Congratulations on your new business! Good things are coming your way. You’ve got your collateral, you’ve leased a space, have a few employees and a great product. You’re ready! But now the real work begins. Running a business isn’t just getting everything started and then sitting back and watching the money come in. Hopefully, the money will start coming, but so will your expenses. So, what should you be looking for when you’re starting a new business? What are the best startup KPIs that make sure your business is heading in the right direction?
Key Performance Indicators
All businesses, whether they’ve been around for decades, or just starting out, should have a basic set of Key Performance Indicators that they are keeping track of. These KPIs help to measure the success of the business, and they may differ from one business to another.
If you just started a new business, you will want to use indicators that will give insight into your business’s progress which will allow you to estimate your future growth. You’ll also want to use indicators that will identify areas where you may need to improve. Here are the top 5 startup KPIs we suggest you keep track of.
1 – Cash Balance
When you’re starting a new business, you want to make sure your cash balance is growing so your first Key Performance Indicator will be your cash balance. Look at your cash balance on the same day every month and be consistent. If you aren’t consistent on the date you’re tracking you will get incorrect data.
For example: If you checked your balance on the 20th of last month, and then checked it again on the 15th of this month, but you run your payroll on the 17th of each month, your cash balance is going to look higher on the 15th because you haven’t run payroll yet. This will give you a false sense of an increase in revenue. So be consistent with the date you check.
2 – Profit per Product or Customer
Your second Key Performance Indicator will be keeping track of your profit per product, or profit per customer. To do that you want to take your revenue amount and then subtract the expenses that went into delivering the product or service, which gives you profit. Then divide that profit by the number of products sold or customers gained.
New business owners tend to discount their product or their services just to get work, but this does no good if you aren’t receiving a profit.
When my husband first started his painting business, we desperately needed the work. He was always afraid of losing the bid to another painter, so he’d put together a list of materials needed for the job, how much time it would take to complete it and come up with a fair bid amount… then highly discount it. He’d win the bid, but remember, the reason we desperately needed the work was because we desperately needed the money. And since he was constantly under-bidding it was actually costing us money for him to work.
Keeping track of his profit per customer would have saved us in the beginning. Eventually, the referrals started coming and he had more work than he could handle. His confidence grew and he started bidding what he thought was fair… without the discount… and he started making a profit.
Profit per product is an essential KPI for startups. If you’re not making a profit, you’re just running your business into the ground. If you have a quality product, be confident, don’t discount it, and you will make a profit.
3 – Return on Marketing
When your business is just starting, marketing will help you get the word out that you exist. Marketing also costs money. The third KPI you should be paying attention to is how much money you’re putting into marketing vs how much you are getting out of it. Spending $1,000 on a billboard at the edge of town with no traffic that brings in one travelling customer that purchases a candy bar and then drives off into the sunset never to be seen again, is probably not giving you a great return on your investment.
Ever wonder why companies ask, “How did you hear about us?” They’re keeping track of which marketing campaigns are giving them the best return for their money.
Networking is a great way to spread the word you’re in business. But keep in mind that not all networking is created equal. Networking doesn’t work for every business, so keep track of what works for you, and what doesn’t so you can make adjustments.
4 – Break-Even Point
Your break-even point is making sure your revenue this month equals at least your expenses for the month. The point where you didn’t make any profit, but you didn’t lose any money either is your break-even point. It will fluctuate each month so track it each month and that’s how you’ll know if your business is growing, when your revenue starts increasing over the break-even point.
5 – Expenses
The last KPI for a startup business is keeping track of your expenses. As businesses grow, expenses often increase at a faster pace than the income. You want to set boundaries that will help you control your expenses.
In John’s book, Profit First for Microgyms, he has you ask, “Is this expense productive or unproductive for my business?”
Keith Cunningham, a great business author, thinker, and coach, clarifies it. “Is this expense helping me to add customers, or helping me to retain customers?” Every expense that you take on as a startup, you better be able to say yes to one of those 2 questions. If you can’t, don’t spend the money!
You should revisit all your expenses every single month. Maybe at first you have an idea and you can picture how to make money off an expense, but then life happens, things change, and you’re not giving it the time and attention it needs so the expense is no longer productive.
Growing an Existing Business
What if you’ve been a business owner for years and want to expand your empire? Are the metrics different from the startup KPIs? If you are trying to grow an existing business, you should be tracking these same Key Performance Indicators. Whether you want to grow a new business or grow a business that’s been in your family for generations, the result you are looking for is the same. Growth is growth.
Sometimes, it’s even more important to keep track of these metrics as an existing business because you may have existing profits that might help you float through a couple bad decisions. But if you’re trying to grow, you don’t want to float, you want to swim full speed ahead.
Cash Balance, Profit per Product or Customer, Return on Marketing, Break-Even Point, and asking if this expense is helping you to add or retain customers are the best KPIs for any business wanting to grow, whether you’ve been in business for years or you’re a startup. Review these five KPIs consistently and diligently.
If you aren’t using a basic set of KPIs you’ll be left with making gut decisions instead of relying on actual data and you won’t know whether your business is growing or dying.
Download our free list of 32 KPIs for inspiration on other things you might want to track for your new business.
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