“What does KPI mean?” is a common question for those new to business.
“KPI” is simply an abbreviation for “key performance indicator.” Companies use these to measure how effective they are at reaching their goals and objectives.
KPIs are all about tracking progress. Of course, the goals you track will depend on your market niche and what you hope to achieve in a certain amount of time.
Maybe, you want to track your overall success, which usually translates to annual revenue, brand awareness, customer engagement, and more.
There are also low-level goals to track, such as the efficiency of sales processes or the effectiveness of your service delivery.
In general, KPIs help you understand the progress you’ve made and how your business is performing – whether as a whole or on a scaled-down level (such as the performance of specific areas).
4 Common Key Performance Indicators Small Businesses Track
There are all kinds of KPIs you can track to measure your growth, effectiveness, efficiency, and more. Here are some of the most common ones that small businesses use, in particular.
1. Revenue Growth Rate
Revenue growth rate is a measurement of how much your coaching business’s income is growing/increasing over a period of time.
To calculate this KPI, start with the total income for the year. Then divide that number by the total income from the previous year. The resulting figure is your growth rate.
Is it increasing, decreasing, or is your revenue staying the same? You can use this metric to change up your strategy as necessary.
2. Relative Market Share
How do you stack up against your competitors in your market? Relative market share is a good KPI to track to understand the size of your business’s slice of pie.
This number is a percentage that shows how much of the market you control relative to others in your industry.
3. Net Promoter Score (NPS)
This number tells you how likely it is that one of your clients will recommend you to a friend.
Usually, to figure out your NPS, you need to survey your clients.
One simple question is all it takes: Clients are asked to rate how likely they are to recommend you to a friend on a scale from 1-10.
- Clients who give you a score of 6 or lower are “detractors” – they weren’t really impressed or thrilled with their experience with your business.
- Clients who rate you as a 7 or 8 are “passives” – they’re satisfied with their experience, but they aren’t enthusiastic about it, either.
- Finally, clients who give you a rating of 9 or 10 are “promoters.” These are your fans and evangelists. They love what you do and will gladly spread the word about your business.
Once you have some client ratings, you calculate NPS by subtracting the percentage who are detractors from the percentage who are promoters.
The final score will range from -100 to +100. The negative end of the scale is not good, while the high end is great news for your business.
4. Client Profitability Score
This KPI measures how profitable individual clients are for you.
First, you deduct the price of keeping them happy and engaged with your business, including advertising and customer service, from the total sales you have made from them. The resulting number is their client profitability score.
What Does KPI Mean for You? (Which Ones Should You Track?)
The KPIs you track should be dependant on your individual needs and processes. Not all KPIs make sense for every coaching business.
The key performance indicators you measure need to be relevant and reflect your organizational objectives.
In general, a good way to make sure you’re tracking the right KPI is to use the SMART criteria: it should be specific, measurable, attainable, relevant, and time-bound.
- S – The KPI objective is specific
- M – Progress you make toward the goal is measurable
- A – The goal is attainable
- R – The goal is relevant to your business
- T – The goal has an ending result and a time frame for achieving it (it’s time-bound)
Track KPIs to Measure Business Growth in a Concrete Way
Tracking key performance indicators for your business is a smart idea. It will help you understand your growth, pinpoint where you’re succeeding and where you need some work, and give you the motivation to improve your operations.
Choose the right KPIs to track and you’ll have a better chance of making more money and earning more success. Who wouldn’t want that?