5 KPIs To Track For Small Business Profit Growth

byRachel Steininger

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As a small business owner, profit growth is the ultimate goal, and one powerful ally in achieving it is the strategic use of Key Performance Indicators (KPIs). In this guide, we'll take a holistic look at five crucial KPIs for small business that can propel your results to new heights.

KPI for Profit Growth #1:

Revenue Growth Rate

This KPI measures the percentage increase in revenue over a specific period of time.  That means it can help you track the overall growth and success of the business.

To optimize your Revenue Growth Rate, set realistic growth targets, analyze sales patterns regularly, and adapt marketing strategies based on growth insights.  

Note that Revenue Growth can feel like the Holy Grail of business success.  But a common trap is to find your revenue is increasing but profit is falling and stress is rising.  To create a healthy business ecosystem, you’ll need to look further than this one KPI.  

Let’s look at how other KPIs can help you manage your small business for more predictable results, especially when it comes to your business growth strategy.

Definition of Revenue Growth Rate, one of the KPIs for profit growth
Definition of Customer Acquisition Cost, one of the KPIs for profit growth

KPI For Profit Growth #2:

Customer Acquisition Cost (CAC)

CAC measures the cost incurred to acquire a new customer. It includes marketing expenses, sales team salaries, and other costs related to customer acquisition. 

A lower CAC indicates higher efficiency in acquiring new customers.  However, lower is not always better.  As Dan Kennedy puts it, “ultimately, the business that can spend the most to acquire a customer wins.” 

Instead of getting obsessed with how low you can go, compare the CAC to CLTV (up next) to understand your net potential per client.

KPI for Profit Growth #3:

Customer Lifetime Value (CLTV)

CLTV represents the projected revenue a business can generate from a customer throughout their entire relationship with the company. It helps measure the long-term value of each customer.

Think about the first time you buy something at Starbucks versus all the additional purchases over your customer lifetime.  I bet they don’t get worried about paying $45 a lead (their CAC) when a new customer only spends $6 on their first purchase.  Because the true CLTV to them, averaged across all new customers, is quite possibly in the hundreds of dollars or more.

To improve your CLTV, you can increase your rates, of course.  But you can also upsell or cross-sell into different services you offer or find related streams of income (e.g. affiliate income) that add to the CLTV.  

Definition of Customer Lifetime Value, one of the KPIs for profit growth

Just remember... that first purchase is likely not the only purchase your new customer is going to make.  Even in businesses where you might be one-and-done with a client, you have opportunities to nurture that relationship for referrals or to gather recommendations that lower your CAC in the future.

Side note: I don't know about Starbucks’ exact KPIs (the numbers given were for illustration only), but for many businesses, the idea of any Client Acquisition Cost overwhelms their desire of spending that money.  Too much of that will cause you to knowingly (or unknowingly) steer clear of, and miss out on the benefits of, pay-to-play marketing and lead generation strategies. 

So in the end, you may be far better served (and far less stressed) by taking a look at the complete financial picture.  Because with a CLTV > CAC, you can get the financial outcome without the time or worry that comes with organic only marketing.

KPI for Profit Growth #4:

Gross Profit Margin

This KPI measures the profitability of a business by calculating the percentage difference between revenue and the cost of goods sold or the cost of service fulfillment. 

A higher gross profit margin indicates higher profitability.

If you’re charging by the hour, this might seem like a pretty simple calculation.  But don’t forget to take into account the cost of your time for business development or business management, software, travel, or workspace costs.  

Those are legitimate expenses and you need to be compensated for them.

Definition of Gross Profit Margin, one of the KPIs for profit growth
Definition of Return on Investment, one of the KPIs for profit growth

KPI for Profit Growth #5:

Return on Investment (ROI)

ROI measures the return generated from an investment relative to its cost. It helps evaluate the efficiency and profitability of different business initiatives.

ROI is a measure that can help guide everything from your marketing campaigns to which processes you optimize first.  It’s even integral to how you ideate and optimize the initiatives you’ll take on as you do strategic planning for your small business.

Consider what the net upside of your initiative is (increased upside less decreased downside) compared to the investment you’ll have to put in.  

Monetary investments are often easier to quantify but taking into account the time commitment, learning curve, and even your emotional commitment can help put things in perspective.

To make the most here, try to be as consistent in how you measure across the board.  You don’t necessarily need a perfect measure of ROI, especially when using it to prioritize.  You just need to ensure you’re comparing apples to apples.

Definition of Return on Investment, one of the KPIs for profit growth
Numbers You Need: 5 KPIs for Profit Growth. Blue, White and Magenta text

Conclusion

By actively monitoring and optimizing these five KPIs, as a small business owner, you can make more informed decisions, identify areas for improvement, and ultimately drive your businesses towards sustained growth and success.

These KPIs are the guidance system for business success. 

Use the insights gained through measurement to refine your strategies and adapt to the evolving landscape of entrepreneurship.  

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