The KPIs that actually matter for a small business
Your profit and loss report tells you what happened. Key performance indicators (KPIs) tell you why, and give you early warning before a problem shows up in the bank account. The trick is tracking a few that matter, every month, rather than dozens that nobody reads.
The core KPIs for most small businesses
1. Gross profit margin
(Sales − direct costs) ÷ sales
Direct costs are what it costs to deliver the work: materials, stock, subcontractors and the wages of people doing billable work. Gross margin shows whether your pricing works. If it slips, look at quoting, supplier prices, wastage or discounting before anything else.
2. Net profit margin
Net profit ÷ sales
What’s left after every cost, including rent, admin, vehicles and insurance. It tells you whether the business as a whole is worth the effort and risk. Compare it with what you’d earn as an employee plus a return on the money you’ve invested.
3. Cash in the bank and cash runway
How many weeks of fixed costs could you cover if sales stopped? A runway of less than a month leaves no room for a slow-paying customer or a big BAS. Track it weekly alongside a 13-week cash flow forecast.
4. Debtor days
(Trade debtors ÷ sales for the period) × days in the period
How long, on average, customers take to pay. If your terms are 14 days and debtor days are 45, you’re funding your customers. Every day you take off it puts cash back in the bank.
5. Labour cost as a percentage of sales
Total wages and on-costs ÷ sales
For service businesses, trades and hospitality, labour is usually the biggest cost. Include super, workers compensation and leave. If this climbs while sales stay flat, you have productivity, rostering or pricing issues.
6. Job or product profitability
Which jobs, customers or products make money, and which don’t? Average figures hide the losers. Tracking actual costs against each job (or margin by product line) is often the single most revealing exercise a business can do.
7. Quote conversion rate
Quotes won ÷ quotes sent
Too high can mean you’re too cheap; too low can mean poor targeting or follow-up. Track it alongside average job size.
8. Revenue per employee
Sales ÷ full-time equivalent staff
A simple measure of productivity that’s useful for spotting when you’ve grown headcount faster than sales.
Industry extras
- Trades and construction: gross margin by job type, variations recovered, work in progress.
- Hospitality: food and beverage cost percentages, wages as a percentage of sales by day.
- Retail: stock turnover, gross margin by category, sales per square metre.
- Health practices: practitioner utilisation, revenue per appointment, rebooking rate.
Making KPIs useful
- Choose five to eight. The ones that drive profit and cash in your business.
- Set a target for each, based on your own history and your industry.
- Review them monthly, at the same time, with the same report.
- Act on what they show. A KPI nobody responds to is just a number.
None of it works without reliable data. KPIs come from your accounting software, so the books need to be reconciled and coded consistently every month. If they’re not, start with bookkeeping.
Our On Track package ($690 + GST a month) includes KPI development, an annual budget, and quarterly management reports with an advisor meeting to go through them; Growth makes it monthly. See business packages.