What are Business Metrics?
Metrics, commonly referred to as key performance indicators or KPIs, enable you to monitor the growth and performance of a business. This data is crucial as it empowers you to oversee the company's advancement towards its objectives and identify and rectify potential issues proactively. The selection of business indicators is highly contingent upon the specific goals of your organisation.
Business metrics are quantifiable measures used to track business processes to judge the performance level of your business. There are hundreds of these metrics because there are so many different kinds of businesses, with many different processes however, the commonly used are below:
Revenue from Sales
- One of the most enlightening metrics in business operations is sales revenue. By assessing the sales performance of your company, you can ascertain the market performance of its products or services and the effectiveness of your marketing endeavours.
Net Profit Margin
- The net profit margin assesses a company's capability to generate profit relative to its total revenue. Utilising this metric, you deduct all sales expenses from the monthly revenue to determine the net profit earned. In essence, the net profit margin facilitates a comparison between a company's earnings and the expenses incurred in business operations, aiding in the projection of long-term growth. Enhancing a firm's net profit margin can be achieved by either increasing revenue or reducing production or sales costs.
Gross margin
- The gross margin of a company quantifies the proportion of each sales pound contributing to profit and other expenses. Expressed as a percentage, this figure is derived by subtracting the cost of goods sold from the total sales revenue and then dividing the result by the total sales revenue. A high gross margin indicates that a significant portion of each sales pound is retained. Here's a detailed breakdown of the formula:
Gross margin = (Total sales revenue - Cost of goods sold) / Total sales revenue
EBITDA
- In general, individual divisions or departments within a company, such as manufacturing, marketing, and sales, are responsible for monitoring the metrics that track the performance of their parts of the business. Senior executives monitor more general metrics. For instance, CFOs track earnings before interest, taxes, depreciation, and amortisation (EBITDA), a universal measure of profitability, and the metrics that contribute to it, such as net sales, operating expenses, and operating profit.
"If you can't measure it, you can't improve it"
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