Business Metrics That Matter: How to Measure Success in Your Small Business

How can you measure success in your small business?

Running a business is a constant balancing act. You’re busy with sales, staff, and suppliers, but when you look at the numbers, it’s not always clear if you’re actually making progress. It’s easy to get lost in reports and dashboards, especially when everyone seems to be talking about “growth”, “revenue”, and “KPIs”.
Recently, I spoke with Pam Jordan on The Business Behind Your Business podcast. Pam’s advice was straightforward: “It’s not about what you make that matters. It’s about what you keep.”

The Trap of Vanity Metrics

Pam shared a story that will sound familiar to many business owners. She’s worked with people who talk about their million-dollar sales, but when you look closer, they’re struggling to pay themselves. “I have known very rich, poor people,” she said. “They had a $5 million business, but at the end of the day, they were broke because they had no profits.”

These are what we call vanity metrics—numbers that look impressive but don’t help you make better decisions. Think total website visits, social media likes, or even gross sales. They might look good in a report, but they don’t help you run your business.

The Metrics That Matter

So, what should you focus on instead? Here are the metrics Pam and I recommend for every business owner:

• Net Profit: The money left after all expenses. This is the real measure of business health.
• Cash Flow: The movement of money in and out of your business. If you have positive cash flow, you can pay your bills and plan ahead.
• Gross Margin: The difference between sales and the direct costs of delivering your product or service.
• Customer Retention Rate: How many customers come back to buy again.
• Average Transaction Value: The average amount each customer spends per purchase.
• Owner’s Metric: A number that matters most to you—maybe profit per hour worked, or cash in the bank.

Pam Jordan explained, “Profit is your indicator of financial success and your financial freedom because profit is how you pay down your debt, pay yourself, and exit your business.”

Profit First: A Change in Approach

One of the most useful ideas Pam shared was the “Profit First” approach. Instead of hoping there’s money left over at the end of the month, you set aside profit first, then work out what you can spend. “It’s a mindset change,” she explained. “If you just get $10,000 and spend $10,000, you are not getting ahead.”

She told the story of a client in the hair salon industry who started putting aside profit every month. Soon, she had enough saved to open a second location—something that would never have happened if she’d just spent everything that came in.

The Danger of Chasing Sales

It’s tempting to think that more sales will solve your problems. But as Pam warned, “If you’re just focusing on revenue, revenue, revenue, and it’s not profitable revenue, you’re just going to be broke faster.”

She recalled a client who was selling products online at a loss. Every time he made a sale, it actually cost him money. “Until he realised that every dollar he made cost him a dollar twelve, he just kept digging a deeper hole.”

Setting Realistic Profit Goals

Many business owners struggle to answer a simple question: “How much profit do you want to make next year?” It’s not enough to say “more”. You need a clear, realistic target, based on your industry, your costs, and your personal goals.

Pam explained that profit targets vary by industry. A service provider might aim for a 40% net profit, while a tradesperson might be happy with 9%. The key is to understand your true costs—including debt repayments and taxes—so you can set prices that actually deliver the profit you need.

What Can You Do Next?

• Track the right numbers: Focus on profit, cash flow, and customer retention—not just sales.
• Review regularly: Check your numbers monthly or quarterly, not just at tax time.
• Use simple tools: A spreadsheet or accounting software like Xero or Quickbooks is enough to get started.
• Ask for help: If you’re not sure what to track, talk to your accountant or business adviser.

Frequently Asked Questions

What are the most important metrics for small business owners?

• Net profit, cash flow, and customer retention rate are usually the most important. But the right metrics depend on your business goals.

How often should I review my business metrics?

• At least once a month. Regular reviews help you spot trends and fix problems early.

What’s the difference between a KPI and a metric?

• A KPI (Key Performance Indicator) is a metric that’s directly linked to your business goals. Not all metrics are KPIs, but all KPIs are metrics.

How do I avoid focusing on vanity metrics?

• Ask yourself: “Can I make a decision based on this number?” If not, it’s probably a vanity metric.

What tools can help me track business metrics?

• Accounting software (like Xero or Quickbooks), spreadsheets, and business dashboards are all good options.

The numbers you track—and the way you use them—can make or break your business. As Pam Jordan put it, “Know your numbers and focus on your profit. Prioritise your profit, because if you don’t have accurate bookkeeping, you don’t know if you’re winning or losing.”

If you want to get a better handle on your business metrics, or you’d like to talk through your numbers with someone who understands what it’s like to run a business, get in touch with Pretium Solutions. Our team of Chartered Accountants and Certified Business Advisers can help you focus on what matters most to your business.

If you have questions about any terms or want to know more, please contact us at Pretium Solutions. We’re here to support you and your business goals.

Learn more here: Lead vs Lag Indicators: Why you won’t win in business while looking at the scoreboard