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The 5 Financial KPIs Every Small Business Owner Should Track · Profit Points Podcast

• 0:00
  SPEAKER_00: Hey, glad you're here.
• 0:01
  SPEAKER_00: This is Profit Points, and I'm Megan Schwann, your accounting sidekick and certified profit first professional and fix the snips advisor.
• 0:09
  SPEAKER_00: If you're a small business owner who wants to actually understand what is happening in your business financially, not just survive it, but genuinely get it, you're in the right place.
• 0:20
  SPEAKER_00: Every episode covers one concept, uses real numbers, and ends with something you can actually do.
• 0:26
  SPEAKER_00: That's the deal.
• 0:27
  SPEAKER_00: Let's talk about today's topic.
• 0:31
  SPEAKER_00: Business owners are drowning in data.
• 0:35
  SPEAKER_00: There's open rates, conversion rates, follower accounts, revenue totals, expense ratios.
• 0:42
  SPEAKER_00: There is no shortage of numbers that you could be tracking.
• 0:47
  SPEAKER_00: But the question nobody asks often enough is which ones actually change what you do?
• 0:54
  SPEAKER_00: Because tracking a number that doesn't inform a decision isn't insight, it's just noise.
• 1:01
  SPEAKER_00: And there's a lot of that.
• 1:03
  SPEAKER_00: So today we're cutting through the noise.
• 1:07
  SPEAKER_00: I'm Megan Schwan, your accounting sidekick.
• 1:09
  SPEAKER_00: This is Profit Points, where we help you focus on the numbers that actually move the needle.
• 1:15
  SPEAKER_00: So let's find yours.
• 1:17
  SPEAKER_00: Most business owners either track too much and end up paralyzed by the sheer volume of information.
• 1:24
  SPEAKER_00: Ever hear of analysis, paralysis, or they rely too or they have too little tracking.
• 1:33
  SPEAKER_00: And then they rely on gut feeling and bank balance checks.
• 1:37
  SPEAKER_00: What I find works the best is a middle path, a small curated set of key performance indicators or KPIs that are directly tied to your specific business goals, not genetic generic metrics from a template, but yours, the ones that if they moved, they would tell you something important was happening, which is the whole purpose of having KPIs in place.
• 2:04
  SPEAKER_00: And it can be really tough to pinpoint what KPIs you should be tracking, because you can pretty much have a KPI for anything, like literally anything you can pretty much set up a KPI for.
• 2:18
  SPEAKER_00: So because of that, I want to walk you through five financial KPIs that matter for pretty much every small business.
• 2:26
  SPEAKER_00: The first one, especially for service-based businesses, is monthly recurring revenue or MRR for short.
• 2:35
  SPEAKER_00: This metric tracks how real how much reliable, predictable revenue are you generating each month.
• 2:43
  SPEAKER_00: It takes away your one-time projects and it really shows your stable financial base, which is important, especially for decision making, having that monthly recurring revenue.
• 2:54
  SPEAKER_00: That's revenue you can depend on.
• 2:57
  SPEAKER_00: So then you can make decisions based off of that.
• 3:00
  SPEAKER_00: And then all of the projects and things that are one-time are really just on top of that, right?
• 3:06
  SPEAKER_00: So that's the first one monthly recurring revenue or MRR.
• 3:10
  SPEAKER_00: The second KPI or metric that you can track is your profit margin.
• 3:15
  SPEAKER_00: We've talked about this before.
• 3:18
  SPEAKER_00: It's your net profit divided by your revenue.
• 3:21
  SPEAKER_00: This is your true health indicator.
• 3:24
  SPEAKER_00: Are you keeping enough of what you make?
• 3:28
  SPEAKER_00: And we've iterated on this many times in the past because we're profit points and we talk about profitability.
• 3:34
  SPEAKER_00: The truth is, is if your business isn't profitable, then everything else will eventually collapse.
• 3:41
  SPEAKER_00: So keeping a pulse on where it is and where it's been can be so helpful for identifying how your business decisions and activities affect your profitability.
• 3:52
  SPEAKER_00: And sometimes your business might be at a loss.
• 3:54
  SPEAKER_00: And that's okay too.
• 3:56
  SPEAKER_00: The thing that you're wanting to track, even if you have a loss, is that the loss is getting smaller and you're approaching profitability.
• 4:04
  SPEAKER_00: Okay, so third is the client acquisition cost or your CAC.
• 4:09
  SPEAKER_00: How much does it cost you in marketing time and tools to bring on one new client?
• 4:17
  SPEAKER_00: You can get this information from a number of different places.
• 4:21
  SPEAKER_00: If you have a POS system, if you have your books in order, you can look at what those costs are and then divide it by the number of new clients that you got in a period of time.
• 4:31
  SPEAKER_00: If you don't know this, you're probably either overspending on marketing or underselling its value.
• 4:38
  SPEAKER_00: So the client acquisition cost can help you make good decisions about what you're spending your time on and what your marketing cost is, and then also what investments to make in marketing, because there's a lot of different things you can do with marketing.
• 4:52
  SPEAKER_00: Not saying any of them are bad, but you need to be informed.
• 4:56
  SPEAKER_00: So CAC or your client acquisition cost is number three.
• 4:59
  SPEAKER_00: Your fourth one is your average revenue per client.
• 5:04
  SPEAKER_00: You want to divide your total revenue by the number of active clients.
• 5:10
  SPEAKER_00: Is this number growing?
