Why use business KPIs
Key performance indicators (KPIs) allow you to measure important aspects of your business. They show how it’s performing, and can be used to track progress towards goals. KPIs can be related to:
- efficiency – to ensure you’re not wasting effort
- customer satisfaction – to ensure they keep coming back
- sustainability – to manage impact on people and planet
- finances – to grow the business
As this guide is focused on growth, the following KPI examples deal with finances.
Common financial KPIs
KPI examples for financial growth:
- Revenue growth: Lots of businesses want to get more money in the door, either from making more sales or making higher-priced sales. Ideally this revenue growth will filter through to increased profits.
- Profit growth: Why wouldn’t you want more money in your pocket, after costs and taxes are deducted? Bigger profits means bigger rewards for your efforts. This is money you can use to finance further growth, or money you can keep as an owner.
- Profit margins: This is the portion of sales income that stays in the business after costs have been paid. This number indicates how effective your business is at generating profit from revenue and can help ensure your pricing is right.
- Cash flow: Improved cash flow lets you pay bills on time, reduces your stress levels over meeting payroll (or being able to pay yourself), and allows you to set aside money for growth. Our free cash flow projection template can help with this.
- Accounts receivable turnover: This shows how many invoices are paid in a given period and indicates how good you are at getting paid. Faster accounts receivable turnover improves other indicators like cash flow.
While these financial KPI examples are often used in any type of businesses, certain industries have additional measurements.
Common retail KPI examples:
- Average transaction value: Shows how much customers spend when they make a purchase with you.
- Inventory turnover: Tells you how much stock is reordered in a given time period. A low turnover means you might be over-ordering. A high turnover means you run the risk of running out of inventory.
- Foot traffic: This is the number of people who walk into your shop and can measure the attractiveness of your location, shopfront, and the success of your advertising.
Common manufacturing KPI examples:
- On-time delivery: Shows the percentage of orders delivered on time. The aim is to have 100% delivered on time in order to maintain customer satisfaction and trust.
- Production volume: Indicates how much you’re able to produce over a certain period. It shows how much demand you can meet.
- Production costs: Measures all the contributing costs of delivering your goods or services. It can reveal where money might be saved, for example, by finding an alternative supplier.
Consulting/professional service KPIs
Common professional services KPI examples:
- Project overrun: This shows how your actual costs (or hours) compared to what you budgeted. Overruns are red flags for estimating or project management problems.
- Utilization: Tells you what percentage of your total available hours you’re spending on billable projects. Too low a percentage could indicate your admin needs streamlining.
- Revenue per billable consultant: This is a measurement of productivity. Decreases in revenue per consultant can point to resourcing problems.
Construction industry KPIs
Common construction KPI examples:
- Number of defects: This shows how many faults need fixing. Defects cut into your profitability and can diminish customer satisfaction.
- Planned hours versus actual hours: Higher actual hours will mean labour costs are eating into your profit margin.
- Cost variance: Tells you your actual costs compared to what you budgeted. Keeping track will help you better budget for your next project.
Choosing the right KPI
Whether you use some of these business KPI examples or choose others, make sure your KPIs are understandable, relevant, shared and balanced.
Start by measuring your current level of performance as a benchmark. Set a goal to improve. Measure and report on your progress as you go. If progress is slow, dig around to find out why.
Disclaimer: Xero does not provide accounting, tax, business or legal advice. This guide has been provided for information purposes only. You should consult your own professional advisors for advice directly relating to your business or before taking action in relation to any of the provided content.
Growing your business
Are you ready to drop the hammer and take your business to the next level? Let’s look at how to grow.
- Stages of business growth
Before you leap into growth, reflect on where you’ve come from. Find out the stage of business growth you’re at.
- Write a business development plan
Now that you’re in the growth stage of your business, set things in motion with a business development plan.
- Business KPI examples
Understanding your business performance will help you grow. Check out common examples of small business KPIs.
- How to increase sales revenue
Increasing sales revenue is one obvious way to help grow your business. But how do you sell more?
- Expand your business into new markets
You can grow your business by selling more things to more people, or fewer things to fewer people. Let’s look at how.
- Tools and guides for your business
You’re all set to grow your business. But there’s so much to keep track of. Xero’s got resources and solutions to help.
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