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
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
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.
Conclusion
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.
