Tracking KPIs: The 5 Metrics Every CEO Should Watch

Financial reports provide history, but Key Performance Indicators (KPIs) provide insight into the future health of your business. Focusing on the right metrics allows you to make strategic decisions rather than reacting to surprises. Here are five actionable KPIs every small business CEO should be monitoring monthly.

1. Cash Conversion Cycle (CCC)

The CCC measures the time it takes for your investment in inventory/resources to be converted back into cash from sales. A shorter cycle is generally better, indicating strong **liquidity management**.

• Why it matters: A long CCC means your capital is tied up, potentially requiring external financing to cover operating expenses.
• Actionable Insight: Focus on collecting receivables faster and managing inventory more efficiently.

2. Gross Profit Margin

This is the percentage of revenue remaining after subtracting the **Cost of Goods Sold (COGS)**. This is your core profitability metric, showing how effectively you produce your primary services or goods.

• Formula: (Revenue - COGS) / Revenue.
• Actionable Insight: A declining margin means your production costs are rising faster than your prices. You may need to renegotiate supplier contracts or adjust pricing.

3. Customer Acquisition Cost (CAC)

CAC measures the total cost of sales and marketing needed to acquire one new paying customer. It includes all marketing spend, salaries, and related overhead.

• Why it matters: CAC must be significantly lower than the **Lifetime Value (LTV)** of a customer to ensure long-term profitability.
• Actionable Insight: If CAC is too high, evaluate which marketing channels are inefficient or if your sales process is too resource-intensive.

4. Monthly Recurring Revenue (MRR) / Annual Run Rate (ARR)

For service-based or subscription businesses, MRR is the predictable revenue base. For all businesses, tracking consistent monthly revenue growth is key to stability.

• Why it matters: Predictable revenue gives confidence for making new investments or hiring decisions.
• Focus: Track not just total MRR, but Net MRR (New MRR + Expansion MRR - Churned MRR).

5. Working Capital Ratio

The Working Capital Ratio (Current Assets / Current Liabilities) is a quick measure of your company’s short-term **solvency**. It indicates if you have enough readily available assets to cover short-term debts (like accounts payable).

• Ideal Ratio: A ratio between 1.5 and 2.0 is often considered healthy. Below 1.0 suggests potential short-term liquidity issues.
• Actionable Insight: If the ratio drops, you may need to increase your cash reserves or slow down liability accumulation.