Creating the right KPIs (Key Performance Indicators) can be a crucial step in helping your business grow and develop more strategically. However, it must be acknowledged that analyzing business data can sometimes feel challenging.
You probably already know that monitoring key aspects of your business is essential for growth. However, as a small business owner, there are naturally many things you need to keep an eye on every day.
This is where KPIs come in, helping you measure and improve your business without getting overwhelmed by complex data. Read the full explanation in this article.
What Is a KPI?
Sebelum membahas cara membuat KPI, kamu perlu tahu dulu pengertiannya. KPI atau Indikator Kinerja Utama (IKU) adalah nilai-nilai yang dapat diukur untuk menunjukkan kesehatan bisnis dan kemajuan kamu dalam mencapai tujuan.
By monitoring KPIs, you can determine whether your business strategies are effective and identify which areas need improvement.
For example, if sales decline, KPIs can help you identify whether the issue lies in promotion, pricing, or customer satisfaction. This allows you to address the problem more quickly before it becomes a bigger issue.
How to Create the Right KPIs for Small Businesses
There is no single list of KPIs that fits every business. Each company has different needs and goals. However, there are several simple steps you can follow to determine the KPIs that best suit your business.
1. Define Your Business Goals
The first step in creating KPIs is to understand your business goals. Do you want to increase sales, expand your customer base, maintain customer satisfaction, or improve operational efficiency?
For example, if your goal is to improve customer satisfaction, your KPIs could include customer satisfaction scores or the number of repeat customers. However, if your objective is to increase profitability, KPIs such as net profit and net profit margin can be used.
Defining your goals from the start will help you focus on the metrics that truly matter.
2. Adjust KPIs to Your Business Stage
The KPIs you use should align with your business’s stage of development.
New businesses typically focus on aspects like cash flow and initial sales. For example, you can track Days Sales Outstanding (DSO), which measures how quickly you can convert accounts receivable into cash.
Meanwhile, more established businesses may focus more on customer retention and team productivity. Therefore, align your KPIs with your current business conditions and priorities.
3. Use a Mix of Leading and Lagging Indicators
You should have a combination of leading indicators and lagging indicators.
Leading indicators help you predict future outcomes, such as customer satisfaction levels or the number of new prospects. Meanwhile, lagging indicators show the final results, such as net profit or total sales.
For example, customer satisfaction (a leading indicator) can signal that sales will increase in the future, while profit (a lagging indicator) shows how well your business performed over a specific period.
5 Key KPIs You Must Monitor
Here are five key KPIs that are useful for almost every small business.
1. Net Profit and How to Calculate It
Net profit indicates whether your business is earning more money than it spends. The formula is:
Net Profit = Revenue – Expenses
By monitoring net profit, you can determine whether the strategies you’re implementing are truly profitable or need improvement.
2. Net Profit Margin
Profit margin helps you understand how efficiently your business generates profit from revenue. The formula is:
Net Profit Margin = Net Profit ÷ Revenue
If your profit margin increases year over year, it means your business is becoming more efficient at managing costs.
3. Quick Ratio
Cash flow is the lifeblood of a small business. The quick ratio can help you assess whether your cash and current assets are sufficient to cover short-term liabilities. The formula is:
(Cash + Accounts Receivable + Current Securities) ÷ Current Liabilities
If the result is 1 or higher, it means your business is cash-healthy.
4. Customer Acquisition Cost (CAC)
CAC indicates how much it costs you to acquire a new customer. The formula is:
(Sales Expenses + Marketing Expenses) ÷ Number of New Customers
Knowing your CAC helps you evaluate whether your marketing strategies are efficient or need adjustment.
5. Customer Lifetime Value (CLV)
This KPI indicates the average value generated from a customer over the time they continue purchasing your products or services. The simple formula is:
Customer Lifetime Value = Average Purchase × Purchase Frequency × Customer Relationship Duration
Knowing this value helps you determine how much you should reasonably spend to retain customers.
Setting Targets for Your KPIs
After you have defined your KPIs, the next step is to set clear and realistic targets.
- Choose specific numbers. For example, aim to increase sales by 10% within one year.
- Ensure the targets are realistic. Make sure the target is realistic. Don’t set it too high so it remains achievable.
- Communicate it with your team. Ensure everyone understands the goal and why the target is important.
- Review it regularly. Check your KPI results every month or quarter so you can adjust your strategy more quickly.
Use Tools to Track Your KPIs
You don’t need to track KPIs manually on a spreadsheet. There are many digital tools that can help, such as:
- Cloud accounting software to automatically view financial reports.
- Google Analytics to monitor traffic and conversions on your online store.
- Social media scheduling tools to track customer engagement on Instagram, TikTok, or Facebook.
With these tools, you can focus more on growing your business without being burdened by complex data analysis.
Align Your Team and Schedule Reviews
Ensure that everyone in your business—from finance and operations to marketing—understands and monitors the same KPIs. Schedule regular review sessions, for example, monthly, to go over KPI results. This way, you can take immediate action if any areas need improvement.
Grow Your Business with an Online Store on Labamu
After learning how to create KPIs and monitor your business performance, you can take it a step further by opening an online store on Labamu. With this feature, you can reach a wider market and sell your products anytime, anywhere.
Simply upload product details such as name, photos, price, and category, then share your digital catalog on social media or WhatsApp. Customers can order directly from your business without any hassle!
Steps to Create an Online Store on Labamu:
- Click the “kelola” menu
- Select the “Produk” feature
- Click “Bagikan Toko Online-mu”
- Enter the product details and choose the social media platforms to share.
With an online store, you not only have clear KPI data but also a system ready to help your business grow faster.
In conclusion, understanding how to create and properly implement KPIs will help you gain a clearer picture of your business’s performance, as KPIs make every business step more focused, efficient, and measurable. So don’t wait any longer—start setting KPIs that align with your business goals and use digital tools like Labamu to easily monitor the results.
