If you have a business, you have to be tracking your numbers. Some numbers are easy, like how much money you make before you pay for anything else, how much your expenses are, and how much you charge for each client.
But more than that, there are different ways to slice and dice that information, to understand the true workings of your business. A way of doing this is using KPI's, or Key Performance Indicators.
The official definition of KPI's is:a quantifiable measure used to evaluate the success of an organization, employee, etc. in meeting objectives for performance.
You may have heard of things like SMART goals (specific, measurable, actionable, realistic, and based in time) but this goes even further than just goals, it's about understanding where you have been, where you are at, and where you are going, currently.
Every business is different, and businesses that produce things versus those that are service based will have different KPI's. You will also have KPI's for different aspects of your business - from financial to marketing, to human resource performance, to how you fit into the ecosystem of other companies in your same sector.
The most important thing about KPI's is that you should be creating these indicator formulas and metrics based on the information you need and that makes sense for your business type.
A lot of these numbers can come from your financial worksheets, especially when it comes to your profit and loss. Your profit and loss is a tracking of all the income sources of your business, the direct costs that can be attributed to the creation of that income (if you have contractors or materials costs) and the business expenses (overhead). When you track your gross revenue, gross profit, expenses, and net profit, you have a world of information. While it isn't a complete picture, it is still helpful to see the financial health of your business as opposed to just tracking numbers.
Some important financial KPI's include:
Growth in Revenue
Net Profit Margin
Gross Profit Margin
Expense Percentages as a Whole
Cost of Goods Sold
In addition to tracking, you should also be setting expectations and goals for these indicators. It's not enough to just know what they currently are, but also what you want them to look like, and what they are tracking for in the future. If your KPI's are not matching what you expect, then you also need a plan to get them on track. If they are exceeding your expectations, then you should also know what is happening to make that improvement so you can take that success and apply it to other areas in your business.
If you need a little help getting started with Financial KPI's, I've created a profit and loss worksheet that actually tracks (and charts) some important metrics in your business, if you were interested in grabbing your own copy, you can get it from my Etsy store