When it comes to business efficiency, you can’t just wing it and hope things work out. To really get a sense of how your business is doing and dive deep into analysis, you need to track the right Key Performance Indicators (KPIs). These numbers vary dramatically from business to business, depending on a range of factors, but they’ll tell you quickly whether your operations are running like a well-oiled machine or if they’re sputtering. Here are 5 basic KPIs that are must-haves for your company to stay smooth, efficient, and profitable.
1. Revenue per Employee
This one’s a no-brainer. Divide your total revenue by the number of employees to see how much each team member is bringing in. If this number’s looking scrawny, it might be time to rethink your hiring strategy or give your team a productivity boost. After all, you’re paying them to make money, not just keep the seats warm.
2. Operating Margin
Operating margin shows how much profit you’re making from your core business before taxes and interest get involved. It’s calculated by dividing operating profit by revenue. A healthy margin means you’re keeping costs in check and actually making money—not just playing Monopoly with real cash.
3. Customer Retention Rate
If you’re not keeping your customers around, you’re basically throwing money out the window. Customer retention rate tracks how well you’re able to keep your customers coming back for more. The higher the rate, the better. If your retention is low, it’s time to rethink your customer service and loyalty strategies, or you might end up losing them to the competition.
4. Customer Acquisition Cost (CAC)
How much are you spending to get each new customer? Divide your marketing and sales costs by the number of new customers acquired, and you’ve got your CAC. Keeping this number low while still bringing in new business is the secret sauce to profitability—otherwise, you’re just burning cash for fun.
5. Return on Investment (ROI)
ROI is the classic KPI that answers the age-old question: “Was that really worth it?” It’s calculated by dividing net profit by the cost of investment. If your ROI is looking bleak, you might want to rethink your strategy before you invest in that next “game-changing” idea—especially if it’s coming from Steve in marketing.
There you have it—the top 5 KPIs you need to keep your business efficient and profitable. Track these numbers like your accountant tracks receipts, and you’ll be laughing all the way to the bank.
