11 Key Business Performance Metrics for Better Operations

11 Key Business Performance Metrics for Better Operations
performance marketing software

How do business metrics improve day-to-day operational efficiency? The solution is to collect the right data and use it to create and improve company processes.

Key performance metrics in business provide guidance for future strategic growth.

Your company’s success is dependent on the consistent reporting and evaluation of these business metrics. The most obvious and important business metrics for operations managers are total revenue, net profit, profit margin, and loss. However, these are just a few of the financial metrics that smart business owners should keep an eye on.

The size or goals of your business don’t matter. You should think about adding a few important business performance metrics to your data arsenal.

They are classified into three types:

What are the most critical business performance metrics to monitor?

Let’s take a closer look!

Metrics for financial businesses

There are an infinite number of key business metrics that can be applied to the financial aspect of your business. As a starting point, we recommend focusing on the following key financial metrics:

  • Gross Profit Margin
  • Net Profit
  • Net Profit Margin
  • Debt Asset Ratio
  • Total Revenue
  • Time Periods

1. Gross Profit Margin

Your gross profit margin gives you a wealth of financial metric information. A profitability ratio shows how much of each dollar remains after deducting the cost of goods sold.

Using the following equation, calculate your gross profit margin:

Gross profit margin = (Revenue – Cost of Goods Sold)/Revenue.

When compared to other companies in your industry, your gross profit margin can reveal whether or not your company is pricing its goods and services competitively.

Your gross profit margin should be sufficient to cover your operating expenses.

Everything else is about making a profit.

2. Net Profit (Earnings After Tax)

Profit is not created in the same way for everyone! Maintaining a firm grasp on your company’s net profit ensures that you are aware of the true bottom line net earnings.

Using the following equation, calculate your net profit:

Net Profit = Total Revenue – Total Expenses

Net profit is generally found on the last line of the income statement, which is why it is also known as the bottom line.

This figure is completely centered on stock prices.

When net profit is low, this is an indication of much more than just poor stock performance. Additional data collection is required in all areas of the business to identify the weak link(s) that contribute to the problem.

3. Margin of Gross Profit

According to InvestingAnswers.com:

“Net profit margin is the percentage of revenue that remains, after all, operating expenses, interest, taxes, and preferred stock dividends (but not common stock dividends) have been deducted from a company’s total revenue.”

Using the following equation, calculate your net profit margin:

Net profit margin equals net profit divided by total revenue.

Divide net profit by total revenue to determine the percentage of total revenue that made it all the way to the bottom line. This key business metric is critical to owners, investors, and shareholders.

Turning sales into profits is the key here.

It is literally a percentage of sales and allows for easy comparison across the industry.

4. Debt-to-Asset Ratio

If your business has any debt, the debt-to-asset ratio metric is critical. It shows how much of the total assets have been financed and are now making debt.

Using the following equation, calculate your debt-to-asset ratio:

Debt Asset Ratio = Total Liabilities/Total Assets

As a goal, you want to have a low percentage. This means that most of the company’s assets are owned by shareholders rather than its creditors.

Businesses that are running efficiently have debt repayment plans in place that gradually reduce the debt. Keeping a close eye on this metric ensures that your payoff process is efficient.

Now that you’ve mastered your company’s financial metrics, let’s look at how to best measure marketing efforts.

When we look at this piece of the puzzle, hundreds of business metrics can be used. We’ll focus on the basic metrics that every business should be aware of in order to measure how well it runs.

The metrics will differ depending on the type of marketing your company does, so adapt this list to your specific needs:

5. The return on advertising investment (ROAS).

ROAS is frequently regarded as the most useful metric for assessing the business performance of marketing campaigns. It examines each ad dollar spent and calculates the revenue earned.

The goal is to understand both profitable and unprofitable ad spending thoroughly. ROAS is applied to a specific campaign or ad group to shed light on business performance.

Using the following equation, calculate ROAS:

ROAS = Ad Revenue/Ad Source Cost.

For instance:

  • if a company spent $3,000 on Google Ads, and 
  • earned $6,000 indirect revenue from that campaign
  • the ROAS is $2.

6. Customer Acquisition Cost (CAC)

Customer Acquisition Cost (CAC) is a term used to describe the cost of acquiring a new customer.

The CAC metric is frequently overlooked but extremely important. This is your total sales plus marketing cost, and it will shed light on your overall marketing efficacy.

CAC can be calculated using the following equation:

CAC equals (Ad Spend + Marketing Salary + Commissions + Bonuses + Overhead)/New Customers.

You must complete this task within a specific time frame. For example, if you spent $100,000 on sales and marketing in 2016 and got 200 customers, your CAC is $500 per customer.

7. It’s Time to Pay Back

Although there is no fancy acronym, paying back is especially important if your sales funnel is quite long.

In some industries, customers pay once and for all, so that this business metric can be omitted.

For businesses with monthly or annual payment structures, it takes the number of months to earn the CAC spent on acquiring a new customer.

Using the preceding example, your new customer will cost you $500.

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How long do they have to be a customer before you recoup your $5,000? The industry’s goal is to keep payback time under 12 months. In other words, becoming profitable within 1 year of customer acquisition ensures that you start making money right away.

Using the following equation, calculate the time to payback:

Paid CAC/Monthly Fees OR CAC/Annual Fee

For example, if your CAC is $500, your customer would need to pay $42 per order for you to be profitable after 12 months.

