Business Metrics Every Owner Should Know

Understanding analytics is a great thing for business owners to be able to do as it allows them to better tune into key insights and information that can help them make better business decisions as well as plan for the future. There are many business metrics that can paint a clear picture of what’s really going on within a business and enable owners to precisely and confidently evaluate how its performing. Business metrics, also known as KPIs (which stand for key performance indicators) are usually worked out and displayed by sophisticated KPI dashboards on various types of analytical software. Using this software can help present this information in an attractive, easy-to-read way but more than it, it can automate the analytical tasks, allowing business owners to spend time working on other vital objectives.

There are a lot of different metrics that can be extrapolated from various pieces of data regarding a business. However, it can be tricky to know which ones are the most useful and which ones can really help business owners. Tracking the wrong or irrelevant KPIs will distract owners from the things that truly matter and may cause them to end up stressing over numbers that ultimately don’t matter nearly as much. It’s really important to know which metrics you should track, so with that being said, here are some of the business metrics every owner should know.

Sales Revenue

The sales revenue metric can tell you a lot of different things about your business and because of this makes it a pretty important and useful thing to know. Month-to-month sales results demonstrate whether people have been interested enough in your brand to buy your products and services and also detects if your marketing efforts are paying off.

When evaluating your sales revenue and setting up goals, it’s important to take into consideration that these results are affected by multiple factors, not to mention that the person tracking the metric should also be conscious of recent changes in the market, previous marketing campaigns and competitive actions to ensure that the metric is provided with appropriate context.

To measure sales revenue, you need to sum up all of the income a business receives from client purchases and then detract the cost associated with either returned and undelivered products. This gives you an accurate reading of all the money you’ve made through sales alone. To improve this metric, you need to put more effort into increasing the number of sales, and this can be done by expanding your marketing or by hiring new salespeople. Just understand that growing your sales revenue isn’t an overnight fix and should be a long-term strategy a company works on over a long period as this ensures that the boosts in sales are sustainable and not temporary.

Net Profit Margin

This business metric is useful as it shows companies how well their business is at generating a profit compared to its revenue. In other terms, this number tells you how much of each dollar you earn translates into profits.

This KPI is a great way to predict long-term business growth and is useful to see how well your income exceeds the costs of running the business.

To work out this KPI, simply calculate the monthly revenue of your business and then reduce the amount by all the sales expenses. If your net profit margin isn’t looking too good, it can be improved upon by potentially raising the prices of your products or services and selling more. When raising prices, it’s important to know your market and to keep the prices in a realistic range, otherwise, you’ll drive customers away. Another method is to try and find ways to reduce your production costs while also ensuring that you can keep up with the competition. These tactics require great market research and strategizing, which are two things you can learn on a specialized MBA concentration. For an example, click here.

Gross Margin

There’s nothing disgusting about a gross margin, in fact, a high gross margin can be a really good indicator that your business is doing well, as the higher it is means the more the company earns by each sales dollar. Obtaining a good gross margin is really beneficial to a company, as it allows you to invest in other operations of the business to help it grow, and because of this, is a really vital metric for startups due to how it reflects on improved processes and production.

In layman terms, your gross margin is displaying your company’s overall productivity, just translated in easily measurable numbers. To measure the gross margin, you first need to find your company’s total sales revenue and then subtract the cost of goods sold. Once that is done you then need to divide it by the total sales revenue. When written in an equation it looks like this:

Gross Margin = (total sales revenue – cost of goods sold) / total sales revenue

To improve your gross margin, you can make both your sales and production processes more efficient. The key way to do this is to try and boost your employees’ productivity and this can be done by adding incentives and other things to make them more motivated. As well as this you can also automate tasks in both your supply chain and in the office.

Sales Growth Year-to-date

This metric allows you to get a better picture of how your business is growing (or shrinking) between certain timeframes. This metric is good as it provides a clear picture of how things are going and is able to work around certain factors such as season and customer moods to make an appropriate and context-rich metric. The sales growth year-to-date metric is awesome at indicating the pace at which your company is expanding and growing.

By using this metric, you can monitor how your growth various over different time periods, be it monthly, yearly, or over multiple years. This metric will give you a better understanding of where your company stands and can allow you to make more informed goals that accelerate your growth every month.

Measuring this is also pretty straightforward as you simply have to count your monthly sales revenue as well as the number of new deals within the timeframe you want to measure. If you have a salesforce working in multiple teams you can also track this metric by team to figure out which group is most effective and performing the best as well as see which teams may not be hitting their targets.

To improve this metric, businesses can invest more resources into marketing and sales activities so that brand awareness is being increased, meaning more people are likely to interact with your business and buy something. Additionally, sales growth can also be boosted by positive media coverage, so it might be beneficial to show product launches on there.

Cost of Customer Acquisition

There are a lot of small, little processes and tasks that go into acquiring a new customer. The cost of customer acquisition metric is used to figure out how much all these little components cost to work out how efficient it was to get the customer on board. The metric is calculated by dividing all the costs spent on getting customers into the business by the number of new customers a business got in a specific time frame. So, for example, if a business spent $500 on digital marketing, $200 on Google advertising and an additional $300 on a robust email marketing campaign, they’d have spent $1,000 on their customers. During this period, they got in 50 new customers, then their CAC is $20. Now for this metric to have any value, it needs the context of another one, being the Customer Lifetime Value. This metric tracks how much a single customer has spent in the past and is used to work out the effectiveness of the CAC. For example, if one of these customers that cost $20 to get and spends $1,000 in their lifetime, then it’s a very reasonable deal.

To improve this metric, a business needs to simply shift their attention to a target audience who have a higher potential CLV as this will be the most rewarding and will help businesses attract greater profit.

Customer Loyalty and Retention

Being able to measure customer loyalty is a really important thing as it can demonstrate how reliable your business is and how good it is at keeping an audience base. Having a high retention rate is good as it speaks volumes that your service or product is high-quality. Furthermore, keeping the same customers and then growing on that base with newer ones helps improve profit.

To measure Retention Rate, here’s a quick formula:

Retention Rate = ( (CE-CN) / CS) X 100

With CE being the total number of customers at the end of a certain time period, CN being the number of new customers acquired during the same period and CS being the number of clients at the start of the time period.

To improve the retention rate, one of the best ways to do this to provide great customer care and to deliver high-quality products as this will be a surefire way to make people want to come back and frequently use your service.

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