Key performance indicators are important metrics that can give you a snapshot of business performance.

Identifying and understanding the right KPIs can improve efficiency and responsiveness, pinpoint opportunities and problems, and help every business thrive. Here are just a few of the ways effective KPIs could help your company.

Business Health

Companies should monitor specific KPIs to monitor company health. These will vary between businesses, but some fundamental KPIs include:

Revenue

Revenue can fluctuate over weeks, months, and years. This may be due to seasonal changes, monthly sales trends, or market deviations. These fluctuations can highlight areas that need more attention as well as what is working so you can maintain or increase efforts.

Direct Expenses

Direct expenses are those that increase along with volume sold. Examples include everything from software to equipment and raw materials.

An effective KPI monitors your spending trends. By pinpointing when you spend the most each month or year, you can alter buying habits to spread the burden across a wider range. This improves cash flow.

Overhead

Tracking overhead as a KPI makes you aware of small increases that can often go unnoticed. While some may be beyond your control, many are simply missed. Adjustments can preserve cash flow or limit your exposure to unnecessary additional costs.

Gross & Net Profit Margin

Your gross profit margin measures how well your company balance income earned against direct expenses. Ideally, a gross profit margin KPI should trend upwards. However, when supplier costs increase this KPI can highlight it is time to adjust your own pricing.

A net profit margin KPI shows your actual earning after paying overhead and cost of services. A downward trend can highlight operational or spending issues that you need to address.

Track Your Progress Over Time

The right KPIs also help you measure your company’s progress. This can help you determine whether your short and long-term goals are on track. KPIs can also measure whether you need to adjust your business strategy, or not.

Time Initiatives According to Patterns

KPIs can demonstrate patterns over time. This is very useful as it allows you to use time and resources more wisely.

For instance, you may want to use a slow period to start a new sales initiative. You could also use this time to update critical systems, train employees, or review processes. Alternatively, your company could schedule fewer core activities during peak earning periods to increase sales.

Solve Problems & Explore Opportunities

KPIs can also help your business zero in on problem areas. For instance, overcoming a sales slump could involve setting KPIs to measure the number of outbound calls and client appointments.

Key performance indicators can also monitor the success of new opportunities. As an example, your company could test a new product on a select group of customers and then monitor their response.

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Clearly, effective KPIs are a tool every business needs. However, it can be difficult to know what to measure and when.

Luckily, an outsourced CFO has the proven financial background you need to determine the best possible key performance indicators for your business. They work collaboratively with your business to provide a first-class experience, at a fraction of the cost of an employee. Their scalable services can also meet your business needs as you grow.

If you’re interested in exploring outsourced CFO services, contact us for a free consultation. Let us help you succeed.