Measuring What Matters: How to Create an Effective Business KPI Dashboard
You have a running business, earning income, incurring expenses, and have profits (or losses)! As a business finance coach, I’ve worked with countless entrepreneurs who have struggled to manage their cash and keep their finances in check. A financial plan is GREAT, but if you’re not closely monitoring how you perform compared to what you’ve planned, you’re missing out on the ultimate benefit. BIG TIME!
One of the most powerful tools for staying on top of your business finances is a KPI (Key Performance Indicator) dashboard.
In this article, we’ll dive into the most essential KPIs for small businesses and provide tips for creating a dashboard that works for YOU…no two businesses are the same!
What is a KPI Dashboard?
A KPI dashboard is simply a visual representation of the most important metrics for your business. It allows you to quickly and easily track your progress towards your goals and make informed decisions based on your actual performance data.
Think of your KPI dashboard just like the dashboard on your car. Your car has a meter that measures your gas levels and tells you when you’re low so that you can stop and get gas. You track your speed to see when you’re moving too fast and need to slow down. The same exact concept for your KPI dashboard.
A KPI dashboard will let you answer questions such as:
- Am I as profitable as I need it to be?
- Is my business on track according to my financial plan or am I off track?
- Am I generating cash as I thought I would, or am I a little short?
- How did we perform this month compared to last month?
Why is a KPI dashboard important?
Your KPI dashboard will help you make better business decisions and give you more confidence in the decisions that you’re making. Because of this, having this dashboard will indeed help to improve your business’s financial performance over the long term.
How to determine what to track on your KPI dashboard?
When it comes to building a KPI dashboard, it’s important to first determine which metrics are most relevant to your business goals.
1. Identify your key objectives and areas of focus.
For example, if your goal is to increase revenue, you may want to track metrics such as sales growth, customer acquisition cost, and average order value. If your focus is on improving operational efficiency, you might want to track metrics such as employee productivity, inventory turnover, and order fulfillment time.
2. Always remember that the metrics in your KPI dashboard should help you answer the key questions, such as:
- Where do I stand from a profit viewpoint?
- Are we on track with revenue?
- Am I over, underspending, or inline based on my spending plan?
- What are the most and least profitable actions?
Make sure the metrics that you choose have data that is easy to gather – it’s not helpful to have a metric that is nearly impossible for you to measure because of lack of data, instead focus on creating a way to gather the necessary data, then include the metric on your dashboard. Metrics every business needs to have on their KPI dashboard regardless if you’re just getting started or have been in business for years include:
- Monthly Revenue
- How much have I made in total revenue from all sales?
- Total Net Profit Margin
- Compare your total net profit margin for the month to your target net profit margin (this target comes from your financial plan & projections).
- Current Cash Position
- Compare your current cash position to your annual cash target balance (covered in your financial plan & projections as well).
How often do you review it?
Once you have set up your KPI dashboard, the next question is how often you should review it. Before anything else, make sure the data you need is readily available and that you have a reliable system in place for collecting and analyzing it. If your KPIs are reliant on data that doesn’t change or get updated frequently, then it may make sense to review the dashboard less frequently.
Ideally, you should review it on a regular basis, but the frequency of the review may vary depending on the nature of your business. Some businesses may require a daily review, while others may require a weekly or monthly review. The key is to find a balance between staying on top of your metrics and not becoming overwhelmed with too much data.
One way to determine the frequency of the review is to look at the nature of the KPIs you are tracking. For example, if you are tracking daily sales, it may make sense to review the dashboard daily. On the other hand, if you are tracking quarterly financial goals, a monthly review may be sufficient.
Ultimately, the frequency of the review should be determined based on what works best for your business model and what allows you to make data-driven decisions in a timely manner. Regardless of the frequency, it is important to stay consistent with your reviews to ensure you are staying on top of your metrics and can make adjustments as needed.
How often do you update it?
Once you’ve determined what KPIs to track on your dashboard and set up a system to collect data, it’s important to decide how often you’ll update it. There are some considerations to how often you update your KPI dashboard:
- nature of your business and the specific metrics you’re tracking.
For instance, if you’re monitoring sales figures, you may want to update your dashboard daily to keep a close eye on trends and respond quickly to changes. On the other hand, if you’re tracking longer-term metrics like customer acquisition costs, monthly updates may be sufficient.
- time and resources required to update your dashboard.
If it’s a manual process, you may need to set aside time each week or month to update your metrics. If you have automated tools in place, updates can be done more frequently without significant effort.
Keep in mind that while frequent updates can provide valuable insights, too much data can also be overwhelming and counterproductive. It’s important to strike a balance between staying informed and avoiding analysis paralysis. Overall, it’s best to update your dashboard often enough to track important changes and trends, but not so often that it becomes burdensome or distracting from other business tasks.
How to use it to make better decisions?
Once you have your KPI dashboard set up and regularly updated, the next step is to use it to make informed decisions. Here are the ways you can use your KPI dashboard to make better decisions:
- Identify trends over time and spot potential issues before they become major problems. For example, if you notice a decline in sales over a certain period, you can investigate the cause and take action before it impacts your revenue and profits.
- Compare your performance against the targets you’ve set. This can help you identify areas where you may be falling behind and provide insights into how you can improve.
- Identify your top-performing products or services and invest more resources into them.
- Track the effectiveness of your marketing campaigns and other business initiatives. By monitoring key marketing metrics such as Return on Investment, you can determine which marketing channels and campaigns are driving the most results and adjust your strategy accordingly.
The whole point of using a KPI dashboard is to have an easy view that uses inputs from your financial plan & projections (your goals), and helps you monitor your progress towards these goals. Your financial plan gives your targets; your KPI dashboard highlights your progress towards those goals. As a small business owner, it is important to have a solid understanding of the key performance indicators (KPIs) and how they can help you manage your cash and finances effectively. A well-designed KPI dashboard can provide a clear and concise overview of these metrics and help you stay on top of your finances and allow you to pivot or course correct quickly and effectively.
BONUS: More than half of the small business owners skip their KPI dashboard. Hard? Overwhelming? Unknowledgeable? Whatever the reasons may be, YOU SHOULDN’T IGNORE THE NEED OF A KPI DASHBOARD for your business. If you are struggling to create your own version of your KPI dashboard, Your Profit Playbook™ is for you – a 6-week business financial planning course that guides you through step-by-step how to create a realistic financial plan & projections so that you have a clear profitable roadmap for your business to follow. Are you ready to increase your revenue, optimize your expenses, and maximize your profits? JOIN THE WAITLIST HERE!
Learn more about Your Profit Playbook™ here.