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.<\/p>\n\n\n\n
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.<\/p>\n\n\n\n
They are classified into three types:<\/p>\n\n\n\n
- \n
- Financials<\/strong><\/li>\n\n\n\n
- Marketing Results<\/strong><\/li>\n\n\n\n
- Employee Performance<\/a><\/strong><\/li>\n<\/ul>\n\n\n
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<\/figure>\n<\/div>\n\n\nWhat are the most critical business performance metrics to monitor?<\/p>\n\n\n\n
Let’s take a closer look!<\/p>\n\n\n\n
Metrics for financial businesses<\/h2>\n\n\n\n
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:<\/p>\n\n\n\n
- \n
- Gross Profit Margin<\/li>\n\n\n\n
- Net Profit<\/li>\n\n\n\n
- Net Profit Margin<\/li>\n\n\n\n
- Debt Asset Ratio<\/li>\n\n\n\n
- Total Revenue<\/li>\n\n\n\n
- Time Periods<\/li>\n<\/ul>\n\n\n\n
1. Gross Profit Margin<\/h2>\n\n\n\n
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.<\/p>\n\n\n\n
Using the following equation, calculate your gross profit margin:<\/p>\n\n\n\n
Gross profit margin = (Revenue \u2013 Cost of Goods Sold)\/Revenue<\/strong>.<\/p>\n\n\n\n
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.<\/p>\n\n\n\n
Your gross profit margin should be sufficient to cover your operating expenses.<\/strong><\/p>\n\n\n\n
Everything else is about making a profit.<\/p>\n\n\n\n
2. Net Profit (Earnings After Tax)<\/h2>\n\n\n\n
Profit is not created in the same way<\/a> for everyone! Maintaining a firm grasp on your company’s net profit ensures you know the true bottom-line net earnings.<\/p>\n\n\n\n
Using the following equation, calculate your net profit:<\/p>\n\n\n\n
Net Profit = Total Revenue \u2013 Total Expenses<\/strong><\/p>\n\n\n\n
Net profit is generally found on the last line of the income statement, which is why it is also known as the bottom line.<\/p>\n\n\n\n
This figure is completely centered on stock prices.<\/p>\n\n\n\n
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.<\/p>\n\n\n\n
3. Margin of Gross Profit<\/h2>\n\n\n\n
According to InvestingAnswers.com<\/a>:<\/p>\n\n\n\n
\n
“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.”<\/p>\n<\/blockquote>\n\n\n\n
Using the following equation, calculate your net profit margin:<\/p>\n\n\n\n
Net profit margin equals net profit divided by total revenue.<\/strong><\/p>\n\n\n\n
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.<\/p>\n\n\n\n
Turning sales into profits is the key here.<\/p>\n\n\n\n
It is literally a percentage of sales and allows for easy comparison across the industry.<\/p>\n\n\n\n
4. Debt-to-Asset Ratio<\/h2>\n\n\n\n
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.<\/p>\n\n\n\n
Using the following equation, calculate your debt-to-asset ratio:<\/p>\n\n\n\n
Debt Asset Ratio = Total Liabilities\/Total Assets<\/strong><\/p>\n\n\n\n
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.<\/p>\n\n\n\n
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.<\/p>\n\n\n\n
Now that you’ve mastered your company’s financial metrics, let’s look at how to measure marketing efforts best.<\/p>\n\n\n\n
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.<\/p>\n\n\n\n
The metrics will differ depending on the type of marketing your company does, so adapt this list to your specific needs:<\/p>\n\n\n\n
- \n
- Return on Advertising Spend<\/li>\n\n\n\n
- Customer Acquisition Cost<\/li>\n\n\n\n
- Time to Payback<\/li>\n\n\n\n
- Marketing Originated Customer Percentage<\/li>\n<\/ul>\n\n\n\n
5. The return on advertising investment (ROAS).<\/h2>\n\n\n\n
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.<\/p>\n\n\n\n
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.<\/p>\n\n\n\n
Using the following equation, calculate ROAS:<\/p>\n\n\n
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<\/figure>\n<\/div>\n\n\nROAS = Ad Revenue\/Ad Source Cost.<\/strong><\/p>\n\n\n\n
For instance:<\/p>\n\n\n\n
- \n
- If a company spends $3,000 on Google Ads, and <\/li>\n\n\n\n
- earned $6,000 in indirect revenue from that campaign<\/li>\n\n\n\n
