Analytics

9 Small Business Performance Metrics Every Owner Should Monitor for Success

What small business performance metrics should you track as an SME executive? Consider watching these 9 metrics, as recommended by 25+ experts.

Melissa King Melissa King on August 9, 2021 (last modified on August 6, 2021) • 12 minute read

No matter how small your business is, you can benefit from measuring its performance metrics. Thanks to today’s analytics technology, it’s simple and affordable to track your KPIs. Plus, as your business grows, it’ll become easier to look for areas of improvement.

But, where do you even start? With so many metrics out there to track, which ones should you prioritize?

Let’s go over the basics of small business performance metrics and discover 9 metrics to track from more than 25+ business experts.

Let’s get into the good stuff.

What Do Performance Metrics Look Like for Small Businesses?

Small business performance metrics don’t look as different from enterprise metrics as you’d think. Metrics for all businesses have the goal of translating success into measurable numbers. The right metrics for your business will depend on your industry, priorities and goals.

For companies of any size, performance metrics fall into one of two categories:

  • Output metrics: Metrics that measure the amount of work your team outputs
  • Outcome metrics: Metrics that measure the impact of your work

You’ll need to measure both types of metrics to see if the work you put in matches the results you get from it. That’s the case for all companies.

How Do You Monitor Small Business Performance Metrics?

Use a metrics monitoring platform like Databox to keep an eye on your KPIs early and often. You don’t have to monitor a lot of metrics, but you do want to watch the metrics that impact your business.

“Having short, mid and long term goals is what makes a business plan viable: while one of them might be missed, it is possible to rely on passing another one. Therefore, always have at hand the percentage completion of each goal, and regularly check the progress towards that goal since the start: short-term every month, mid-term every 3/5 months, and long-term every year,” YB Digital’s Yoann Bierling says about monitoring focus and frequency. “Update them whenever necessary, and take corrective actions when performance isn’t passing the corresponding metrics quality gates that you have defined – and should monitor on a regular basis.”

When we consulted small business owners about their performance monitoring strategies, the vast majority of them started watching metrics ASAP. Nearly half of respondents began watching metrics in their first year of business, and a little over 40% began right as their businesses started.

When did you start monitoring business performance metrics?

Most of these businesspeople keep an eye on 10 or fewer metrics, however, showing that quality matters over quantity. Almost half of them watch one to five metrics, while a little over 35% check six to 10.

How many business performance metrics are you monitoring?

Long story short? Identify the metrics with the biggest impact on your business success, and measure them early and often. We’ll help you figure out which metrics to choose.

9 SME Metrics You Shouldn’t Ignore

We asked more than 25 small business professionals about their experiences with metric tracking, and they highlighted 9 metrics. Nearly 60% of respondents consider their businesses moderately successful, and almost 40% call their businesses very successful, so you’re in good hands.

How would you rate your business?

Plenty of the experts who participated in our survey are experienced, too. A little over 50% work for companies more than five years old, and less than 5% come from businesses under a year old.

When was your company founded?

Now that you understand what context these business experts come from, check out the 9 metrics they make sure to track:

  1. Customer Churn Rate
  2. Net Profit Margins
  3. Lead Drop-Off Rate
  4. Revenue
  5. Customer Satisfaction
  6. Cash Flow
  7. Return on Ad Spend (ROAS)
  8. Customer Acquisition Cost
  9. Marketing Qualified Leads (MQLs)

1. Customer Churn Rate

If you offer an ongoing service, customer churn rate measures the percentage of customers who don’t renew in a set period. This metric shows you how many customers you’re not retaining. It’s normal to have some customer churn, but you should start looking for patterns in your other KPIs if you notice this metric rising.

“Customer churn rate is one metric that I feel is critical to becoming or remaining profitable,” says Darren Nix of Steadily Landlord Insurance. “You have to know what is going on and improve your customer retention rates because new client acquisition is usually more expensive than keeping your current customers.”

