Most SMEs Do Not Understand Their Key Metrics

Many SMEs focus on branding, innovation, and growth projections - but overlook the business metrics that truly determine long-term success. Research shows that a significant number of UK SMEs either fail to track critical metrics or review them infrequently, leaving dangerous blind spots in performance, valuation, and risk management. This article explores why metrics are often misunderstood or ignored, the serious consequences this can have on valuations and resilience, and how expert analysis of the right data can uncover weaknesses, strengthen strategy, and unlock sustainable growth.

SMEs who fail to analyse key metrics risk jeopardising their companies

An impressive internet presence, an innovative USP and a clear idea of next quarter’s projections, may all spring to mind when we think about what makes a successful start-up. But what about the company’s often overlooked business metrics?

A 2016 survey by Geckoboard (a software company specialising in evaluating business data), discovered that almost half of UK SME owners (49%) failed to identify the critical metrics that directly impacted their business’s development.

Even amongst those companies that did actively track their key metrics, most only did so on a monthly basis or less frequently, leaving significant gaps in data analysis. In addition, over 30% of UK SMEs admitted that the key metrics they tracked were never reassessed, meaning that any changes needed as its strategy evolved failed to be implemented. Moreover, the wider question remains; how can UK SMEs successfully contribute to the country’s economic development without visibility of the key factors that drive business growth?

Valuation Pitfalls

Vestd, (a share tech platform), warns of the danger that overlooking a company’s business metrics have on the organisation’s valuation. Taken from a trove of similar horror stories, this one details how relying too heavily on a few clients can be problematic for valuations. It describes a video marketing company founded 3 years ago that had got to proof of concept stage and started generating a solid profit. However, production centred around a single employee. When the account managers failed to close any deals and revenue stalled the employee lost faith in the business and resigned from the company leaving it in debt and no longer viable. From a valuation standpoint, customer or in this case employee concentration is a major risk factor.

Vested also advises that businesses that are forthcoming and transparent with their financials often achieve higher valuations because potential investors see them as trustworthy and lower risk.

Mystifying Metrics

A study by JDR (a digital marketing company) examined the reasons why business metrics are being overlooked by SMEs. A shortage of time and manpower, as well as a lack technology, namely sufficient analytics software, to measure the results are two deterrent factors. A lack of knowledge as to which metrics to capture and analyse was also blamed.

In general, business metrics are quantitative measures used to monitor and evaluate various facets of a company’s performance. These metrics provide a valuable understanding of the effectiveness of strategies, efficiency of operations, and create an overview of the business’s overall health. Metrics allow businesses totrack progress, distinguish areas for improvement, and make educated decisions. They serve as a basis for assessing performance and aligning actions with specific goals.

Wayne Eckerson, the author of Performance Dashboards: Measuring, Monitoring, and Managing Your Business, sets out 12 characteristics of effective performance management metrics. Eckerson asserts they should be ‘strategic, simple, owned, actionable, timely, referenceable, accurate, correlated, game-proof, aligned, standardised, and relevant.’

The Solution

Venture Comet, an experienced IT and business consulting services company uses a number of key business metrics to analyse a company’s business model and stimulate its continued growth including:

Burn Multiple – Defined as how efficiently a company uses its capital to generate new recurring revenue.
Compound Annual Growth Rate – Measures your investment’s average annual growth over a given period.
Customer Acquisition Cost – The metric that measures the total expenses a business incurs to acquire a new customer, for example on sales and marketing costs.
Client Concentration – Refers to the extent to which a business’s revenue is derived from a small number of clients, whereby high client concentration is classed as problematic.
Recurring and Non-recurring Revenue – Recurring revenue entails a predictable cash flow in that allows the calculation of expected earnings per month or year. Conversely, non-recurring revenue constitutes a one time purchase.

Expert interpretation such as this of a company’s metrics is pivotal in a number of ways. It informs business strategy and ensures that the correct actions are being carried out to maximise growth, valuations and exit opportunities. It also highlights and aids the evaluation of the businesses’ strengths and weaknesses and can formulate a plan of action to successfully support the company’s growth. Organisations like Venture Comet can provide an effective business metrics evaluation service that can help your business avoid hidden pitfalls and reach its true potential.