15 Ways to Measure Small Business Growth

The success of any small business depends on its ability to grow, no matter how small or large. Without growth, a business will eventually stagnate and decline. However, simply growing for the sake of growth is not enough. A business needs to measure its growth precisely to ensure it is on track and progressing towards its goals.

In this blog, we'll share 15 ways to measure company growth that will help you set realistic targets and track the progress over time. It will help you identify areas where a business needs to focus its efforts to drive further growth. We will also provide valuable insights to flag early warning signs of trouble ahead. Let's begin.

Why Measuring The Growth Of Small Business Is Important?

Below are some key reasons that make measuring the growth of small businesses important:

1. Increased Sales

The top line or revenue is the most important metric for any business. It measures how much your company is selling and hence, its primary source of income. Monitoring sales growth will give you an indication of whether your marketing and sales efforts are resulting in more customers and higher revenues.

In addition, sales growth will also show you how effective your pricing strategy is. If your revenues are not growing as fast as your costs, it could be a sign that you need to revisit your prices.

2. Increased Profitability

Growth in sales is not the only thing that matters; profits are important too. If your costs are growing faster than your revenues, it will eat into your profits and eventually lead to a decline in the business.

Measuring profitability will help you keep an eye on your bottom line and ensure that your business is making enough money to sustain itself in the long run. It will also help you identify areas where you can cut costs without affecting the quality of your product or service.

3. Improved Cash Flow

Cash flow is the lifeblood of any business. A business will struggle to pay its bills, staff, and other expenses without adequate cash flow. Measuring cash flow will help ensure that your business has enough money to meet its financial obligations.

It will also help you predict when you might need to raise additional funds from investors or take out a loan to tide you over during tough times. Moreover, by tracking your cash flow, you can also ensure that your business is not overspending on unnecessary costs.

4. Easier Access To Capital

One of the main benefits of measuring and demonstrating growth is that it makes it easier for small businesses to access capital. Whether you're looking for a loan from the bank or investment from venture capitalists, they will want to see that your business is growing.

If you can show them that your business is on track to achieve its growth targets, then they will be more likely to invest in your company. Moreover, by regularly measuring and reporting your company's growth, you will be able to track its progress and make necessary changes to ensure that it remains on course.

5. Tax Benefits

Another benefit of measuring company growth is that it can help you save on taxes. In many countries, small businesses are eligible for tax breaks and incentives if they can show that they are growing. This includes deductions for business expenses, investments in new equipment, and hiring new employees.

In addition, measuring growth can help small businesses track their progress and identify areas where they need to improve. Without accurate data, it can be difficult to set realistic goals or make informed decisions about the future.

15 Steps To Measure Overall Small Business Growth

While there are many different ways to measure small business growth, below are fifteen of the most important:

1. Annual Revenue

When measuring the growth of a small business, annual revenue is one of the most important factors to consider. This metric provides a clear and concise overview of a company's financial health and can be used to compare year-over-year growth or track long-term trends.

While annual revenue is not the only metric that should be considered when evaluating a business, it is a good starting point for understanding a company's overall health. This metric will indicate whether your business is selling more products or services and hence, generating more income.

2. Net Profit Margin

Net profit margin is one of the steps small businesses take to measure growth. Although it's important to look at the bottom line, small businesses need to go further and understand their net margin.

The net margin tells business owners how much profit they make on each sale after all expenses are paid. Net profit margins vary widely by industry, but businesses with higher margins are typically doing better than those with lower margins.

This metric is important because it shows how much of every dollar earned by the company is converted into profit. A high net profit margin indicates that a company is efficient at generating profits and can be indicative of future growth.

3. Gross Margin

Gross margin metric tells business owners how much profit they make on each sale after the cost of goods sold (COGS) is considered. The gross margin is important because it shows how much of every dollar the company earns is converted into profit after COGS.

If a company's gross profit in Q1 was $100,000 and in Q2 it was $120,000, the gross profit growth would be 20%. Learning how to calculate Gross profit growth can be a helpful metric for businesses as it can give them an idea of how their sales are increasing and if they are becoming more efficient. A high gross margin indicates that a company is efficient at generating profits and can be indicative of future growth.

4. Operating Income Margin

Operating Income Margin helps measure the small business growth. The margin will show a company's profit after paying for all its operating expenses. This number is important because it shows how well a company generates profits from its operations.

A high margin means that a company is very efficient at generating profits, while a low margin indicates that it needs to find ways to improve its operational efficiency. There are a few things to remember when interpreting Operating Income Margin.