- The ROAS is $2.<\/li>\n<\/ul>\n\n\n\n
6. Customer Acquisition Cost (CAC)<\/h2>\n\n\n\n
Customer Acquisition Cost (CAC) is a term used to describe the cost of acquiring a new customer.<\/p>\n\n\n\n
The CAC<\/a> metric is frequently overlooked but extremely important. This is your total sales plus marketing cost and will shed light on your overall marketing efficacy.<\/p>\n\n\n\n
CAC can be calculated using the following equation:<\/p>\n\n\n\n
CAC equals (Ad Spend + Marketing Salary + Commissions + Bonuses + Overhead)\/New Customers.<\/strong><\/p>\n\n\n\n
You must complete this task within a specific time frame. For example, if you spent $100,000 on sales and marketing<\/a> in 2016 and got 200 customers, your CAC is $500 per customer.<\/p>\n\n\n\n
7. It’s Time to Pay Back<\/h2>\n\n\n\n
Although there is no fancy acronym, paying back is especially important if your sales funnel is quite long.<\/p>\n\n\n\n
In some industries, customers pay once and for all, so that this business metric can be omitted.<\/p>\n\n\n\n
For businesses with monthly or annual payment structures, it takes the number of months to earn the CAC spent on acquiring a new customer.<\/p>\n\n\n\n
Using the preceding example, your new customer will cost you $500.<\/p>\n\n\n\n
![\"Starting](\"https:\/\/www.scaleo.io\/blog\/wp-content\/uploads\/2021\/01\/how-to-pay-out-your-affiliates-in-affiliate-network.jpg\" "\\"-\\"")
<\/figure>\n\n\n\nHow long do they have to be a customer before you recoup your $5,000? <\/p>\n\n\n\n
The industry’s goal is to keep payback time under 12 months. In other words, becoming profitable within 1 year of customer acquisition<\/a> ensures you start making money immediately.<\/p>\n\n\n\n
Using the following equation, calculate the time to pay back:<\/p>\n\n\n\n
Paid CAC\/Monthly Fees OR CAC\/Annual Fee<\/strong><\/p>\n\n\n\n
For example, if your CAC is $500, your customer would need to pay $42 per order for you to be profitable after 12 months.<\/p>\n\n\n\n
8. Marketing-Generated Customer Percentage<\/h2>\n\n\n\n
This business metric aims to determine how many new customers were gained due to marketing.<\/p>\n\n\n\n
It differs from CAC in that it looks at the total number of customers gained, not just the number of customers gained through marketing.<\/p>\n\n\n\n
There are many ways for your business to get new customers without using marketing, like getting referrals or having people come in.<\/p>\n\n\n\n
You’ll need a business process to determine which customers came from marketing or not.<\/p>\n\n\n\n
Using the following equation, calculate the percentage of customers who were referred by marketing:<\/p>\n\n\n\n
Total New Customers \u2013 Non-Marketing Originated Customers\/Total New Customers = Marketing Originated Customer Percentage<\/strong>.<\/p>\n\n\n\n
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%.<\/p>\n\n\n\n
This figure can then be compared to other marketing and financial metrics<\/a>. The customer percentage helps determine whether the marketing budget should be increased or decreased.<\/p>\n\n\n\n
As previously stated, many marketing metrics are at your disposal on any given day. However, the four measurements listed above are at the top of our list regarding key business performance<\/a> metrics.<\/p>\n\n\n\n
Metrics for Employee Business Performance.<\/strong><\/p>\n\n\n\n
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.<\/p>\n\n\n\n
Because other important business metrics (financial and marketing) depend on employee effort, a company’s success is often linked to regular employee performance evaluations.<\/p>\n\n\n\n
A series of key business performance metrics are used to evaluate your employees accurately:<\/p>\n\n\n\n
- \n
- Employee Efficiency<\/li>\n\n\n\n
- Quality of Work<\/li>\n\n\n\n
- Adherence to Values<\/li>\n\n\n\n
- Customer Satisfaction<\/li>\n\n\n\n
- Revenues Per Employee<\/li>\n\n\n\n
- Measuring Operational Efficiency<\/li>\n<\/ul>\n\n\n
- Marketing Results<\/strong><\/li>\n\n\n\n
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