• 5:12
  SPEAKER_00: Staying flat?
• 5:13
  SPEAKER_00: Is it declining?
• 5:14
  SPEAKER_00: It tells you whether your price is saying pricing and upsell strategies are working.
• 5:20
  SPEAKER_00: And if you aren't tracking this, you can get that information to figure that out.
• 5:25
  SPEAKER_00: Upselling is important as well.
• 5:27
  SPEAKER_00: So when's the last time you went back to look at what your current clients are and is there any other opportunities to help serve them?
• 5:35
  SPEAKER_00: It doesn't need to be as frequent as a K of a KPI.
• 5:39
  SPEAKER_00: A same thing with the client acquisition costs.
• 5:41
  SPEAKER_00: I would say at least quarterly or even on a semi-annual basis, are these these KPIs can be tracked.
• 5:47
  SPEAKER_00: Unless you're being really aggressive, then you might want to track them more monthly.
• 5:51
  SPEAKER_00: Okay, so then the fifth one is owner pay as a percentage of revenue.
• 5:56
  SPEAKER_00: This one is personal for you, of course, um, but it's gonna help you determine if you're paying yourself consistently and if your compensation reflects a fair return on the business that you've built.
• 6:09
  SPEAKER_00: So if you're making$10,000 and you're only paying yourself a thousand, that's 10%.
• 6:15
  SPEAKER_00: Is that a fair percentage?
• 6:17
  SPEAKER_00: I don't know.
• 6:18
  SPEAKER_00: You have to be the one to determine that, but that's a number that you should be looking at.
• 6:23
  SPEAKER_00: So all of the five of them, just to reiterate monthly recurrent revenue, MRR, your profit margin, your client acquisition cost, your average revenue per client, and then your owner pay as a percentage of revenue.
• 6:40
  SPEAKER_00: Let's say you track these five, and here's what you find: your MRR is 14,500.
• 6:47
  SPEAKER_00: Your profit margin is 22%, your client acquisition cost is$380 per new client, and your average revenue per client is$1,210 per month.
• 7:00
  SPEAKER_00: Owner paying as a percentage of revenue is 34%.
• 7:03
  SPEAKER_00: Now you have these real numbers on a dashboard.
• 7:06
  SPEAKER_00: You know you're profitable because your profit margin is 22%.
• 7:10
  SPEAKER_00: Your client acquisition cost is effective relative to the revenue each client generates, because that client acquisition cost was$380 per new client, but your re month average revenue per client is$1,200.
• 7:24
  SPEAKER_00: So you spend$380 to get$1,200 per month, that makes sense, right?
• 7:29
  SPEAKER_00: And then you're paying yourself appropriately 34%.
• 7:33
  SPEAKER_00: The one rec one flag, if MRR is flat for three months in a row while your CAC is rising, that could be a conversation starter.
• 7:44
  SPEAKER_00: Why is your monthly recurrent revenue not improving even though your client acquisition costs are rising?
• 7:51
  SPEAKER_00: That's where the data, that's how you can start using this data and use it to make sense on what's happening and give you actionable information to start acting on.
• 8:01
  SPEAKER_00: So this week, because you know we always have to have an action step.
• 8:05
  SPEAKER_00: This week, pick three of the five KPIs and calculate them for last month.
• 8:12
  SPEAKER_00: Write them down, and that's your dashboard.
• 8:15
  SPEAKER_00: And then next month, track the same three month KPIs.
• 8:20
  SPEAKER_00: Or just track the same KPIs for next month.
• 8:23
  SPEAKER_00: The power isn't any one month's number, it's seeing the trends, um, which is what I talk about too, of comparing where you have been to where you are really is helpful to be able to bring that data together, even in your monthly reports.
• 8:39
  SPEAKER_00: You the truth is you don't need 30 metrics, you just need three to five that you can actually understand and actually watch and actually start to use.
• 8:47
  SPEAKER_00: The goal isn't to track everything, the goal is to know the right things because too much information is gonna be detrimental.
• 8:57
  SPEAKER_00: So we gotta find that happy medium.
• 8:59
  SPEAKER_00: If you're not sure which KPIs are most relevant to your specific business, that's a great reason to have a strategy call with me.
• 9:08
  SPEAKER_00: So book yours today.
• 9:11
  SPEAKER_00: You can go to chatwithmeg.com.
• 9:13
  SPEAKER_00: Let me put that up on the screen if you're watching.
• 9:15
  SPEAKER_00: Chatwithmeg.com takes you to my website where you can book a call.
• 9:19
  SPEAKER_00: No pressure, just a conversation.
• 9:22
  SPEAKER_00: You'll walk away with something, I promise.
• 9:25
  SPEAKER_00: All right.
• 9:25
  SPEAKER_00: So that's it for today, and I will talk to you next time.
• 9:28
  SPEAKER_00: Have a good one.
• 9:30
  SPEAKER_00: All right, that's your episode this time.
• 9:32
  SPEAKER_00: Don't forget your action step.
• 9:34
  SPEAKER_00: I want you to actually do it, not just add it to the list.
• 9:37
  SPEAKER_00: If this episode was helpful, share it with a fellow business owner who needs to hear it.
• 9:41
  SPEAKER_00: And if you're ready to go deeper on your specific numbers, book a strategy call with Sidekick Accounting.
• 9:47
  SPEAKER_00: Go to chatwithmeg.com, and I'll see you next time on Profit Points.