Do you know which metrics and key performance indicators (KPIs) to track in your business? Pathfinder Solutions are here to help you identify and set up a customised KPI dashboard to manage your company’s future path.
Successfully navigating the course of your business and making sure it’s profitable is a crucial best practice habit. It’s easier to manage this when you have access to the most accurate and timely information and data about your performance.
Tracking specific metrics and key performance indicators (KPIs) allows you to see how you’re performing against your targets – so you can take action to improve performance, sales, growth and profitability.
But which KPIs should you be tracking in your business? Here are our initial suggestions.
Sales and conversion rates
An obvious one, to begin with, is the number of sales you’re making each month. You’ll have set a target in your business plan, so it’s important to record each sale and see how reality stacks up against theory.
It’s also important to log and track the drivers that lead to these sales. How many sales enquiries are you receiving, and from which sources? How many of these enquiries are being converted into actual sales? How many customers are being engaged by your marketing campaigns, and is this engagement leading to interest in your products or services?
The more detail you can glean from your sales and marketing activity, the more forensic you can get with which campaigns deliver the most effective ROI.
Sales revenue and other revenues
When customers buy your goods, that creates income (or revenue) for the business. Ultimately, no business can succeed unless it’s generating enough revenue to keep the wheels turning. So, tracking your sales revenue is a vital measure of your financial health.
Tracking your various revenue streams over time keeps you in control of your finances and helps you make the right decisions. You can track performance against your revenue targets, forecast how much working capital you’ll have at a future point in time, and see if there’s enough cash in the bank to fund your projects and growth plans.
Cashflow and ongoing cash position
Good cashflow management is all about balancing the process of cash coming into the business and cash going out of the business. Recording and monitoring your cash position is easy with the latest cloud accounting software and cashflow apps, so there’s no excuse for not having up-to-date information at your fingertips.
Ideally, and obviously, you want the business to be in a positive cashflow position, with more cash coming in than going out. But to achieve this, it’s helpful to see these cash inflows and outflows in real-time. With current metrics on your cashflow position, you can make informed decisions about spending, payment of bills and where additional cash and funding may be needed.
Debtor days and aged debt
When customers fail to pay your invoice on time, that creates an aged debt – money that you should have received but which has yet to be paid. An aged debtor report shows you which invoices are unpaid, which customers haven’t paid, and the total size of this debt.
Your debtor days number is a metric that shows the average number of days it takes your customers to pay you. Anything above 45 days is bad news, so you want to aim to keep this number between 14 to 30 days, if possible. A large amount of aged debt will leave a hole in your cashflow – and that can quickly start to impact the day-to-day running of the business.
Gross profit margin
Generating a profit is crucial to the continued success of your business, and therefore you should have metrics to measure your profitability.
One common way to do this is by tracking your gross profit margin. This metric shows the amount of profit made before you deduct things like overheads and the cost of goods sold (COGS), shown as a percentage. The formula for calculating your gross profit margin looks like this:
Gross Profit Margin = Gross Revenue minus COGS, divided by Net Revenue, multiplied by 100
• Deduct your COGS value from your gross revenue to find your gross profit.
• Divide this gross profit by your revenue.
• Multiply the resulting number by 100 to get a percentage.
This is your gross profit margin as a percentage of gross profit. Somewhere between 50% to 70% is healthy, but aim for as big a margin as possible
These are just our financial starting points, and, depending on the nature of your business, you may want and need other KPIs in place. Keeping a close eye on these financial metrics and other pertinent KPIs gives you the optimum insight into the performance of your business.
We’d welcome the chance to chat about how Pathfinder Solutions can help you put these essential trackers in place. Please do get in touch.
About Pathfinder Solutions
Pathfinder Solutions advisory team members have either owned or managed businesses, or are investors themselves, so we know first-hand the challenges you face in your world.
Sure we’re Accountants, but the best solutions in business come from focusing on more than just the numbers. Our real-world business experience delivers just that.
Call us for an obligation-free chat, we’d love to help!