8. Marketing-Generated Customer Percentage

This business metric aims to figure out how many new customers were gained as a result of marketing.

It is different from CAC in that it looks at the total number of customers gained, not just the number of customers gained through marketing.

There are a lot of ways for your business to get new customers without having to use marketing, like getting referrals or having people come in.

If you want to figure out which customers came from marketing or not, you’ll need a business process.

Using the following equation, calculate the percentage of customers who were referred by marketing:

Total New Customers – Non-Marketing Originated Customers/Total New Customers = Marketing Originated Customer Percentage.

If you acquired 200 new customers and 65 of them were not acquired through marketing, divide 135/200 to get a marketing origination rate of 67.5%.

This figure can then be compared to other marketing and financial metrics. The customer percentage helps determine whether the marketing budget should be increased or decreased.

As previously stated, there are a plethora of marketing metrics at your disposal on any given day. However, the four measurements listed above are at the top of our list when it comes to key business performance metrics.

Metrics for Employee Business Performance.

Aside from the ambitious solopreneur, every business of any size must include employee performance metrics if they want to use metrics to improve operations and understand revenue per employee.

Because other important business metrics (financial and marketing) depend on employee effort, a company’s success is often linked to regular employee performance evaluations.

A series of key business performance metrics are used to evaluate your employees accurately:

  • Employee Efficiency
  • Quality of Work
  • Adherence to Values
  • Customer Satisfaction
  • Revenues Per Employee
  • Measuring Operational Efficiency

9. Productivity of Employees

Setting realistic, measurable goals is the first step in determining employee efficiency metrics.

Consider the following ways of demonstrating an employee’s efficiency:

  • Increases productivity.
  • Reduces costs
  • makes only a few mistakes.
  • Respect deadlines

There is no standard formula for calculating employee productivity.

In a nutshell, it measures how much work has been completed. Compare efficiency to the actual cost of employment and to similar employees.

The best way to create an in-depth evaluation is to have ways to prepare goals that can be measured in the future. This includes including as many details as possible, such as numbers and dates.

Team assessments or performance reviews can be used to determine whether these goals have been met.

You can improve employee efficiency metrics by gathering information from managers, members of other teams who work closely with the individual, and so on.

10. Work Productivity

You might be wondering why we included only quality and not quantity.

In the efficiency metric, quantity is inherently measured. Quantity without quality is detrimental to your business. Quality has its own category.

In order to determine true quality, the actual work being produced is reviewed. Because this is usually subjective, developing a measurement process is critical.

For example, someone who works in a sales service job, like insurance, shows that they do good work by keeping customers and giving them good service.

Consider implementing a quality score that both the direct manager and the employee can complete on a task-by-task basis for less specific roles to ensure operational efficiency.

Furthermore, measuring poor quality work can help provide an overview of the employee’s efforts. Here are some examples of quantifiable items:

  • Rates of error
  • Levels of customer satisfaction
  • The amount of work that needs to be redone
  • Per employee revenue generated

Individual performance is hard to figure out by hand, but talent management software has made this easier.

11. Adherence to Values

How closely an employee follows the company’s rules and values is a good way to measure how well they’re doing at their job.

Company values are established to create a culture and guide behavior. These values help to shape people’s ability to make decisions and set goals.

These values are intended to influence each employee’s daily efforts. Adhering to the values and making them a part of their company’s culture is important to the growth and long-term success of a business.

Like many other employee-related metrics, measuring adherence to company values will be subjective.

The key is to ensure that your company’s core values are clearly and concisely defined. They must be easily understood and shared on a regular basis.

Consider the following ways of measuring this:

  • Core values should be included in employee performance reviews. Employees should be asked to rate how well they follow them.
  • An employee of the month (or week): Make a system that ranks employees based on how well they follow the rules instead of how well they do.
  • Request that managers tell higher-ups or human resources if an employee breaks the rules.

Conclusion

It’s a proven fact that analyzing business performance metrics can lead to improved operations. Your goal as a business owner or executive is to maximize profit.

Having the right financial and business performance metrics in place provides you with a consistent flow of data that you can use to measure operational efficiency and increase success.

While developing these metrics can be time-consuming, the end result is well worth it.

Consider the following examples of business performance metrics to help you maximize your operations:

Financial Metrics

  • Gross Profit Margin
  • Net Profit
  • Net Profit Margin
  • Debt / Asset Ratio
  • Total Revenue
  • Variable Costs
  • Sales Revenue
  • Cost of Goods Sold
  • Total Sales

Marketing Metric

  • Return on Advertising Spend
  • Customer Acquisition Cost
  • Time to Payback
  • Marketing Originated Customer Percentage
  • Time Period

Employee Performance

  • Employee Efficiency
  • Quality of Work
  • Adherence to Values
  • Total Sales
  • Customer Satisfaction
  • Revenues per Employees
  • Operations Efficiency

Use our outline to create a unique reporting structure for your business. Your business will thrive if you are consistent and execute well.

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Elizabeth Sramek
Elizabeth is a Senior Content Manager at Scaleo. Currently enjoying the life in Prague and sharing professional affiliate marketing tips. She's been in the online marketing business since 2006 and gladly shares all her insights and ideas on this blog.
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