3 KPIs For Small Businesses To Grow Net Profit

Are you looking to grow your small business? If so, you'll need to track and measure the right metrics. In this blog post, we will discuss the three key performance indicators KPIs. that will help you achieve your goals. These metrics are Average Order Value, Conversion Rate, and Visitors. Let's dive in!

Key Performance Indicators: The Lifeblood For The Small Business Owner

What makes a good KPI for a business owner

Cash flow is king. Without a steady inflow of cash, it's difficult to cover operating expenses and achieve your business objectives. That's why one of the most important aspects of running a successful business is tracking key performance indicators (KPIs). KPIs give owners visibility into how their business is performing and whether they are on track to meet their goals. But with so many potential KPIs to track, a roadblock commonly encountered is determining which ones are most important for their business goals?

Today's small businesses should be looking at any KPI tied directly to net profit. Cash flow is the lifeblood of your business when you run out the game ends.

Why These 3 KPIs Are Directly Tied To Your Cash Flow: Visitors, Average Order Value, & Conversion Rate

The formula you will want to use for your business is:

The more website traffic you have the more chance you have to convert these visitors into sales.

Higher AOV means every purchase is worth more to your business.

While a better conversion rate means the visitors you have will purchase more often.

By tracking these 3 indicators, owners can gain insight into whether their business is achieving profitability and sustainability.

How To Use These KPIs To Determine Success

Success for a small business can mean different things depending on the business owner's goals. For some, it may mean remaining afloat financially, while for others it may mean growing the business to a point where it can be sold for a profit.

The goal for the rest of this post is to explain why regardless of your business objectives. These three KPI's are the ones that should drive your business strategy and actions

Deep Dive Into How Each Of These KPI's Impact Your Business Growth

Why Visitors To Your Site Matter More Than You Think

When it comes to driving business growth, one of the most important metrics to consider is your customer acquisition cost. This metric refers to the amount of money that you spend on acquiring new customers, and it can have a major impact on your overall profitability.

If you would like to learn more about setting a Target Customer Acquisition Cost I have a post walking you through this.

However, there is another aspect of this metric that is sometimes overlooked: visitor's cost. Simply put, this is the amount of money that you have to spend on attracting visitors to your business or website. Higher visitor costs will result in higher customer acquisition costs for your business.

Many factors can influence visitors' costs, including marketing efforts like paid promotions and SEO techniques as well as competition in your industry. For example, if all of your competitors are investing heavily in paid ads or SEO strategies, then you may find yourself struggling to stay above water as you attempt to increase visibility for your business. Additionally, even small changes like website design or pricing strategies can have big impacts on whether or not people choose to visit your site and ultimately become customers.

Ultimately, it is crucial to keep an eye not just on your customer acquisition cost but also on the factors that drive visitor's costs so that you can decrease costs while maximizing profit and growth potential for your business.

All Visitors To Your Site Should Not Be Considered Equal

Many business owners are primarily concerned with acquiring new customers. However, acquisition costs can quickly become prohibitively expensive. One way to reduce these costs is to focus on visitors by traffic source. For example, looking into Google Analytics you may find you drive more visitors from your Facebook ads, but see most of your new customers coming from Google Ads.

Another example of how all visitors should not be considered equal is customer lifetime value. Consider a customer who spends $100 at your store. This may seem more expensive to acquire than a customer who spends $10, but if the gross profit on the $100 purchase is $50, then the lifetime value of that customer is much higher.

What Is Average Order Value & Why You Should Care About It

How to calculate your average order value

The average order value (AOV) is a metric that measures the average amount spent per transaction on your site.

To calculate your AOV, simply take the total revenue from all orders placed in a given period and divide it by the number of orders during that same period

For example, if you had 100 orders totaling $1000 in gross profit over a month, your AOV would be $1000/100, or $100.

How To Increase Your Average Order Value

There are several strategies that you can use to increase your average order value and maximize your bottom line.

One important factor to consider is your gross profit margin. A high gross profit margin indicates that you are making a good profit on each sale, which gives you more room to innovate and experiment with different promotions or upsell offers.

Bonus Tip: As we discussed with visitors if you cannot get the right traffic to your site customer acquisition costs may be too high which could reduce your gross profit. One way to make your traffic more affordable is to add additional upsells in your sales funnel. This will increase your gross profit and help make the traffic more affordable.

Brainstorming Ways To Increase Average Order Value

Looking for ways to increase your average order value? One way to do this is to dive into your competitor's sales funnel. This can sometimes mean buying your competitor's products and seeing their sales process.

