Financial KPIs Every Small Business Should Track

You can’t improve what you don’t measure. But measuring everything creates noise. The key is tracking the right numbers—the ones that actually reveal how your business is performing and where it’s headed.

Here are the financial KPIs every small business should track, why they matter, and how to use them.

Revenue Metrics

Total Revenue

What it is: Total money earned from sales

Why it matters: The top line. Everything else starts here.

Track: Monthly, year-over-year comparison

Goal: Growth trend, hitting targets

Revenue Growth Rate

Calculation: (Current Period Revenue - Prior Period Revenue) / Prior Period Revenue × 100

Why it matters: Shows momentum and trajectory

Track: Monthly and annually

Benchmark: 10-25% annual growth is healthy for most small businesses

Revenue per Employee

Calculation: Total Revenue / Number of Employees

Why it matters: Measures productivity and efficiency

Track: Quarterly

Benchmark: Varies widely by industry. Compare to your own history and industry peers.

Average Transaction Value

Calculation: Total Revenue / Number of Transactions

Why it matters: Reveals pricing power and upselling effectiveness

Track: Monthly

Goal: Increase over time through pricing, bundling, upselling

Profitability Metrics

Gross Profit Margin

Calculation: (Revenue - COGS) / Revenue × 100

Why it matters: Shows how much you keep after direct costs. Foundation for covering overhead and profit.

Track: Monthly

Benchmarks:

• Services: 50-80%
• Retail: 25-50%
• Manufacturing: 25-35%
• Restaurants: 55-65%

Net Profit Margin

Calculation: Net Income / Revenue × 100

Why it matters: The bottom line. What you actually keep.

Track: Monthly

Benchmarks:

• Strong: 15-20%+
• Good: 10-15%
• Acceptable: 5-10%
• Concerning: Under 5%

Operating Expense Ratio

Calculation: Operating Expenses / Revenue × 100

Why it matters: Shows operational efficiency. Are you running lean or bloated?

Track: Monthly

Goal: Lower is generally better, but don’t cut muscle

EBITDA

Calculation: Earnings Before Interest, Taxes, Depreciation, and Amortization

Why it matters: Shows operational profitability independent of financing and accounting decisions. Common valuation metric.

Track: Monthly or quarterly

Use: Comparing profitability across periods, business valuation

Cash Flow Metrics

Operating Cash Flow

What it is: Cash generated from core business operations

Why it matters: Profit is an opinion; cash is a fact. This shows actual cash generation.

Track: Monthly

Goal: Consistently positive

Cash Burn Rate

Calculation: (Starting Cash - Ending Cash) / Number of Months

Why it matters: For unprofitable or investing businesses, shows how fast you’re using cash

Track: Monthly when applicable

Use: Planning funding needs, runway calculation

Cash Runway

Calculation: Cash on Hand / Monthly Burn Rate

Why it matters: How long you can survive at current burn rate

Track: Monthly for cash-burning businesses

Goal: 6+ months minimum

Days Sales Outstanding (DSO)

Calculation: (Accounts Receivable / Revenue) × Days in Period

Why it matters: How long it takes to collect from customers

Track: Monthly

Benchmark: Should be close to your payment terms (Net 30 = ~30 days DSO)

Days Payable Outstanding (DPO)

Calculation: (Accounts Payable / COGS) × Days in Period

Why it matters: How long you’re taking to pay vendors

Track: Monthly

Goal: Balance cash benefit against vendor relationships

Liquidity Metrics

Current Ratio

Calculation: Current Assets / Current Liabilities

Why it matters: Can you pay short-term obligations?

Track: Monthly

Benchmarks:

• Strong: Above 2.0
• Adequate: 1.5-2.0
• Tight: 1.0-1.5
• Danger: Below 1.0

Quick Ratio (Acid Test)

Calculation: (Current Assets - Inventory) / Current Liabilities

Why it matters: More stringent liquidity test, excludes inventory

Track: Monthly

Benchmark: Above 1.0

Working Capital

Calculation: Current Assets - Current Liabilities

Why it matters: The cushion between what you have and what you owe short-term

Track: Monthly

Goal: Positive and growing

Efficiency Metrics

Inventory Turnover

Calculation: COGS / Average Inventory

Why it matters: How fast inventory moves. Slow turnover ties up cash.