“I feel that customer churn rate is the most important metric to watch closely as it is the quickest way to see growth in your business,” Natalia Lucci from Wheelie Great adds. “The time and money put into acquiring a new customer or client are going to be substantially higher than retaining your current ones, so your company should be doing everything in its power to keep your customer base just that, a base – that grows – not something that just replenishes. The out with the old in with the new methodology does not work with customer retention in business – so you must make it a priority to keep your churn rate as low as possible.”

House Method’s David Cusick affirms, “Churn rate is one of the important business performance metrics for an SME. If you have a low churn rate, it means you got the right product or service. But if your churn rate is high, it suggests that you need to do something to improve your offer or customer service so that you can retain customers better.”

Editor’s note: Monthly recurring revenue (MRR) and customer churn rate are directly connected. Keep an eye on the relationship between these two metrics with Databox’s Stripe (MRR & Churn) Dashboard Template.

Stripe (MRR & Churn) Dashboard Template

2. Net Profit Margins

Net profit — the profit you make after you account for your costs and operating expenses — is a shoo-in for top small business metrics to track. But, that number doesn’t mean much without the right context.

Consider tracking your net profit margins alongside your net profit. Tide defines net profit margins as the profit you make as a percentage of your total revenue. In other words, this metric shows you how your profits compare to the amount of money you’ve made so far.

“Business performance metrics are variable according to the type of business and industry model. However, there are a few performance metrics that remain the same for all SME’s. Net profit and net profit margins are two fundamental metrics that small and medium enterprises should regularly track to keep an eye on the profitability aspect of their business,” Miranda Yan from VinPit advises.

At Senacea, Michael Sena goes one step further and measures the average net profit margin value per client or project. “Knowing how much each new project or client is expected to generate after subtracting variable costs is crucial. Although it may often be shown as a set of numbers for services of different margins, it allows seeing whether the company’s lead acquisition efforts are saturated or not and if the company can still gain market share”

“On top of that, it allows quickly calculating the break-even point and drawing conclusions on the overheads or fixed cost of conducting business,” Sena explains.

3. Lead Drop-Off Rate

It’s normal when not every lead in your pipeline converts, but a high lead drop-off rate can indicate issues with lead nurturing.

“Funnel drop-off rate is a good business performance metrics SME owners need to monitor. It pertains to the number of prospective buyers who left the sales funnel before the conversion is completed,” Tyler Wall from SD Bullion tells us.

Why does this metric matter? “Your funnel drop-off rate allows you to pinpoint problems in the conversion process and how you can improve your sales. It also helps you understand your customer journey and at which stage they tend to drop off,” Wall explains.

Nora Leary from Ironpaper adds, “SMEs should be sure to measure how effectively leads move through the pipeline.”

Leary suggests the following steps to understanding your lead drop-off rates: “Identify where leads drop off and begin to test ways to keep them engaged throughout the entire sales cycle. This could be through content, retargeting, etc. Understanding where and why leads drop off will be crucial to growing a business.”

Managing a healthy sales pipeline can also help you minimize your lead drop-off rate. Use a CRM that matches your business needs, plan your sales process carefully and understand how to prioritize your leads.

4. Revenue

Here’s another metric that’s popular for good reason: Revenue.

“Revenue is the only metric that truly matters,” Mostly Blogging’s Janice Wald declares. “Other KPI’s are only vanity metrics. People go into business for one main reason: to make money. You have to run a business where your expenses are less than your revenue.”

Since you’re reading this blog post with data on your mind, you’re in a good spot to work on improving your revenue. Save time with a data dashboard, review your data before making marketing decisions and always test your decisions to boost your revenue through data.

5. Customer Satisfaction

Customer satisfaction helps determine how many customers will stick with your business and how many are likely to leave.

“Customer satisfaction is a great performance metric most people do not measure,” says Kelly Maxwell of Seniors Mutual. “If you want to stay in business for decades, you need a strong customer base that are raving fans and tell all their friends and family about you. Ask for regular reviews and ways to improve, and if your ratings are not good with customers find ways to make those better.”

