What you cannot measure, you cannot improve. And what you cannot improve, you cannot make it stand out. Therefore, you must define how you will measure the performance of your SME. Here are the steps you need to take to set your SME success metrics.
Step 1: Begin with the end in mind
To set the metrics for your SME success, you need to know where you are headed first. This means setting business goals. The goals become the focal point for your team and guide every action you take.
Step 2: Establish the things you need to do to achieve success
After setting your business goals, you need to come up with what it will take to achieve the goals. Your answers will depend on the resources and assets you already have at your disposal and the stage you are in your business growth.
For example, the things you need to do may include investing more money in marketing, hiring more hands, investing in insurance, improving an existing product, entering a new market, and so on.
Step 3: Set your Key Performance Indicators (KPIs)
Based on your key result areas, establish how you will measure performance. To help you come up with the right metrics, think of the top five things you’d want to know about how your business is doing if you were in a desert, far away from your business, and could only make a 5-minute call every day. This constraint will force you to come up with the most important metrics for your business.
Examples of Business Metrics
Below are examples of business metrics, consider tracking them for the success for your SME.
Revenue growth measures the financial performance of your business. It’s calculated by subtracting the cost of returned and damaged goods from the total sales. In an ideal situation, your revenue should be growing year-on-year.
Gross Profit Margin
Gross Profit Margin is another key business metrics that measure your production efficiency. It is calculated by subtracting the cost of goods sold from total revenue.
Retention rate measures the rate at which customers stay and continue to make purchases from you. To calculate this, you need to take the numbers customers that left you into consideration and the numbers that are still with you within a given period.
Return On Advertising Spend (ROAS)
ROAS measures your returns for the money you spend on advertising. It compels you to view your advertising budget as an investment. It is calculated by dividing the revenue generated over the amount spent.
For example, if you spent £500,000 on the advertising and generated £1,000,000 from the ads, your ROAS is £2. That is, for every £1 you spent on advertising, you made £2.
Metrics are important to the success of SMEs. You need to define and track the right metrics so that you can know how you are doing, set new goals, and aim higher as you grow.