Measuring the progress of your business can be done in several ways – at a big-picture level, you might look at sales and sales growth, profit or the size of dividends you are taking out of the business.
However, drilling down into the detail of your business to see how various parts are performing requires a more thorough approach.
One of the most common tools to use are key performance indicators or KPIs, which are essentially simple measures that provide a snapshot of how your company is going.
Some common KPIs include:
- Sales as a percentage of enquires. This measures how effective your sales process is, and provides an indicator of how many leads you need to grow or even maintain revenue.
- Profits as a percentage of sales. This measures the profit margin your business is running at. A crucial guide to the health of your business.
- Debtor days. This KPI measures the number of days it takes for the money earned from sales to actually hit your bank account; the lower the number is, the better. It is calculated by dividing accounts receivable by sales, and multiplying this by 365.
- Stock turnover ratio. This indicator allows you to see how regularly you are turning over your stock. The higher the number the better, as you don’t want to be left with obsolete or slow moving inventory. It is calculated by dividing your cost of goods sold by average stock.
The KPIs you use in your business will depend greatly on your industry and your business model, so seek assistance to get the best KPIs for you.