12 Business Metrics That Every Company Should Know
How do you measure your business’s performance? The short answer is a thorough analysis of all of your work, sales, and financial results. The incorrect answer is by following your gut. Instinct may have got you so far in your industry, but after a while, the gut feeling has to give way to facts and figures.
The success metrics for a project will differ depending on the nature of the project and your aims for it, but once you’ve decided on what those will be, you’ll need to track them carefully. Using project management software can help you to oversee every area of your business, from comms to delegating tasks and managing time. And while we’ve already explored how businesses can get the best results from their KPI tracking, including presenting that data on dashboards and in reports, deciding which metrics to track can be a whole other matter entirely.
There are hundreds of different types of key performance indicators, but there’s no use in measuring all of them. Tracking irrelevant KPIs will distract you from the things that truly matter, leading you to stress about numbers that have no actual impact on your company’s development.
Read on for our explanation of 12 key metrics that will reflect best on your company’s performance, and offer the best indications of growth or decline in whatever area matters most to your business.
What Is the Difference Between KPIs and Metrics?
Before we get going, it’s crucial to understand the subtle but critical difference between metrics and KPIs.
“Metrics” is a catch-all term that describes any measures taken by a business to monitor performance in any key areas.
Metrics can be as useful and quantifiable as increasing traffic to your website or improving sales. They can also fall under the banner of “vanity metrics”, such as getting more likes on your social media posts, which won’t improve your bottom line or give you any better insight into the performance but will look impressive on paper.
Broadly speaking, KPIs are actually a kind of metric, but are inherently more specific, honing in on exactly how the aims of your wider metrics will be achieved.
So if your metric is improving your Google rankings, a possible KPI you could set would be how many keywords you would aim to see on the first page of search results after a set period of time.
Now that’s clear, let’s look at the 12 business metrics you should be tracking.
1. Sales revenue
We put sales revenue at the top of our list of metrics because it can reveal a lot of things about your company. Month-over-month sales results can determine public interest in what your company is doing, as well as how well your marketing efforts are paying off, and the progress of your performance against your competitors.
When evaluating your sales revenue and setting the appropriate goals, it is important to remember that sales results are affected by multiple other factors – the person responsible for tracking your sales KPIs should also be aware of recent changes in the market, previous marketing campaigns, and what your competitors are doing.
How to measure: Sales revenue is calculated by summing up all the income from client purchases, minus the cost associated with returned or undeliverable products.
How to improve: The most obvious way to grow your sales revenue is to increase the number of sales, which can be achieved by expanding your marketing endeavors, hiring new salespeople, or offering discounts that are hard to resist. However, it’s important to remember that this should be a long-term strategy, rather than a way to gain a quick (and temporary) boost in sales.
2. Net profit margin
This business metric indicates how efficient your company is at generating profit in comparison to its revenue – in layman’s terms, it lets you find out what percentage of each dollar you’ve earned translates into profits. Your net profit margin is a good way to predict long-term business growth, and see whether your income exceeds your overall cost of operations.
How to measure: Calculate your monthly revenue and reduce all the sales expenses.
How to improve: In short? Increase your revenue. The easiest way to do this is by raising the price of your products or services or selling more of them. Alternatively, you could opt to lower your sales and production costs while keeping up with the competition. As with improving your sales revenue, these tactics require thorough market research and long-term business strategy, and can’t be done overnight.
3. Gross margin
The higher your gross margin, the more your company earns on each dollar brought in by sales. This can then be invested in other operations. Your gross margin is especially important for companies in their early years, as it reflects on improved processes and production – think of it as your company’s productivity, represented in numerical form.
How to measure: To make it as easy as possible to calculate your gross margin, we’ve put it into an equation: gross margin = (total sales revenue – the cost of goods sold) / total sales revenue.
How to improve: Improving your gross margin can be achieved by streamlining both your sales and production processes.
4. Sales growth year-to-date
Which CEO wouldn’t be eager to see their company grow with each passing month? However, as tantalizing as that sounds, metrics like sales are highly dependent on the season and the mindset of the customers. A company’s sales growth year-to-date indicates the pace at which sales revenue is increasing or decreasing within a given twelve-month period.
By monitoring your sales growth over various time spans – both monthly and yearly – these long-term metrics will give you a better understanding of where your company stands. Make it a goal to accelerate your sales growth every month, or at least keep it at the same percentage, month over month.
How to measure: Check your monthly sales revenue and the number of new deals your team has made in the same period of time. If your sales department works across multiple teams, you should track this metric across each of them.
How to improve: As with your sales revenue, growth year-to-date can be increased by putting more resources into your marketing and sales activities. Positive media coverage or a new product launch can also have a beneficial effect.
5. Cost of customer acquisition and customer lifetime value
Have you ever thought about how many small steps it takes to win a new customer? Well, determining your business’s cost of customer acquisition (CAC) can help you determine exactly how much that is. CAC is calculated by dividing what you spend on acquiring new customers by the number of new clients acquired, all within the same time frame. For example, if you spent $8000 on marketing in September and acquired 40 customers that month, your CAC would be $200.
The cost of customer acquisition should always be measured alongside your customer lifetime value, which is a figure that determines how valuable each customer is to your business for the length of time that they remain your customer. So if a new client has a CLV of $1400 to your business, acquiring them for $200 is a reasonable deal which leaves you $1200 in profit.
How to calculate: The easiest way to calculate the Customer Lifetime Value of a typical customer is to multiply the average value of a sale by the number of repeat transactions, and the average retention time in months.
