3 KPIs Every Business Should Track

Wondering if you’re keeping an eye on the most crucial KPIs for your business? Find out which three are essential and how to start tracking them if you haven’t already.

To understand if your business is on the right path, you need to define and monitor key performance indicators (KPIs). Identifying the right KPIs is usually the hard part, but tracking them doesn’t have to be.

Types of KPIs to Track

There are two main categories of KPIs every business should monitor: industry-specific KPIs and universal KPIs. This blog focuses on the universal KPIs that are vital for any business.

Profit Margin

The gross profit margin is one of the most critical KPIs. After all, no profit, then no business – right?

Believe it or not, some companies spend more than they earn, which might be manageable in the short term but can lead to problems very quickly. That’s why monitoring your gross profit margin is crucial. Here’s how you calculate it:

• Divide your gross profit by gross sales.
• The resulting number is your profit margin in fractional form, which you can multiply by 100 to get a percentage.

If your profit margin is going up, that’s a positive sign! But if it’s lower compared to the same quarter of last year… maybe it’s time to make some adjustments.

💡To boost your profit margin, focus on two main areas based on the gross profit formula – gross sales minus the cost of goods sold (COGS):

• Decrease COGS: Cut costs by saving on suppliers, utilities, and other expenses.
• Increase Sales: Enhance your products or services to justify higher prices.

Revenue Ratio

To understand if your business is moving in the right direction, look at your revenue ratio. This KPI measures your company’s growth over a specific period. 

But what is revenue ratio?

• The revenue ratio compares the current period’s revenue to the same period the previous year.
• A ratio higher than 1.0 indicates growth, with higher numbers reflecting faster growth.

💡To improve your revenue ratio, focus on boosting sales or revenue.

Conversion Rate

Thanks to the internet and digital tools, tracking conversion rates is now simpler than ever. From paid ads, to clicked links and products bought, this KPI is crucial for understanding how effective your marketing efforts are.

How to calculate conversion rate?

• Calculate the conversion rate by dividing the number of conversions by the total number of leads (e.g., those who saw your ad).

💡 Conversion rates offer valuable insights, enabling you to optimise your strategies for better results.

Track Everything

The most important KPIs can vary depending on your business, but key ones to consider include profit margin and revenue ratio. In today’s world, monitoring specific conversion rates is also highly beneficial.

By tracking these KPIs, you’ll gain valuable insights into your business’s health, enabling you to develop strategies to enhance profitability. Want to know more about KPIs? Give us a call or send us an email, and our team of professional accountants in Bedford can help.