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13 essential metrics small businesses need to track

By on March 23, 2021 0

The advent of big data is a double-edged sword. For many businesses, increasing the amount of data results in more impactful information. For a small business, however, large amounts of data can be confusing: owners and managers may mistakenly place too much weight on certain data or overlook important information.

Prioritizing metrics is a much more streamlined method of determining how well a business is performing. But which parameters are “to know” and which are “good to know, but not essential”? Below, 13 experts from Forbes Financial Council Point out what metrics can really help small business owners assess the state of their business and improve their bottom line.

Photos courtesy of individual members.

1. Percentage of growth and profit

A key metric to track is growth and profit percentage. Just take your operating profit as a percentage of total sales and add it to the annualized growth rate. Goals can vary, but as a general rule the sum of growth and profit percentage should be greater than 40. Therefore, “healthy” businesses might have 40% profit and no growth or 60% growth and 20% operating losses (or negative profit of 20%). – Zack Cook,

2. Customer acquisition costs

I am surprised at how rarely small business owners keep their customer acquisition costs under control. You need to know how much it costs in dollars to acquire a new customer so that you can properly evaluate your products or services. In addition, this information is necessary if you are going to compare different marketing campaigns against each other. – Jeffrey Burg, Dobrusin Burg

3. Cash flow and income

Cash flow is a critical metric for every business entity, and it’s a critical factor for small businesses. Positive cash flow keeps your business alive and helps you earn profits. Every business needs cash flow to survive, generate income and grow. – Lijie Zhu, Dragon Gate Investment Partners

4. Profit and loss

Track your P&L statements (profit and loss). While there are many metrics to glean from the P&L, you need to track your business’s income and expenses over a specified period of time. As a business owner, you need to know if your income translates into real income. The P&L is also an excellent indicator of growth over time to maintain the company’s budget and achieve profitability. – Jared weitz, United Capital Source Inc.

5. The 80/20 of your business

One metric that can transform your business is tracking which product or service produces 80% of your revenue and can cost 20% of your time / overhead. Too often we increase our costs – whether it’s personnel or warehouse space – and thus reduce our margin by offering a variety of services and products. Instead, refine your killer product and spend more money to market it. – Felix Hartmann, Hartmann Capital

6. Debt / equity ratio

All small business owners need to watch their debt ratio. If you have $ 100,000 in equity and you owe the bank $ 400,000, then the bank owns 80% of your business! How many small business owners increase their debt to pay for personal expenses, make salary payments to owners, and make distributions to owners just to support the owner’s personal lifestyle? You cannot go your way to prosperity. – David Singleton, Seiler, Singleton & Associates, PA

7. Free cash flow for debt service

Opportunities to invest in your business can present themselves quickly. You must be prepared to understand your Free Cash Flow for Debt Service (AFFD) at all times. This is the amount you can easily pay for a new loan or other financing for your business after you factor in all of your other costs. You don’t want to borrow more than you can afford – always check your cash flow first! – Luz Urrutia, Opportunity Fund

8. Processing time

Processing time is the time it takes for the business owner to move the customer through the process from start to finish. Knowing this metric is essential for running your business effectively. Examining this metric alone can help you identify ways to speed up business throughput. – Justin goodbread, Heritage investors

9. Gross profit

Gross profit (GP) is everything. By effectively managing the GP, the owner knows what is left to “pay the bills”. By understanding what total overhead costs are, the owner knows which GP is needed to break even. And by knowing what GP’s requirements are (and what the traditional cost of goods sold margin averages are), it’s easy to calculate the required revenue. GP outreach brings visibility to this and more. – Brian Daniells, Entrepreneurial solutions

10. Monthly expenses

Let’s not overthink this one: How much money does your business spend in a given month? To effectively grow a business, you need to have a clear understanding of how much your business spends, where you spend it, and whether you can save money by streamlining inefficiencies. – Farhan Ahmad, Bento for business

11. Conversion rate

Your marketing efforts will mean nothing if no one converts. Everything you do should have this idea in mind. For example, let’s say you run an e-commerce jewelry store. You’ll need a strong Etsy presence, a Pinterest strategy, and Instagram ads, and your email marketing needs to be on point. You need fantastic customer service on top of that. All of these lead to new customers and repeat customers. – Jeff pitta, Search for health insurance plans

12. Lifetime value

Quantifying lifetime value can really help guide strategy. If you only track sales, you run the risk of neglecting expenses that reduce net profitability. And if you only track expenses, you might not be building your business for growth. But if you look at lifetime value, you can spend wisely on customers who will be valuable to your business well beyond their last transaction. – Ben gold, QuickBridge financing

13. Longevity

It might sound crazy, but for capitalization and business planning, longevity is an often overlooked metric. Yes, the longevity of the leaders of the company. We talk about savings, benefits, and even exit plans, but often without thinking about our own longevity. You can bet insurers and others are thinking about it, so small business owners should be too. – Scott Page, LifeGuide Partners

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