Key Performance Indicators (KPIs) are business performance measurement metrics that business managers review regularly to monitor progress towards achievement of business goals. KPIs normally have a predetermined target that the business strives to achieve. Monitoring relevant KPIs enables SME Managers set business objectives and regularly monitor real-time progress towards these goals.
Even though KPIs may vary from one industry to another, they should meet the five criteria below:
- Measurable – KPIs should be easily quantifiable.
- Time bound – KPIs should have a time period within which they are to be achieved
- Actionable – KPIs should inform the business leader the actions to be taken to attain business goals
- Relevance – KPIs being monitored should have a direct impact on achievement of desired business results
- Achievable – KPIs should be realistic based on the company’s strengths and limitations or past performance.
The following are common business KPIs that SMEs can use to track business growth.
- Actual vs Budgeted Revenue – Revenue, also called top-line income, is a key financial metric for all organizations and it reflects the amount a business generates from sale of products or services. The Actual vs Budgeted Revenue KPI is a critical metric which shows how much a business generated vis a vis what had been budgeted as revenue. This KPI informs management progress towards achievement of the annual budgeted sales figure. This KPI can also be used to evaluate the effectiveness of marketing and sales initiatives within the organization.
- Actual vs Budgeted Expenses – Expenses are the costs that a business incurs in order to generate revenue. Actual vs Budgeted Expenses KPI enables SME management to closely monitor cost management within the organization ensuring that expenses do not exceed budgets and when they do a sufficient reason is provided.
- Accounts receivable aging/Debtors Aging – This is a report that measures how long it takes for customers to pay their debts when they purchase goods and services on credit. Normally organizations include credit terms on their invoices to indicate when the client is expected to settle the invoice. The accounts receivable aging analysis informs management how much money is collectible from different companies based on the aging time frame thus improving cash flow planning. This report also informs management on doubtful or bad debts that may need to be written off.
- Accounts payable aging/Creditors Aging – This report monitors how long it takes a business to pay its bills. This report informs management on bills to be settled in a particular period based on the credit period offered by the supplier. This reports helps SMEs improve cash flow management by ensuring there are funds available to settle business obligations when and as they fall due.
- Profit margins – The Gross Profit Margin shows revenue after deducting the cost of goods sold. This KPI, which is written as a percentage, reveals the gross profit earned for every shilling of revenue the SME generates. For example, a gross profit margin of 50% means a company makes a gross profit of 50 cents for every shilling of revenue. Operating Profit Margin is similar to Gross Profit Margin but factors in all operational expenses. Profit margins help SME management monitor operational efficiency within the business.
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