Know Your Business’ KPIs – Momma's Money Tree

You’ve started a venture, and business is good. There’s a healthy stream of customers with apparent revenue to match. Things are looking up, right? Maybe, but you can’t really be sure without running the numbers… And the keys to growing and scaling your business lay in a jungle of arithmetic called KPIs, key performance indicators.

What Are KPIs?

Put simply, KPIs are measures that track the performance of an enterprise in different areas. By tracking various performance indicators, management can determine if a department or sector is meeting its goals. Depending on who is asked, a business person might be advised of quite a few KPIs. Tracking all of them wouldn’t be a time-saving option. Instead, it’s important to track the metrics that are most important to the operation of your particular line of business.

KPIs To Keep In Mind

If you aren’t already monitoring them, you’ll probably want to start by following the Revenue, Expenses, and Net Profit of your business. By performing month-to-month and year-over-year comparisons, you’ll identify trends in the financial performance of your enterprise.

Revenue = Total Income [for time period] – (Customer Returns + Reimbursements) [during same time period]
Expenses = Total Operating Expenses [for a time period]
Net Profit = Revenue – Expenses [during the same time period]

As your business grows in scale, you’ll probably want to take more advanced indicators into consideration. If you are using paid advertising to generate sales, your KPIs will likely expand to include Customer Acquisition Cost, Customer Retention Rate, and Lifetime Customer Value. It should be noted that there are many ways to calculate Lifetime Customer Value. The formula below is one of the simpler methods.

Customer Acquisition Cost = Cost of Acquiring New Customers [during a time period] ÷ Number of Customers Acquired [during same time period]
Customer Retention Rate = 100 x ((Ending Number of Customers [in a time period] – New Number of Customers [during same time period]) ÷ Starting Number of Customers [during same time period])
Lifetime Customer Value = Average Purchase Value x Average Number of Purchases [per time period] x Average Customer Retention Time [per time period]

As was mentioned earlier, this list of key performance indicators is by no means exhaustive. There are indicators to track lead conversion, employee satisfaction, customer happiness, and much more. To help you explore more options, we’ve included links to a few articles that cover the jungle of key performance indicators in greater depth. (Happy hunting!) 😊

“For which of you, intending to build a tower, does not sit down first and count the cost, whether he has enough to finish it — lest, after he has laid the foundation, and is not able to finish, all who see it begin to mock him, saying, ‘This man began to build and was not able to finish’?”

– Luke 14:28-30 [NKJV]

D’Loreyn Walker, MD is a Bible-based business and finance coach, the author of The Proverbs 31 Millionaire, the founder of Momma’s Money Tree, a retired General and Child-Adolescent Psychiatrist, and a health educator.

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