Whether your small business is run by just yourself or by a team of 10, you and your team can benefit from identifying and tracking metrics called KPIs, or key performance indicators. From helping your team understand what success looks like for your business, to giving you a clear view of how you’re trending over time, defining KPIs can have a big impact on your business.
KPI metrics for small businesses: Unlocking stronger performance and decision making.
When used effectively, KPI metrics can provide actionable insights to help with decision making or serve as targets for your teams to work towards.Tweet this
So, what is a KPI?
A key performance indicator (KPI) is a metric or measurable value that gauges how well a business is tracking against critical business objectives. When it comes to small business and KPIs, it is very important to ensure that you have a focused list of KPIs to maintain clarity on your biggest priorities and to not overwhelm your teams. When used effectively, KPI metrics can provide actionable insights to help with decision making or serve as targets for your teams to work towards.
One of the most challenging aspects of working with KPIs is the very first step—deciding what they are for your business. The best starting point is first deciding what your most important business objectives are—what goals are you trying to achieve? What focus areas make the biggest impact on your short-term and long-term success? Once you decide on your critical business objectives, you can then define KPIs that will help you measure and track progress towards those goals.
Let’s take a look at an example.
Jennifer runs an online candle business that has been growing predominantly through word of mouth—people sharing her candles on social media or referring their friends and family. While her business’s growth has been healthy, she notices that most of her customers are one-time customers—they buy her candles once, and most often, they don’t come back and place a second order. Jennifer understands that if she can get her customers to come back—even just for one additional order—she can accelerate the growth of her business meaningfully and efficiently.
Jennifer decides that for the next year, one of her main business objectives is improving customer retention. To effectively track that, she needs to define the right small business KPIs. After doing a bit of research, she decides to track percentage of orders that come from repeat customers on a monthly basis. Although there are more sophisticated ways of measuring this, like a cohort analysis, she goes with this method since this data is readily available in Shopify. For small businesses working with data for the first time, it’s important to be pragmatic simplicity in gathering the data / KPIs is critical.
Once you’ve defined the KPIs for your business, what’s next? Working with KPIs is a living, breathing process.
Set your goal for your KPI and define your timeline: Jennifer could set a goal of wanting to hit and maintain a 30% repeat customer rate and she hopes to get there in 6 months. You want to ensure the goal that you set is realistic—so be sure to take a historical view of what you’ve been able to achieve in the past. Nothing is more demoralizing for you and your team than constantly chasing unrealistic goals and falling short.
Build your strategy to work towards your KPI: to increase retention, Jennifer will (1) interview 10 customers to understand why they aren’t coming back, (2) design an email campaign that will automatically email customers 2 months after their purchase to remind them to come again, and (3) create a loyalty program to reward customers with discounts when they repeat purchase.
Revisit your KPIs regularly with your team: Jennifer establishes a monthly KPI tracking meeting with her business partner to discuss how they’re tracking against their goals and what learnings they might use to change and improve their strategy. She may even use KPIs to motivate her employees by pegging their individual goals to specific KPIs.
Use insights from KPI tracking to make key decisions. Let’s say after 6 months Jennifer and her team fall short of their 30% repeat customer rate—they’re hitting 20% or so on average. However, in their monthly review, Jennifer’s business partner points out that on the month that they launched a new candle scent, they hit 45% repeat customer rate. With the insight that new candle scent releases bring existing customers back, they decide to roll out a more aggressive new product drop strategy.
Getting started with integrating KPIs into the management of your small business can feel daunting at first, but it will get more comfortable with time. Ultimately, they can be an extremely helpful tool if used effectively—so don’t be afraid to get started with just a few and see what they can unlock for your team’s ownership, collaboration, and decision making.