One of the best ways to measure the progress of your business is to track KPIs. With KPIs, you can always keep your business objectives in view. Tracking KPIs also help you work with a clear focus. The question most SMEs in Nigeria ask is, “What are the KPIs to track for small businesses?” In this post, we will show you the most important KPIs you should track as a business owner.
What are KPIs?
Before we discuss tracking KPIs, all SMEs in Nigeria must understand exactly what KPIs are. KPI is an acronym for Key Performance Indicator. They are measurable values that demonstrate the effectiveness and efficiency of a company in achieving its objectives. Different organizations employ KPIs at different levels as a means of evaluating their success in reaching targets. Some KPIs help to evaluate overall business performance (high-level) while the other focuses on small departments (low-level).
Key Performance Indicators to Track as an SME in Nigeria
Everyone feels good when they see considerable progress towards set goals. But how do you measure success or advancement towards these goals?
Profit is the main element of every business. If your business is making less than it is spending, then you need to adjust your strategy. This is one of the benefits of tracking KPIs. Here’s a simple way to find out the profit margin of your company. Multiply your business gross profit by 100 then divide it using your sales figure. When you can track gross profit, you will have a clear picture of what your business is generating. This way, you can decide on your business strategy. If the strategy is generating more profit, then stick to it. Otherwise, you need to make some adjustments.
Inflow and Outflow
Inflow and outflow are among the most important KPIs to track for SMEs in Nigeria. Tracking both simultaneously shows whether your margins and sales are perfect or not.
To begin with, you need to estimate weekly sales then monthly sales. After this, you should estimate your payment timings and your likely costs. This process should cover 12 months. It is for this reason that it is known as Cash Flow Forecast. Tracking this KPI also helps in new purchases, tax preparation, and the identification of cash surpluses.
Your revenue as an SME in Nigeria is largely dependent on your sales growth or profit margin. It is simple, the more your sales or income increases, the higher your revenue rate will be. One of the ways to check whether your company is growing or not is to track your revenue ratio. Always check for the existing difference between the growth rate of your revenue of the current year and the past year.
For example, to check your revenue ratio between 2020 and 2019, you should subtract the revenue of 2019 from 2020. If you end up with a positive figure, then your strategy is working, else, you need to make adjustments.
Inventory or Stock Gross
It measures how many times your stock gets sold out over a fixed period. Tracking this KPI helps you to measure the ability of your business to move your stock. It shows you the number of times you can completely sell your stock and replace it over time. There are two different methods of calculating stock gross. The first is to use your net sales and the second makes use of the cost of all the goods sold. For most SMEs, the second method seems to be more accurate. Other factors to consider when tracking this KPI include:
a. The number of times customers order your product daily or weekly.
b. The frequency of new arrival of stock to your business.
This KPI gives you a picture of the way users transcend through a series of steps. With this, you have a clear picture of what part of your process that you lose customers the most. This is also referred to as funnel drop off rate. For example, funnel analysis helps you to track the number of visitors that leave your conversion process. This will depend mainly on the kind of business that you run. Vivid examples include subscriptions, shopping carts, etc. The moment that you can identify the point where you mostly lose customers, you can figure out the cause. Figuring out the cause leads you to develop new strategies or adjust to the current one. Businesses make use of several tools to track this KPI these days.
Accounts Payable Rate
One way to ensure that your business thrives is always to pay your suppliers on time. Accounts payable is the KPI that tracks how much you pay suppliers and when. Many SMEs in Nigeria find it difficult to track their financial transactions. You don’t have to suffer the same fate. Simply make use of any of the accounting software to track your transactions or hire a trusted hand. With this KPI, you have an idea of whether to reduce your supply cost or not.
Market Share is a KPI that helps you know your position in the market. It helps you understand how well your business is performing against competitors. Of all the KPIs to track, this one requires the most regular tracking. If you are not sure where your business stands on the market, self-evaluation is impossible. Without self-evaluation, it is impossible to review your strategies and implement new ones when necessary.
Now that you know the KPIs to track as an SME in Nigeria, your business should do better. Don’t forget that KPIs ensure that you re-evaluate your strategies where they aren’t working. We hope that this article has been helpful to you. Share your thoughts in the comments section.