  • First, it's important to compare companies in the same industry because margins can vary widely across industries.
  • Second, businesses with high fixed costs (such as manufacturing companies) will usually have lower margins than businesses with low fixed costs (such as service companies).
  • Finally, it's important to remember that Operating Income Margin is just one metric; it's not the be-all and end-all of measuring profitability.

5. Return On Assets

ROA is one of small businesses' most important ratios to measure their growth. This ratio tells business owners how much profit they make for each dollar of assets they own.

ROA is important because it shows how efficiently a company uses its assets to generate profits. A high ROA indicates that a company is efficient at generating profits and future growth.

6. Return On Equity

ROE is another ratio that small businesses use to measure their growth. This ratio tells business owners how much profit they make for each dollar of equity they have invested in the company.

ROE is important because it shows how efficiently a company uses its equity to generate profits. A high return on equity indicates a company is highly efficient at generating profits and is an indicator of future growth.

7. Debt To Equity Ratio

The debt to equity ratio is a financial ratio that measures the percentage of a company's assets that are financed by debt. This ratio is important because it shows how much debt a company uses to finance its growth.

A high debt to equity ratio indicates that a company uses a lot of debt to finance its growth and can be risky. A low debt to equity ratio indicates that a company is financing its growth with equity and is less risky.

8. Days Sales Outstanding

DSO aka Days Sales Outstanding is a metric that measures the average number of days it takes a company to collect payment after a sale has been made. This figure is important because it provides insight into a company's ability to efficiently manage its accounts receivable and promptly collect payments from its customers.

A high DSO indicates that a company is having difficulty collecting payments, leading to cash flow problems and negatively impacting growth. Conversely, a low DSO indicates that a company effectively manages its accounts receivable and collects payments on time.

While there is no "ideal" DSO for all companies, businesses should strive to maintain a DSO that aligns with their industry average.

9. Inventory Turnover

Inventory turnover is one of the best ways to measure company growth. It shows how quickly a company is selling its inventory and help determine how well a company is managing its inventory. A high inventory turnover suggests that a company is selling its inventory quickly, thereby improving its cash flow.

In many cases, companies with low inventory turnover aren't selling their inventory quickly, which is detrimental to the business. When using this metric, it is important to compare companies in the same industry, as turnover rates can vary widely across industries.

10. Accounts Receivable Turnover

Often, small businesses will experience rapid growth in their early stages. However, this growth can quickly stall if not managed properly. One way to ensure growth continues is to closely monitor accounts receivable turnover. The accounts receivable turnover metric measures the times a small business collects its receivables over a year.

A high turnover rate indicates that a business is effectively collecting customer payments. On the other hand, a low turnover rate could mean your business is having difficulty collecting payments, which can ultimately affect cash flow and stagnant growth.

11. Gauging Employee Productivity

It's important to keep track of your employees' productivity to gauge your business's overall growth. There are several ways to do this, but one of the most effective is to use key performance indicators (KPIs).

KPIs are specific metrics that can be used to evaluate employee productivity by measuring sales per employee, number of customer complaints, or percentage of projects completed on time. By tracking these KPIs, you can clearly see which employees are meeting their targets and which ones need improvement.

In addition, you can also use KPIs to identify any bottlenecks in your business process. By addressing these issues, you can help ensure that your business continues to grow at a healthy pace.

12. Monthly Recurring Revenue

For small businesses, monthly recurring revenue is an important metric to track. This figure measures the amount of revenue that a business can count on each month, and it can provide valuable insights into overall growth.

Several factors can affect monthly recurring revenue, including the number of customers, the average customer spend, and churn rate. A high MRR indicates that a company has a large, stable, and predictable source of revenue. A low MRR indicates that a company has a small, volatile, and unpredictable source of revenue.

In addition, MRR can be used to predict future growth. By tracking this metric regularly, businesses can get a clear picture of their growth trajectory and make necessary adjustments along the way.

13. Monitoring Website Traffic

Monitoring website traffic is important for measuring the overall growth of a small business. By tracking how many people visit the site, how long they stay, and what pages they view, businesses can better understand what is working and what needs improvement.

Traffic data can also be used to assess marketing campaigns' effectiveness and identify potential new customers. While website traffic can be monitored using various tools, it is important to choose a tool that provides accurate and actionable data to help generate leads and sales.