Bonus Tip: Buy your competitor's product and make note of every page you visit what offers do they show you? An additional product, more of the same product, discount for a referral, join SMS or, another type of list?

Save the emails you receive so that you can edit them to fit your brand and offers. Make note of the Facebook ads or other paid ads you see directly after purchasing

Once you have this info you can use this as your baseline to increase your Average Order Value.

How You Can Increase Your AOV

There are several ways to increase your average order value, and keeping track of your gross profit margin is one of the most important. By selling products that have a higher gross profit margin, you'll be able to increase the amount of revenue you generate without having to significantly increase your prices.

By offering programs that encourage your most loyal customers to purchase on a regular basis, you can increase the amount of revenue you generate from each customer.

Finally, don't be afraid to offer additional services or products that complement what your customer is already buying. By offering add-ons and upsells, you can further increase the amount of revenue you generate from each order.

Why Conversion Rate Is Essential For Small Businesses

Conversion rate is one of the most important metrics for measuring the financial health of any business. A high conversion rate means that your business is doing a good job of converting visitors into customers. A low conversion rate, on the other hand, can be a sign that something is wrong with your marketing or sales process.

How To Calculate Your Conversion Rate

Your conversion rate is the percentage of visitors to your website that take any desired action. The desired action could be anything from filling out a contact form (Email/SMS Collection) to making a purchase.

To calculate your conversion rate, simply divide the number of conversions by the number of visitors and multiply by 100. For example, if you have 100 visitors and 10 of them fill out a contact form, your conversion rate would be 10%.

Conversion rates are important because they provide a way to measure how effective your website is at achieving its goals. If you have a low conversion rate, it means that most people who visit your site are not taking the desired action.

Factors that influence your conversion rate

Several factors can influence your conversion rate, including the quality of your leads, the effectiveness of your sales pitch, and the overall experience that potential customers have with your brand.

That's why it's so important to track your conversion rate closely and work to improve it over time. Even a small increase in conversion rate can have a big impact on your bottom line.

Similar to your visitors if you have a low conversion rate this can negatively affect your customer acquisition cost. As the low conversion rate requires more traffic to your site.

If you are interested in learning how to evaluate your Facebook Ad performance to find out if your site's low conversion rate is due to on-site issues or the traffic to your site, you can schedule a call with me.

4 Steps You Can Take Today To Improve Conversion Rate

If you're looking to improve your conversion rate here are the 4 steps you can take to improve your conversion rate.

Creative, Copy/Offer, Traffic, & Product

First, make sure the creative on your website is designed in an aesthetically pleasing and user-friendly way. This means having a clean, easy-to-navigate layout with clear CTAs. You should also ensure that your site loads quickly and that there are no technical errors.

Remember the Bonus Tip above about copying your competitor's sales funnel. This applies to website design as well. Find competitors in your niche and duplicate their success. No need to re-invent the wheel

Secondly, create compelling content that speaks to your target audience's needs and pain points. Understanding who your ideal customer is and what they're looking for is important. If the copy is not working consider optimizing your offer... discount on first purchase, giveaways, etc.

Third, you need to make sure you're driving the right visitors to your site. This means using effective SEO and social media strategies to reach people who are likely to be interested in what you have to offer.

Lastly, if none of the 3 steps above increased your conversion rate then you may want to re-evaluate the product you are using to drive new customers. This could include its positioning in the market, price point, etc.

Running your business using these 3 key metrics

Typically, I come to you with a spreadsheet to save you time tracking these metrics. However, this week I will be providing a quick walkthrough of how to view these numbers in Google Analytics. This way you will not have someone pull these numbers every week for you.

The One Google Analytics Trick Every Founder Should Know

As a small business owner, you may have no desire to get into the weeds on how numbers are pulled. However, there is one look-up in Google Analytics that every founder should know.

This is how to view your visitors by traffic source. This will give you a high-level overview of how your business is performing.

To find this report. Open your Google Analytics account and open the Acquisition tab -> All Traffic -> Source/Medium

Below is what you should see. On the left, you can see the source of your traffic.

Within this view, you can see new users to your site... your visitors, conversion rate, as well as last-click attribution for total revenue.

The Road To Success

By tracking and measuring these three key performance indicators for your small business, you can work to improve them over time. This, in turn, should provide more cash flow to grow your business.

The right visitors, a high AOV driven by possible upsells, and a high conversion rate equal positive cash flow and growing business.

Wondering how to put these metrics into action? I've put together a shortlist of the 3 sales funnels every eCommerce business needs.

If you would like help brainstorming new ideas to grow your business feel free to schedule a call with me.