Effective Key Performance Measures for Small Business

332Rules for small business are different. When you measure International corporations, then measuring such KPIs (Key Performance Indicators) as market share and global client satisfaction rate make sense. When you are small, it doesn’t make sense to use tools that are promoted widely in books on business performance management. What you need to do is to focus on what matters and what works for your business.

“Strategy” is NOT too big of idea for a small business

What is business performance management supposed to accomplish? For example, Balanced Scorecard is normally designed to align business actions with business strategy. KPIs are a part of this management system that is responsible for the measurement portion.

What about small business? I believe that small businesses are as ambitious as big ones; or probably even more so.

My recommendation here is that when you start thinking about KPIs try to start thinking about your strategy and business goals. You don’t need just KPIs, as they should be linked to some business goals as well. Without this alignment, you won’t be moving in the right direction, because you don’t even know what is the right direction in your respective case.

Don’t just implement KPIs; think about implementation of Balanced Scorecard or a similar business performance management system.

KPIs are warning signals

I always recommend to start the project small. If ideas about Balanced Scorecard mentioned above sound like something difficult to do right now, then start small.

The basic usage of KPIs in small business is using them as warning signals. Have KPI for your monthly or weekly sales. This indicator will give you a yes/no answer for the question of, “am I’m doing well this week?”.

Once you have this warning signal (hopefully you’ll have it on time), you will be able to act accordingly.


Focus on what matters

I know that there are many possible measures that you can introduce in your business. Let me share with you the truth about KPIs – they exist because we can measure something. It doesn’t matter that we measure it correctly, it doesn’t matter that we know what to do with this measurement, and it doesn’t matter that it will help us in any way.

For example, Google Analytics suggest a huge number of measures. Don’t use something just because you can measure it. Choose KPIs that will impact your business and link these KPIs to action or to some idea.

Google reveals some of its algorithm and says that websites will be ranked higher if people spend more time there. It’s obvious that with higher quality content, people will spend more time on your site. Additionally, you will have a higher position in the search engine ranking if you introduce the “Time on site” KPI to your dashboard.

You might find in Google Analytics less useful KPIs. For example, measuring the number of monthly visitors sounds like a must-have KPI, but if you measure it, you will not even notice next Penguin! As just checking monthly visitors won’t give you any information. Instead, what you need to do is to compare your current results to historical ones. What is important here is growth\decrease of visitors on a monthly or quarterly basis.

KPIs for Finance and Marketing

There are a huge number of financial KPIs. Most of them are not applicable in small business, as they were designed for International businesses.

I’d like to mention here 2 KPIs from the financial world that you can use with success.

Average price to get a client

Average profit from client during average client’s lifetime

These 2 indicators will give you something to think about in your marketing. If you pay 2$ to get 1 prospect and 1% of prospects are converted into buying clients, then your price to get a client is 200$. Now what is the average profit you have from your client? Some just buy something cheap and forget about you, while others buy from you for a longer time and might bring you thousands during one year.


 

Small business is often a fight between saving revenue for the next year or doing marketing today. These 2 KPIs will help you a lot with your decision to choose the appropriate marketing tool. But be sure to revise these KPIs once you have customers attracted by this new marketing method, as their values will change significantly.

Start your KPIs project and choose KPIs with the result in mind. Think about what you will measure and how these results will help to improve your business.

Aleksey Savkin is a founder of AKS-Labs, vendor of BSC Designer software and tools for software engineers. His areas of expertise are remote team management, Balanced Scorecard, KPIs, business performance management, general info-business development and marketing. Aleksey is the author of a number of articles and books on Balanced Scorecard. He runs Balanced Scorecard seminars in the Moscow Business School (MBS). Image courtesy Richard-G

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