Track: Monthly or quarterly

Benchmark: Higher is generally better. Compare to industry.

Accounts Receivable Turnover

Calculation: Net Credit Sales / Average Accounts Receivable

Why it matters: How efficiently you’re collecting

Track: Monthly

Goal: Higher is better (faster collection)

Return on Assets (ROA)

Calculation: Net Income / Total Assets × 100

Why it matters: How efficiently assets generate profit

Track: Quarterly or annually

Benchmark: 5%+ is generally good for small business

Growth and Investment Metrics

Customer Acquisition Cost (CAC)

Calculation: Total Sales & Marketing Costs / Number of New Customers

Why it matters: How much you spend to get each customer

Track: Monthly or quarterly

Goal: Lower than customer lifetime value

Customer Lifetime Value (CLV or LTV)

Calculation: Average Revenue per Customer × Average Customer Lifespan

Why it matters: Total value of a customer relationship

Track: Quarterly

Goal: Should be 3x+ your CAC

LTV:CAC Ratio

Calculation: Customer Lifetime Value / Customer Acquisition Cost

Why it matters: Are you getting enough value from customer acquisition spending?

Track: Quarterly

Benchmarks:

• Below 1: Losing money acquiring customers
• 1-3: Need improvement
• 3-5: Healthy
• Above 5: May be underinvesting in growth

Creating Your KPI Dashboard

Choose Your Core Metrics

Don’t track everything. Choose 5-10 KPIs most relevant to your business:

Every business should track:

• Revenue (and growth rate)
• Gross profit margin
• Net profit margin
• Cash position
• Accounts receivable aging

Add based on your situation:

• Product business: Inventory turnover
• Service business: Revenue per employee
• Subscription business: Churn rate, LTV
• Growing business: CAC, LTV:CAC

Set Up Tracking

Weekly (5 minutes):

• Cash position
• Revenue vs. target

Monthly (30 minutes):

• All core KPIs
• Comparison to prior month and prior year
• Variance analysis for significant changes

Quarterly (1-2 hours):

• Deep dive analysis
• Trend review
• Target adjustment if needed

Create Visual Dashboards

Track KPIs visually over time:

• Spreadsheet charts
• Accounting software dashboards
• Dedicated tools (Fathom, LivePlan, Spotlight)

Visual trends reveal patterns numbers alone miss.

Interpreting Your KPIs

Look for Trends

Single data points are less meaningful than trends:

• Is the metric improving, stable, or declining?
• How does it compare to last year?
• Is the trend sustainable?

Investigate Variances

When KPIs change significantly:

• Is there an obvious explanation?
• Is it a one-time event or new pattern?
• Does action need to be taken?

Compare to Benchmarks

Industry benchmarks provide context:

• Where do you stand versus peers?
• Are gaps concerning or acceptable?
• What would improvement look like?

Connect the Dots

KPIs are related:

• Low gross margin + high revenue growth = potential profitability problem
• Good profit + negative cash flow = working capital issue
• High revenue per employee + declining profit = pricing or cost issue

Look for stories in the numbers.

Taking Action on KPIs

KPIs exist to drive action:

Revenue Declining

Actions:

• Review marketing effectiveness
• Analyze customer retention
• Evaluate pricing
• Assess competitive position

Margins Compressing

Actions:

• Review pricing strategy
• Negotiate supplier costs
• Analyze product/service mix
• Cut unnecessary costs

Cash Flow Problems

Actions:

• Accelerate collections
• Slow payments (carefully)
• Review inventory levels
• Evaluate customer credit

Liquidity Tight

Actions:

• Build cash reserves
• Secure credit line
• Reduce unnecessary spending
• Accelerate profitable activities

Your KPI Action Plan

This Week

1. Identify 5-7 core KPIs for your business
2. Calculate current values
3. Research industry benchmarks

This Month

1. Set up monthly tracking system
2. Calculate prior 6-12 months of history
3. Identify concerning trends
4. Create action plan for problem areas

Ongoing

1. Track weekly/monthly as appropriate
2. Review dashboard monthly
3. Investigate significant changes
4. Adjust tactics based on KPIs

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Want help understanding your business metrics? At Profit Path Books, we help small business owners track the right numbers and understand what they mean. Book a consultation to discuss your situation.