However, calculating your CLV will also depend on the specifics of your product, particularly how you sell it. Take into account whether customers will be returning to you on a regular basis, or if their engagement with your business is through a single big transaction, and factor this detail into your calculations accordingly.
How to improve: Evaluating the Customer Lifetime Value of various client segments can help you understand which demographics and products bring in a higher profit. Let go of clients who are harder to convert and decrease your net profit as a result, and turn your focus on the most rewarding audience.
6. Customer loyalty and retention
Having loyal customers is beneficial in many ways, offering a reliable way to grow your sales and organically spread the word about your product. Your customer retention rate shows the number of clients who keep using your product over an extended time period and make repeat purchases.
How to measure: The standard formula to calculate retention rate is as follows:
Retention Rate = ((CE-CN)/CS)) x 100
CE: number of customers at the end of a certain time period (1 year, for example)
CN: number of new customers acquired during the same time period
CS: number of clients at the start of the time period
How to improve: Customer loyalty can be increased over time by providing high-quality customer care and delivering reliable products.
7. Net promoter score
A business’s net promoter score reflects on the quality of its product or services, and the level of customer satisfaction, and shows how many people would be likely to recommend it to a friend.
According to Net Promoter Network, there are three levels of customer advocacy, graded on a ten-point scale:
- Promoters (score 9-10) are loyal enthusiasts who praise your company to others and drive your sales
- Passives (score 7-8) are satisfied but unenthusiastic customers who leave when they see a better offer.
- Detractors (score 0-6) are disappointed customers who spread negative information about your company and can damage your brand’s image.
How to measure: By conducting customer surveys and interviews. The easiest way to gauge this information is by asking this question in the follow-up email of a product order or new subscription. It can take some time to gather data and evaluate the results, but your patience will be rewarded by the sheer number of insights you can get into how to improve your public-facing services.
To calculate your net promoter score, subtract the percentage of detractors from the percentage of promoters.
How to improve: Provide the very best customer service. Offer benefits and information that goes above and beyond what your customers expect to receive to make their user experience as good as possible.
8. Qualified leads per month
As your company grows, you’ll be able to invest more resources in marketing and sales, bringing in hundreds of new leads each month. However, not all of these leads will become loyal customers, which is why you need to measure the number of qualified leads per month.
This shows whether you’re targeting the right market with the highest potential of attracting new customers. If your number of qualified leads is declining, it means you should re-evaluate your marketing campaigns and sales strategy.
How to measure: You can categorize your new leads into three distinct groups:
- Marketing qualified leads (MQL) – leads qualified by the marketing team on the premise that they match your potential lead requirements (size of the company, expectations, etc.)
- Sales-accepted leads (SAL) – leads that the marketing team has forwarded to the sales team, and are waiting for the final approval before the sales process begins
- Sales qualified leads (SQL) – leads qualified by the sales team, with the highest potential of becoming paying customers
How to improve: Instead of targeting millions of people focus on a niche audience that has the highest probability of being interested in your products.
9. Lead-to-client conversion rate
Leads don’t turn into customers on their own. They need to be followed up by your sales team, who will convert them into paying clients, and calculating your lead-to-client conversion rate will reflect on how good your sales team is at doing this. Moreover, it might indicate the quality of your product – if leads fail to convert, would-be clients may simply be unimpressed with what you’re offering.
How to measure: To calculate your lead-to-conversion rate, divide the number of monthly new leads with the number of monthly new customers.
How to improve: To improve this metric, you first need to find the cause behind the low sales conversion rates. It might be a poorly-performing sales team, but it might also be a bad product-market fit.
10. Monthly website traffic
One of the best indicators of your company’s reputation is the amount of monthly traffic to its website. After all, the more people hear about your product, the more likely they will be to look for more information about you online.
How to measure: Free marketing tools such as Google Analytics allow you to track your monthly website traffic, as well as where that traffic is coming from, giving you a clear understanding of how people are finding your site.
How to improve: The easiest way to improve your web traffic is by increasing your advertising budget. However, using search engine optimization (SEO) to help you improve your organic traffic – the number of people who find your website through search engines without simply typing your company name – is a key way to get ahead of the competition.
11. Met and overdue milestones
Every business has its own goals and milestones at any given time – maybe you’d like to double your sales revenue by the next quarter, or are making plans for a new product launch. All of these big goals are actually projects which can be divided into milestones, allowing you to mark their progress.
Checking the number of met and overdue milestones gives you a quick overview of your team’s capacity. If you constantly fail to meet the milestones, it might be time to hire some extra staff or realign your ambitions with reality.
How to measure: Set up various project milestones and keep track of whether they’re met in time.
How to improve: If your team constantly misses deadlines, this should raise a red flag. The most common reasons for this happening are having unreasonable expectations set by management, having insufficient resources to complete their work and a low productivity rate. Once you’ve discovered the problem, focus your energy on solving it, and ensure that you’ve set the right priorities to allow them to get on with their work.
12. Employee happiness
Happy employees are productive employees, and keeping the satisfaction level high leads to a long-term commitment to the team and company. That’s why it’s important to regularly check in with your employees to see how they are feeling, and whether you could do more to reward them for their hard work.
How to measure: Of course, happiness is subjective, but conducting team surveys or using an HR tool to collect quick feedback can give you a good idea of how your team is working together, as well as their own individual satisfaction levels.
How to improve: The fastest solution to increased employee satisfaction is introducing some new perks, but the long-term solution to motivating your team is by setting a good example and practicing what you preach. A strong identity and mission statement will rub off on your team, and make everyone more motivated.