Three of the Most Important KPIs for Your Business
In today's fast-paced and data-driven business environment, it's no longer enough to rely on gut instincts. Business owners and executives must make informed decisions and that means tracking performance. Key Performance Indicators (KPIs) are measurable values that reflect how effectively a business is achieving its objectives. The right KPIs not only give you clarity but help you identify areas of improvement and track progress over time.
Whether you're running a small business or a growing startup, focusing on a few critical KPIs can provide the insight you need to grow strategically and sustainably.
In this post, we’ll explore three of the most important KPIs every business should monitor, explain why they matter, and show you how to get started.
1. Gross Profit Margin
What It Measures: Profitability
Gross profit margin is the percentage of revenue that exceeds the cost of goods sold (COGS). It reveals how efficiently your business produces and sells its products or services.
Formula:
(Revenue - COGS) / Revenue x 100Why It Matters:
It helps you understand how much money you're actually keeping from sales after covering the basic costs.
A declining margin could indicate issues with pricing, inventory, or production efficiency.
It also offers a snapshot of your core business health, independent of other costs like admin or marketing.
How to Improve It:
Increase product pricing without sacrificing volume
Negotiate better rates with suppliers
Streamline production or delivery processes
Reduce returns or waste
Industry Benchmark: According to NYU Stern, average gross margins vary by industry—from over 90% in software to under 10% in grocery retail.
2. Customer Acquisition Cost (CAC)
What It Measures: Marketing & Sales Efficiency
Customer Acquisition Cost refers to the total cost of acquiring a new customer, including marketing spend, sales team salaries, and overhead.
Formula:
Total Sales & Marketing Cost / Number of New Customers AcquiredWhy It Matters:
If your CAC is higher than the revenue a customer brings in, you're losing money.
Monitoring CAC helps optimize marketing spend and identify the most effective customer acquisition channels.
It’s crucial for scaling without a handle on CAC, scaling can lead to financial strain rather than growth.
How to Improve It:
Focus on high-conversion channels
Improve customer targeting
Enhance website and funnel performance
Automate outreach and lead qualification
Use retargeting to nurture warm leads
Pro Tip: Always compare CAC with Customer Lifetime Value (LTV). Ideally, your LTV should be at least 3x your CAC. If not, it may be time to revisit your sales strategy or pricing model.
3. Cash Flow Forecast
What It Measures: Financial Health & Liquidity
Cash flow is the lifeblood of your business. A cash flow forecast estimates how much money will come in and go out over a period usually weekly, monthly, or quarterly.
Why It Matters:
A profitable business can still fail if it runs out of cash.
Forecasting helps prevent shortfalls, manage expenses, and plan growth.
It also provides visibility into seasonality, so you're not caught off guard during lean months.
Essential for securing financing lenders and investors often ask for a 12-month cash flow forecast.
How to Improve It:
Collect receivables faster
Extend payment terms with vendors
Eliminate unnecessary spending
Delay large expenses when possible
Monitor recurring costs and identify areas for cuts
Tools to Use: Software like QuickBooks, Xero, or Float can automate forecasts and integrate directly with your books. Even a basic Excel model can be a great start if you're new to forecasting.
Q&A: Understanding KPIs in Business
Q: How many KPIs should my business track?
A: Start small. Tracking 3–5 essential KPIs is better than tracking 20 and not using any effectively. As your business grows, you can layer in more.
Q: How often should I review KPIs?
A: Monthly is typical, but high-growth businesses may review weekly. The key is consistency. Set a recurring meeting or dashboard review to stay on track.
Q: What’s the difference between a KPI and a metric?
A: All KPIs are metrics, but not all metrics are KPIs. A KPI is a metric directly tied to a key business goal—like growth, efficiency, or profitability.
Q: Should KPIs be the same for all departments?
A: Not necessarily. Finance, sales, marketing, and operations may have different KPIs aligned with their specific objectives. However, they should all roll up to your company’s overall strategic goals.
Q: What tools can help me track KPIs?
A: Try Google Looker Studio, QuickBooks, Excel dashboards, or KPI-specific software like Klipfolio or Databox.
How Brecken Business Solutions Can Help
At Brecken Business Solutions, we specialize in helping small and midsize businesses get clarity on their numbers. Whether you're trying to improve margins, bring down CAC, or simply forecast cash with confidence we've got you covered.
We offer:
Fractional CFO services
Bookkeeping and reporting
Cash flow strategy
Financial dashboards tailored to your business
KPI tracking setup and training
Let us help you track the KPIs that truly matter so you can make smarter decisions and grow with confidence.
