KPIs (key performance indicators) are specific numbers that show how well a company, a team or a process is working. Below are ten KPIs that matter for most small and mid-size businesses, with formulas and a short note on why each one is worth tracking.
1. Gross margin
How much of each sale remains after the cost of the product or service.
Gross margin = (Revenue − Cost of sales) / Revenue × 100%
Why: shows which products and services actually earn money.
2. Inventory turnover
How quickly the company sells and replenishes stock.
Inventory turnover = Cost of goods sold / Average inventory
Why: the higher the turnover, the less cash is frozen in the warehouse.
3. LTV (customer lifetime value)
How much gross profit one client brings over the whole relationship.
LTV = Average order value × Purchases per year × Years as a client × Gross margin %
Why: tells you how much you can afford to spend on acquiring a client.
4. CAC (customer acquisition cost)
How much it costs to win one new client.
CAC = Sales and marketing costs / Number of new clients
Why: CAC must stay well below LTV, otherwise growth destroys money.
5. EBITDA
Earnings before interest, taxes, depreciation and amortisation.
EBITDA = Net profit + Interest + Taxes + Depreciation and amortisation
Why: shows the operating profitability of the business without the effect of financing and accounting decisions.
6. Net cash flow
How much real money comes in and goes out.
Net cash flow = Cash in − Cash out (for the period)
Why: the key liquidity indicator. A profitable company can still run out of cash for salaries and rent.
7. Sales conversion rate
The share of leads that become paying clients.
Conversion = Number of sales / Number of leads × 100%
Why: shows how effective sales and marketing are, and where the funnel leaks.
8. Average order value
The average size of one purchase.
Average order value = Revenue / Number of orders
Why: one of the simplest levers of revenue, through upselling and cross-selling.
9. Customer retention rate
The share of clients who stay and keep buying.
Retention = (Clients at end − New clients) / Clients at start × 100%
Why: keeping a client is usually cheaper than winning a new one.
10. Marketing ROI
How much marketing spend returns.
Marketing ROI = (Gross profit from marketing − Marketing costs) / Marketing costs × 100%
Why: tells you which campaigns to scale and which to stop.
How to use these KPIs
- Pick 5–7 metrics that matter most for your business model right now.
- Give each metric one owner and a target.
- Put them on a one-page scorecard and review it every week with your managers.
- Automate the calculation, so the numbers come from your systems, not from manual reports.
A KPI is only useful if someone looks at it regularly and acts on it. Ten KPIs in a monthly Excel file change nothing; five KPIs on a live scorecard discussed every Monday change a lot.