Key Performance Indicators (KPIs) are essential tools for measuring the success of your business.
By tracking the right KPIs, you can see what’s working, identify areas for improvement, and make informed decisions.
Here’s a guide to the most relevant KPIs for small businesses, what they show, and how to calculate them.
Revenue Growth
Revenue growth measures how much your business’s income is increasing over time. It’s a key indicator of market performance and helps you identify whether your strategies are working. Consistent revenue growth is often a sign of a healthy business.
What does it show?
How much your business’s revenue is increasing over time. It’s a key indicator of market performance and growth.
How often should you measure it?
Quarterly or Annually.
Formula for Revenue Growth
((Revenue This Year-Revenue Last Year)/Revenue Last Year) x 100
Example
A grocery store earned 500,000 DKK in revenue last year and 600,000 DKK this year.
By calculating revenue growth, the owner can see how their business is progressing over time and use this information to make decisions, such as whether to expand their product range or invest in additional staff.
Calculation of Example:
((600,000-500,000)/500,000) x 100 = 20 %
In this example, the grocery store achieved a 20% revenue growth, indicating a strong upward trend.
Customer Retention Rate
Keeping your customers coming back is just as important as attracting new ones. Customer retention rate measures the percentage of customers who continue to do business with you over a given period. A high retention rate indicates strong customer satisfaction, loyalty, and trust in your brand. It also helps reduce costs, as retaining existing customers is typically more affordable than acquiring new ones.
What does it show?
The percentage of customers who continue doing business with you. It indicates customer satisfaction and loyalty.
How often should you measure it?
Monthly, Quarterly or Annually depending on your business
Formula for Customer Retention Rate
(Returning Customers/Total Customers) x 100
Example
A car repair shop serviced 200 customers in a year. The following year, 120 of those customers returned for additional services. By calculating customer retention rate, the shop can measure how well they’re maintaining customer loyalty and identify opportunities to improve repeat business.
Calculation of Example:
(120/200) x 100 = 60 %
A 60% customer retention rate is a good sign that the car repair shop has built trust and satisfied many customers. However, it’s worth noting that not all customers need repairs every year, which can naturally lower the rate. To get a clearer picture, the shop could track retention over a longer period or send reminders for routine maintenance. Simple steps like these can help build even stronger customer loyalty.
Profit Margin
The profit margin shows how much profit your business makes after covering all expenses. It’s a critical measure of efficiency and financial health.
What does it show?
It indicates how efficiently your business is turning revenue into profit. A healthy profit margin means you’re managing costs effectively.
How often should you measure it?
Monthly, quarterly, or annually.
Formula for Profit Margin
(Net Profit / Revenue) x 100
Example
A café generates 100,000 DKK in revenue and has 70,000 DKK in expenses. The profit margin calculation would look like this:
Calculation of Example:
((100,000 - 70,000) / 100,000) x 100 = 30%
A 30% profit margin means the café keeps 30 DKK out of every 100 DKK earned, which is a good indicator of financial health.
Average Transaction Value
Average Transaction Value (ATV) measures the average value of each customer order. It’s an important metric for understanding customer buying behaviour and finding ways to increase revenue per customer.
What does it show?
ATV reveals how much customers spend per order on average and provides insights into opportunities for upselling or cross-selling.
How often should you measure it?
Monthly or quarterly.
Formula for ATV
Total Revenue/Number of Transactions
Example
A clothing store generates 200,000 DKK in revenue in one month and has 800 transactions. The ATV calculation would look like this:
Calculation of Example:
200,000 / 800 = 250 DKK
In this example, the average transaction value is 250 DKK, meaning customers spend 250 DKK per purchase on average. The store can use this information to implement strategies like “buy 3, pay for 2” promotions or offering accessories at checkout to increase ATV.
Customer Acquisition Cost
Customer Acquisition Cost (CAC) tells you how much it costs to acquire a new customer, including marketing and sales expenses.
What does it show?
It reveals whether your marketing efforts are cost-effective and sustainable.
How often should you measure it?
Quarterly or annually.
Formula for Customer Acquisition Cost
(Total Marketing and Sales Costs / Number of New Customers)
Example
A small online shop spends 10,000 DKK on advertising and gains 50 new customers.
Calculation of Example:
10,000 / 50 = 200 DKK
This means it costs 200 DKK to acquire one customer. If the average customer spends significantly more than 200 DKK, the shop is on the right track.
Do you need help?
If you have questions about your company's performance, you can always contact Finklusiv for support and guidance.
