When running a business, it can be difficult to stay on top of everything as there’s always so much to think about. It’s hard to know what’s important and what’s not, especially when a business is just starting out.
Business metrics can be used to help track progress and reach goals so it is important not to underestimate these seemingly simple numbers. To help businesses focus on what matters most, there are 5 key business metrics outlined below that should always be monitored.
Here are the top 5 business metrics all businesses should be sure to keep track of:
There’s more to sales revenue than whether or not the numbers are increasing or decreasing. Of course, any business owner wants to see the numbers continue to rise but what does this mean and how can this information be used?
- Sales revenue is the income from sales with any associated returns or defective items subtracted leaving the total amount earned from the sales. If the sales revenue is increasing it means the business is making more money. This could be due to a successful Twitter marketing campaign or another advertising strategy that’s been deployed.
- Businesses can use this information by observing the correlations between advertising drives, price changes, competitive actions and any other campaign action that has been taken in order to determine what is most effective and which measures will likely increase sales revenue further.
Gross margin is presented as a percentage and indicates the amount of revenue (per unit) retained by the company after the costs of goods sold from revenue is subtracted and this number is divided by the total sales revenue. This means:
- The higher the percentage is the more money the company retains on each pound – this money can then be used to assist with other costs or can be taken as profit.
- Monitoring gross margin can help improve efficiency and assist in identifying areas that can be improved upon. Gross margin can be increased by decreasing production costs e.g. streamlining current processes or by raising the price of products.
Tracking cash flow is essential for any business, positive cash flow is when the money coming in is more than the money going out whereas negative cash flow indicates more money is going out of the accounts than is coming in.
- Maintaining top financial health is essential, for businesses struggling with their cash flow there are options available to assist and improve the situation. To help free up cash flow many businesses choose to use invoice factoring in order to get paid faster and avoid negative cash flow.
- How invoice factoring works: Invoice factoring allows businesses to receive the majority of payment immediately as oppose to waiting for the customer to pay. This allows the main focus to be on other matters rather than on struggling in the waiting period between the issuing of an invoice and actually receiving the payment.
Net Profit Margin
The net profit margin indicates pure profit, it is the remaining income once all of the expenses have been subtracted from the sales made.
- This can be easily calculated by totaling up the earned revenue then subtracting all the expenses from that number, the number you get is the net profit margin.
- To improve net profit margin, revenue needs to increase which can be done by either reducing production costs or increasing selling price.
Customer Acquisition Cost
This figure indicates the amount of money being spent on acquiring new customers, it’s an excellent way of identifying the effectiveness of marketing campaigns.
- To calculate customer acquisition cost: Add up the marketing efforts for a set time period and divide this by the number of new customers acquired over that same period. The figure you get is the amount that is being spent on customer acquisition (per customer).
- Ideally this cost will be less than the amount of money the customer is likely to spend on products, if the acquisition cost is considerably more than this then steps should be taken to alter marketing techniques or refocus efforts on current customers.
All of this data is available at every business owner’s fingertips and it can be used to assist in making more informed business decisions. As you can see, by monitoring these metrics businesses are able to actively identify ways to improve systems and get closer to their goals.
These are 5 of the most important and useful business metrics and if monitored properly will help to guide businesses to success so if you’re a business owner be sure to keep an eye on them.
Edwin is a digital marketing strategist who enjoys helping people start, grow and monetize their blogs at edwindollars.com. When he’s not working on his blog.. oh who am I kidding, he’s always working on his blog! Download his free guide: Authority Blogging to start making more money with your blog today.