time.
Gross profit margin
Measures how much each dollar of sales is left as profit after deducting cost of goods sold.
A profitability measure indicating how much each dollar of sales is left after both costs of goods sold and operating expenses are considered.
Break-even point (BEP) or sales required to hit target profit
Calculate the point at which total revenue equals total expenses – at the break-even point, there is no profit or loss.
Working capital required by $100 of additional revenue
Working capital is the amount of money that a company needs to cover its day-to-day operational expenses and to fund its current assets, such as inventory and accounts receivable. When a company generates additional revenue, it often needs to invest in additional working capital to support that growth. The amount of working capital required to support each dollar of additional revenue is an important metric for businesses to monitor, as it can help them understand the amount of cash they need to have on hand to support their growth.
Inventory turnover / stock turnover
The average number of times that inventory/stock sells in a given period.
Return on capital %
Return on capital (ROC) is a financial ratio that measures how efficiently a company generates profits from the capital it has invested in its business. It represents the percentage return that a company earns on the total capital employed, including both debt and equity. The formula for calculating return on capital is: ROC = (Net Operating Profit after Tax) / (Total Capital Employed). A higher ROC indicates that a company is generating more profits from the capital it has invested in its business, while a lower ROC suggests that the company is less efficient in using its capital to generate profits.
KPIs are important to your business for several reasons
- Tracking Progress: KPIs allow business owners and your management team to track progress towards your goals and ensure that you are on track to meet your objectives.
This helps to identify any issues that may be preventing you or your team from achieving your goals and allows individuals to take corrective action.
Decision-making: KPIs provide valuable insights that help you make informed decisions. By analysing KPIs, business owners and management teams can identify areas where they are performing well, and areas where they need to improve.
Performance Management: KPIs are an important tool for managing employee performance. By setting specific KPIs for each department or employee, businesses can track their performance and provide feedback on areas where they are performing well, and areas where they need to improve.
Accountability: KPIs provide a framework for accountability. By setting specific targets and tracking progress towards those targets, owners and management can hold employees and departments accountable for their performance.
How can Walsh Accountants help?
The most important KPIs to track in your business will vary depending on your goals and priorities. It’s important to identify the KPIs that are most relevant to your business and track them regularly to ensure that your business is on track to meet your goals and objectives.
If you need some help to define your goals and objectives, and to know which KPI’s to use to track your progress, our Focus Advisory team is here to help.
Contact us today for a discussion based on your personal circumstances and what you would like to achieve in your business.