If you’re a Forbes reader, I’m sure you’ve heard of “KPIs”—likely used in reference to large corporations like Google or Apple. Key performance indicators help companies quantitatively gauge their financial health. The specific indicator may vary depending on industry, but can include gross profit margins and income from repeat customers. However, these indicators should not be reserved for Fortune 500 companies; they are equally useful for small business owners and start-up entrepreneurs.

Why should you care about yet another acronym? The answer is simple. It is easy to become complacent when your business appears to be thriving, but the issue here is the verb: “appears.” Without some numbers to back your optimistic assumption, it is impossible to know how well your company is actually doing. More specifically, if you have a larger company, KPIs can help evaluate the performance of certain departments. For instance, how is your marketing team stacking up? Is there a solid return-on-investment? KPIs step in to answer questions like this.

How should you use them? KPIs require some fundamental characteristics. First, they must be quantifiable. That is, you must be able to measure them. Overly qualitative attributes—customer happiness, for instance—are not useful, because it is difficult to attach a number to these more abstract variables. KPIs should also be clearly defined and result-oriented prior to implementation. Finally, you should restrict the number of KPIs that you select. Too many will become overwhelming and potentially make it difficult to measure success.

It is also a good idea to consider your frame of comparison. Will you compare your chosen KPIs to last year’s numbers? Software platforms like LivePlan combine comparisons. In addition to temporal comparisons, they also evaluate your projected numbers against the actual values. The comparative step is crucial to effective KPI usage. Without it, you won’t know if your company is on an upward trajectory or sliding down a slippery slope.

Want some examples of KPIs that are useful for both small and large businesses?

Operating Income: Subtract Operating Expenses from Gross Profit (prior to taxes) to determine this KPI.

Net Profit Margin: This KPI is important for helping you determine how profitable your business is. It describes how much profit is earned on each dollar of revenue.

Accounts Payable: Other sub-KPIs can contribute to this indicator, but generally it describes the amount of money owed by your company to other companies.

KPIs can be intimidating even if you like numbers and analysis. After all, they have the potential to return bad news. However, when used properly, KPIs can show you exactly where your weaknesses are—with plenty of time to fix them!