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35.6 Key Performance Indicators (KPIs) for SMEs

Overview​

Key Performance Indicators (KPIs) are measurable values that demonstrate effectiveness in achieving business objectives. KPIs help businesses track performance, identify problems, and make informed decisions.

KPI Categories​

Financial KPIs​

Financial KPIs:

  • Revenue growth
  • Profit margin
  • Cash flow
  • Return on investment
  • Debt ratios

Operational KPIs​

Operational KPIs:

  • Customer satisfaction
  • Order fulfillment time
  • Inventory turnover
  • Employee productivity
  • Quality metrics

Customer KPIs​

Customer KPIs:

  • Customer acquisition cost
  • Customer lifetime value
  • Customer retention rate
  • Customer satisfaction
  • Net promoter score

Selecting KPIs​

KPI Selection Criteria​

Select KPIs That:

  • Align with business objectives
  • Are measurable
  • Are actionable
  • Are relevant
  • Can be tracked regularly

Number of KPIs​

Best Practices:

  • Focus on 5-10 key KPIs
  • Too many: Overwhelming, lose focus
  • Too few: Miss important areas
  • Balance: Cover key areas without overload

Common SME KPIs​

Revenue Growth​

Revenue Growth = (Current Period Revenue - Prior Period Revenue) ÷ Prior Period Revenue

Purpose: Measures business growth

Target: Varies by business, typically 10-20% for growing SMEs

Gross Profit Margin​

Gross Profit Margin = (Revenue - Cost of Goods Sold) ÷ Revenue

Purpose: Measures profitability after direct costs

Target: Industry-dependent, typically 30-50% for retail/hospitality

Customer Acquisition Cost (CAC)​

CAC = Marketing and Sales Costs ÷ New Customers Acquired

Purpose: Measures cost to acquire new customers

Target: Lower is better, compare to customer lifetime value

Customer Lifetime Value (CLV)​

CLV = Average Revenue per Customer × Gross Margin % × Average Customer Lifespan

Purpose: Measures total value of customer relationship

Target: Should exceed CAC (typically 3:1 ratio)

KPI Tracking​

Tracking Frequency​

Tracking:

  • Daily: Critical operational KPIs
  • Weekly: Important operational KPIs
  • Monthly: Financial and strategic KPIs
  • Quarterly: Strategic KPIs
  • Annually: Long-term KPIs

KPI Dashboards​

Dashboards:

  • Visual display of KPIs
  • Easy to understand
  • Updated regularly
  • Accessible to management
  • Support decision making

Luxembourg Compliance Note​

Important Considerations:

  • Relevance: KPIs should be relevant to business
  • Measurability: KPIs must be measurable
  • Actionability: KPIs should drive action
  • Regular review: Review KPIs regularly
  • Benchmarking: Compare KPIs to benchmarks when available

Think It Through​

Artisan Boulangerie wants to track their performance. What KPIs would be most relevant? How often should they track them?

Concepts in Practice​

KPI Tracking Example

TechLux Solutions KPI dashboard:

Financial KPIs (Monthly):

  • Revenue growth: 15% (target: 10%) ✅
  • Gross profit margin: 45% (target: 40%) ✅
  • Net profit margin: 12% (target: 10%) ✅
  • Cash flow: Positive (target: Positive) ✅

Operational KPIs (Weekly):

  • Project completion rate: 95% (target: 90%) ✅
  • Customer satisfaction: 4.5/5 (target: 4.0/5) ✅
  • Employee utilization: 85% (target: 80%) ✅

Customer KPIs (Monthly):

  • Customer acquisition cost: €500 (target: <€600) ✅
  • Customer lifetime value: €15,000 (target: >€10,000) ✅
  • Customer retention: 90% (target: 85%) ✅

Analysis: All KPIs meeting or exceeding targets, strong performance across all areas.