Ecommerce businesses use data to improve their customer experiences all the time, and so can you, regardless of the industry you work in. Narrow your CX data down to the most important datasets, look for ways to personalize your customers’ experience and look out for signs of unhappy customers.

6. Cash Flow

You’ve already learned how profit margins and revenue can impact your small company’s success. Cash flow offers a broad look at the money that goes in and out to help you plan for your future financial situations.

According to Andre Oentoro of Milkwhale, a cash flow forecast “helps businesses prepare for expenses and income, which can make or break the business.” Oentoro adds, “Sudden expenses can take a toll on a business. Keeping an eye on your cash flow and forecasting profits and expenses is vital in keeping your business afloat.”

“It is vital for SMEs to know exactly how much money is coming in and how much is going out,” adds Aquarium Store Depot’s Madeline Hudson. “Your business might be doing well —  as in your services or products are in high demand — but, if you don’t have your cash flow under control… then you risk going bankrupt. Having a good, accurate cash flow forecast can help you plan to cover such things as late payments and avoid cash flow problems that could potentially lead to bankruptcy.”

7. Return on Ad Spend (ROAS)

Your return on ad spend (ROAS) isn’t just a metric for your marketing department. If you spend a significant amount of your budget on ads, you might want to add it to your business performance dashboards as well.

“A worthwhile ROAS is critical for the success of any direct-to-consumer brand,” says Noemie’s Yuvi Alpert. “It inevitably determines how much authority a brand holds within its market, particularly in a model that is constantly evolving. While this is influenced by profit margins, operating expenses, and the overall health of a business, a solid return rate is roughly a 4:1 ratio in revenue to ad spend. “

Alpert continues, “This marketing KPI can help you get your business on track and boost your revenue. In the world of ecommerce, there aren’t as many window shoppers. You have an opportunity to seduce via an advertisement and capitalize on its performance. That said, understanding what works, what does not, where you can explore will all help you mitigate your risks and take an objective approach to increase your bottom line.”

While Alpert specializes in DTC ecommerce, this advice applies to any business that heavily invests in advertising. With so many businesses counting on online ads over their real-life counterparts, you want to get the most out of your ad budget.

8. Customer Acquisition Cost

When the business experts we consulted discussed customer churn rate, some of them brought up the customer acquisition’s higher cost compared to customer retention. But, since customer acquisition is still a necessary part of business, you want to do what you can to monitor its costs and keep those costs low.

“Knowing your customer acquisition cost allows you to see whether your current campaign costs to get customers make sense to the result. You need to maintain the acquisition cost low to ensure you with a high ROI,” says Explainerd’s Natasha Rei.

You can calculate your customer acquisition cost by adding your cost of marketing to the cost of your sales, then dividing that number by the number of new customers you’ve acquired. Many businesses aim to get a customer acquisition cost to customer lifetime value (the amount they spend on your business in total) ratio of at least 1:3.

9. Marketing Qualified Leads (MQLs)

Businesses that highly value their sales process should consider watching their marketing qualified lead (MQL) metrics. A marketing qualified lead is a customer who has a higher chance than average of becoming a paying customer, making them receptive to your marketing.

“Marketing Qualified Leads (MQLs) are great to me because they’re a great pre-screening of potential customers and their likelihood to engage with us. It’s important to have that internal analysis of customers and leads,” explains USAMM’s Jared Zabaldo.

In the sales pipeline process, sales teams aim to nurture an MQL into a sales qualified lead (SQL). SQLs are about ready to buy — they just need a final push from sales.

Editor’s tip: If you want more MQLs and conversions, you’ll need to look at your full sales pipeline, including your lead generation tactics. The Basic HubSpot Marketing Funnel template for Databox displays metrics for every stage of your sales pipeline so you know where to improve.

 Basic HubSpot Marketing Funnel template
About the author
Melissa King
Melissa King Melissa King is a freelance writer who helps B2B SaaS companies spread the word about their products through engaging content. Outside of the content marketing world, she writes about video games. Check out her work at melissakingfreelance.com.
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