Business metrics are used to measure the performance of a company. They display a measurable value, which shows the progress of a company against its goals.
There are dozens of different key performance indicators you could track, but it isn’t necessary to measure all of them. Tracking irrelevant business metrics will only distract you from focusing on things that truly matter. Choosing the key business metrics is important for measuring your company’s success.
The following are nine key business metrics that you should be measuring:
Metric #1: Business Sales Revenue
This key business metric can tell you a lot about your company. Month-over-month sales can show you whether people are interested in purchasing your service/product, if your marketing and sales efforts are paying off, if you’re meeting your sales goals, and more.
When evaluating sales revenue and setting goals for your company, it’s important to remember that sales results are affected by multiple other factors. The person in charge of tracking the sales KPIs should be aware of recent changes in the market, competitive actions, previous marketing campaigns, etc. The sales revenue is calculated by adding up income generated from client purchases, less costs associated with undeliverable or returned products.
Metric #2: Net Profit Margin
This business metric is used to indicate how efficient a company is at generating a profit in contrast to its revenue. The net profit margin tells you how each dollar earned translates into profits.
Net profit margin is a key business metric for predicting long-term business growth. The metric is also used for assessing whether income exceeds the overall costs of running your business. It’s obtained by deducting all the sales expenses from the monthly revenue.
This business metric can be improved by increasing revenue or reducing expenses. If you notice your net profit margin is lower than your sales revenue, this is an indicator that your expenses are too high. Consider using software to calculate labour costing, inventory expenses, and other costs that may have incurred.
Metric #3: Business Gross Margin
The higher the gross margin of your company, the more you earn from each sale. This key business metric is important for companies that are just starting out since it reflects on improved production and processes.
Gross margin is your company’s productivity translated into numbers. It’s measured by deducting the cost of goods sold from the total sales revenue of your company. The value obtained is then divided by the total sales revenue. By making both the production and sales processes of your company more efficient, the gross margin can be significantly improved.
Metric #4: Sales Growth Year-to-Date
Sales growth year-to-date is used to indicate the pace at which the sales revenue of a company increases or decreases. You should be monitoring these key business metrics over various periods.
Monthly, yearly, and longer-term metrics provide a better understanding of where the company stands. Every month, make it your goal to accelerate sales growth, or at least maintain the previous growth rate. Sales growth is measured by checking the monthly sales revenue and the number of new deals.
In case the sales team works in smaller teams, this business metric can be tracked by every team. This makes it easy to assess each sales department’s achievements.
Metric #5: Cost of Customer Acquisition
The cost of customer acquisition helps you identify all the small things that contribute to acquiring a customer. It’s calculated by dividing the costs spent on bringing in new customers (marketing and advertising expenses) with the number of clients acquired in a specific period.
Measure the cost of customer acquisition together with the customer lifetime value to see if your marketing expenses are reasonable. The customer lifetime value is calculated by multiplying the average value of a successful sale by the number of assured/possible repeat transactions, and the average retention time of a typical customer.
Metric #6: Business Loyalty & Customer Retention
Having loyal customers is highly beneficial to a company. It helps in growing sales and spreading the word about your product or service.
Customer retention, also known as the retention rate, helps you identify the number of clients who regularly use a specific product/service provided by your company over an extended period. These key business metrics can also indicate the source of repeat purchases. Customer loyalty can be improved by delivering high-quality products and providing excellent customer care services.
Metric #7: Net Promoter Score
The net promoter score indicates the quality of your product and the level of customer satisfaction. This key business metric shows how many of your customers are likely to recommend your service/product to a friend. This marketing metric is typically measured on a ten-point scale after conducting customer surveys and interviews.
It might take some time to gather this data and evaluate it, but in the end, you’ll have great insights into how to improve your product/service. The net promoter score is calculated by subtracting the percentage of detractors (people who spread negative information after using your product) from the percentage of promoters (loyal enthusiasts).
Metric #8: Monthly Website Traffic
A company’s monthly website traffic is one of the best indicators of its reputation. The more people hear of your product, the higher the chance they will visit your site and buy something.
To track your monthly website traffic, use free marketing tools such as Google Analytics, which can help you identify traffic sources so you can understand how people find your website. The easiest way to improve your monthly website traffic is by increasing your advertising budget.
Metric #9: Lead-to-Client Conversion Rate
This key business metric reflects on the performance of your sales team. It can also be used to indicate the quality of a product since if leads don’t convert customers might simply be unimpressed with what you have to offer. To calculate the lead-to-conversion rate, divide the number of new leads each month with the number of new customers.
Running a successful business requires regularly analyzing sales, performance and financial results. With business metrics such as those enumerated here, this task can easily be carried out.19
