11 Key Business Performance Metrics For Better Operations

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 depends on consistently reporting and evaluating 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:

Financials
Marketing Results
Employee Performance

What are the most critical business performance metrics to monitor?

Let’s take a closer look!

Contents show

Metrics for financial businesses

An infinite number of key business metrics 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 you know 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 indicates much more than just poor stock performance. Additional data collection is required in all business areas 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 shareholders rather than its creditors own most of the company’s assets.

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 measure marketing efforts best.

When we look at this puzzle piece, hundreds of business metrics can be used. We’ll focus on the basic metrics every business should know 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:

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

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 spends $3,000 on Google Ads, and
earned $6,000 in 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 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.

Starting An Affiliate Network: How To Pay Affiliates?

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 you start making money immediately.

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 determine how many new customers were gained due to 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 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 the company’s culture is important to a business’s growth and long-term success.

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 regularly.

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 managers tell higher-ups or human resources if an employee breaks the rules.

In A Nutshell

Key business performance metrics are essential for organizations to measure and improve their operations effectively. These metrics provide valuable insights into a company’s performance, enabling managers and decision-makers to make strategic decisions.

One critical metric is revenue growth, which measures a company’s sales increase over a specific period. This metric helps determine the effectiveness of a company’s sales and marketing strategies and indicates its ability to attract new customers and retain existing ones.
Another important metric is gross profit margin, which calculates the percentage of revenue that remains after deducting the cost of goods sold. This metric provides insights into a company’s profitability and efficiency in producing goods or delivering services.

Customer satisfaction is a crucial metric that gauges the level of satisfaction and loyalty among customers. Organizations can measure this through customer feedback surveys, reviews, and Net Promoter Score (NPS) ratings.

A high customer satisfaction score indicates a solid customer base and can lead to increased customer retention and positive word-of-mouth recommendations.

Operational efficiency metrics, such as cycle time, lead time, and productivity, help organizations identify bottlenecks, streamline processes, and improve overall operational efficiency. These metrics measure the time it takes to complete specific tasks or processes and the output achieved within a given time frame.

Employee productivity metrics, such as revenue per employee or sales per employee, provide insights into the efficiency and effectiveness of an organization’s workforce. These metrics help identify high-performing employees, allocate resources effectively, and identify areas where additional training or support may be needed.

The inventory turnover ratio is another important metric that measures how quickly a company sells its inventory over a specific period. A high turnover ratio indicates efficient inventory management, while a low ratio suggests potential issues such as excess inventory or slow-moving products.

Ultimately, these key business performance metrics provide organizations with a comprehensive understanding of their operations, helping them make data-driven decisions, identify areas for improvement, and drive overall business success.

By regularly monitoring and analyzing these metrics, organizations can optimize their operations and stay ahead in today’s competitive business landscape.

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