14. Determining ROI

ROI, or Return on Investment, is a metric that is often used to measure the growth of a small business. It provides a clear and concise way to compare the profitability of different investments. ROI can be used to compare the performance of a small business over time.

For instance, if a small business has an ROI of 50% in one year and 60% in the next year, the business is growing at a healthy rate. In addition, ROI can be used to compare different marketing campaigns to see which is more effective.

When used correctly, it can provide valuable insights into the profitability of different investments and the overall performance of a small business over time.

15. Customer Acquisition Cost

Customer Acquisition Cost (CAC) is a metric that helps small businesses measure their growth. CAC is the total amount of money spent on acquiring new customers, divided by the number of new customers acquired. This metric is important because it helps businesses track their progress in acquiring new customers and assess the efficiency of their customer acquisition strategies.

For example, if you spent $100 on marketing and acquired 10 new customers, your CAC would be $10 per customer. Keep tabs on your CAC over time to see if it's increasing or decreasing. If it's increasing, that means you're spending more to acquire each new customer, which can put a strain on your budget. If it's decreasing, you're becoming more efficient at acquiring new customers, which is a good sign of growth.

How Fincent Can Help In Measuring Small Business Growth?

How does a company measure profit growth was a mystery before. But now you know that it is crucial, but using an accurate tool is even more essential. Fincent is a financial management tool that can help small businesses measure and manage their growth. Fincent provides users with real-time financial insights and a variety of features designed to help small businesses, including:

1. Measuring Sales And Expenses

Fincent allows users to track their sales and expenses in real-time, making it easy to see where money is being made and spent. This is helpful in understanding which areas of the business are most profitable and where cost savings can be made. By helping businesses measure their growth and manage their finances, Fincent empowers small businesses to succeed.

2. Tracking Inventory And Orders

By tracking inventory and orders, Fincent can help you understand your sales process clearly and identify areas where improvements can be made. In addition, you can easily track your progress over time and see exactly how your business is progressing.

The inventory management feature allows businesses to keep track of stock levels and orders. It ensures that businesses have the necessary supplies to meet customer demand. As a result, Fincent is an invaluable tool for any small business owner serious about taking their business to the next level.

3. Seeing Your Overall Profit And Loss

Whether you're just starting or you've been in business for years, it's important to track your progress to make informed decisions about your future. Fincent provides detailed insights into your overall profit and loss and key metrics like revenue, expenses, and more.

This information can help you see where your business is growing and where there may be room for improvement. With our easy-to-use platform, you can access your data anytime, anywhere.

4. Generating Reports

Fincent's reporting capabilities make it easy to generate detailed reports on all aspects of the business, including sales, expenses, inventory, and profit & loss. It allows you to compare the performance of your business to industry benchmarks. While there are many financial reporting tools on the market, Fincent stands out for its profit growth formula and ability to provide actionable insights.

5. Measuring Gross Income

Gross income is the total revenue that your business brings in before expenses are deducted. This number provides a valuable snapshot of your company's overall health and can help you identify trends over time. Fortunately, tracking gross income is easier than ever with Fincent.

It automatically calculates gross income for each transaction, making it easy to see how your business is performing. In addition, the reports provide detailed insights into which products or services are generating the most revenue. With this information at your fingertips, you'll be able to make decisions that will boost your business.

While there are many ways to track sales trends, Fincent offers a unique and easy-to-use solution to help you identify sales patterns and make better decisions about your business.

With Fincent, you can track your sales data over time. This data is then presented in an easy-to-read format, including graphs and charts. As soon as certain sales targets are met, you will receive an alert.

7. Setting Benchmarks

Benchmarks provide a point of reference against which you can compare your progress. They can help you to identify areas of strength and weakness and to set realistic goals for future growth. Fincent is a great resource for finding benchmarks specific to your industry and business size.

8. Determining Growth Rate

Regularly assessing your company's growth helps you to make informed decisions about where to allocate resources and how to best move forward. Fincent can help determine your business growth rate, which is the percentage change in revenue or other metrics over a period of time. This information can be extremely valuable in identifying trends and assessing the health of your business.

Closing The Deal!

There are many ways to measure company growth but choosing the right metrics is crucial to the success of your business. Fincent can help small businesses measure and manage their growth by providing users with real-time financial insights, which can be used to make informed decisions about where to allocate resources.

Fincent offers a variety of features that can help small businesses manage their cash flow, including the ability to track sales and expenses, inventory and orders, generate reports, and set benchmarks. So why wait? Get started today and see the difference we can make for your small business.