You understand how to devise goals and a business strategy, but what financial KPIs do you use to inform your strategy?
You have a firm handle on the day-to-day running of your business and know how to get things done. But, you also know that getting things done isn’t enough: The long-term success of your business depends on big-picture thinking, grasping financial KPIs and acting like a CEO.
More importantly, it depends on:
- Having clear goals. You may, for example, have the goal of becoming the leading content marketer in your country.
- Stating measurable goals and crisp objectives. You could mention that you want to achieve “X” amount of revenue in the year.
- Building a strategy to help you achieve these goals and objectives. Your strategy is the map that guides your business and helps answer critical questions:
- Who are you going to target?
- What is your competitive advantage?
- What services will you provide?
- Listing tactics that form part of your strategy. For instance, to become a leading content marketer you may decide to build expertise by publishing thought leadership articles on LinkedIn.
The Importance of KPIs and Business Strategy
When it comes to tracking your business day-to-day, there are certain financial KPIs you should take pulse of. These include cash flow and even outstanding revenue.
While these KPIs may also inform your strategy, you might want to broaden your horizons and look at other financial indicators that inform your long-term strategy.
After all, KPIs help you measure here and now, but may not always show you unexplored opportunities or a longer-term picture.
So, besides tracking the KPIs that help you measure performance today, look at the following KPIs that will help you think and strategize like a CEO.
These metrics will help you:
- Determine whether (or not) you’re on track to reach your financial goals
- Evaluate the success of your strategy based on these key metrics
- Pinpoint areas in your business that may need improvement
- Identify any opportunities and challenges
- Assess whether your customers are happy or not
What Exactly Are the Most Important Financial KPIs That Inform Business Strategy?
Financial KPIs will vary from business-to-business, depending on your goals. However, we’ve identified five of the most important and most common ones that you should – at least – be tracking to ensure your business is on the right track.
1. REVENUE GROWTH
Sales growth is one of the most basic barometers of success for any business. You can calculate revenue growth in three simple steps:
- Track sales (and compile income reports with your favorite accounting software) from one period to the next
- Subtract the previous period’s revenue from the current period
- Divide that number by the total of the last period’s revenue
You’ll get revenue growth expresses as a percentage. The goal is to aim for positive growth. Negative growth tells you something is wrong and that you need to take corrective action.
For example, it may be that customers aren’t interested in buying your product or that you need to change the way you get clients.
2. INCOME SOURCES
You should also analyze your revenue streams: Revenue per client and service. This analysis will help you:
- Determine profitable customers and segments. For example, imagine you’re a copywriter who finds that the majority of your income comes from writing ebooks.
- Make informed decisions that will help you grow your business. Knowing that ebook writing is lucrative, you should look at marketing that service more aggressively (if you aren’t).
Pro Tip: To analyze your revenue streams use cloud accounting software – like FastBooks – that provides at-a-glance summaries of your income streams.