Entrepreneurs have no trouble focusing on how to build a product. However, don’t know how to take their small business to the next level. they need to a level of discipline and skill necessary to collect and analyze the relevant business data, known as business metrics.
What is A Business Metrics?
A Business Metric is a quantifiable measure that is used to track and assess the status of a specific business process. It’s important to note that business metrics should be employed to address key audiences surrounding a business, such as investors, customers, and different types of employees, such as executives and middle managers.
Every area of business has specific performance metrics that should be monitored– marketers track marketing and social media metrics, such as campaign and program statistics, sales teams monitor sales performance metrics such as new opportunities and leads, and executives look at big picture financial metrics.
Popular business metrics
Popular business metrics that reflect on your company’s performance and indicate growth or decline:
1- Sales revenue
Sales are simply income from customer purchases of goods and services, minus the cost associated with things like returned or undeliverable merchandise. Of course, everyone is happy when the numbers keep going up, but the data needs to be mined constantly for deeper meanings and trends.
Sales data needs to be correlated with advertising campaigns, price changes, seasonal forces, competitive actions, and other costs of sales. More sophisticated metrics in this domain, like the Asset Turnover Ratio, Return on Sales, and Return on Assets, can tell you how your company’s performance stacks up against others in the same industry, or the same geography. In the long run, these tell you whether you will continue or stop, compared to competitors.
2- Net Profit Margin
This business metric indicates how efficient your company is at generating profit compared to its revenue. Basically, this number tells you how big a sum of? each dollar earned translates into profits.
The Net Profit Margin is a good way to predict long-term business growth, and see whether your income exceeds the costs of running the business. It is measured by Calculate your monthly revenue and reduce all the sales expenses.
3- Gross Margin
The higher your Gross Margin, the more your company earns by each sales dollar. You’ll be able to invest it in other operations. This metric is especially important for starting companies as it reflects on improved processes and production. It’s as the equivalent of your company’s productivity, translated into numbers.
The Gross Margin equals your company’s total sales revenue minus its cost of goods sold, divided by the total sales revenue (Gross Margin = (total sales revenue – a cost of goods sold) / total sales revenue).
4- Operating productivity
Obviously measuring staff productivity is important, If you do not know how your staff is doing, then how can you truly know the inner workings of your own company? Staff discontent can put your company in serious jeopardy, while on the other hand, high staff productivity can be your best company asset.
Productivity ratios can be applied to almost any aspect of your business. For example, sales productivity is simply actual revenue divided by the number of sales people. Compare your productivity to industry norms by consulting industry statistics, or check yourself for continuous improvement by accumulating your statistics over time. The process works the same for manufacturing productivity, marketing productivity, or support productivity.
5- Overhead costs
In economics, overhead costs are fixed costs that are not dependent on the level of goods or services produced by the business, such as salaries or rents being paid per month. In any growing business, these can creep up and out of control if not tracked carefully.
By tracking them on a monthly basis, you will be able to see more clearly where spending occurs in your business. Use this information when updating your business plan or when preparing yearly budgets. Because overhead costs are not influenced by how much your business earns or grows, you need to track them separately and diligently. Moving to a location that is less expensive, or switching utility suppliers, are ways to reduce the fixed costs of running a business.
6- Inventory size
Inventory represents one of the most important assets that most businesses possess because the turnover of inventory represents one of the primary sources of revenue generation and subsequent earnings for the company’s shareholders/ owners.
For growing companies, this is an important area to manage. You will find that you either have too much inventory (cash tied up, high storage costs, obsolescence, and spoilage costs), or not enough (lost sales, lower market share). The challenges include forecasting inventory requirements, buying in cost-effective lot sizes, and just-in-time delivery systems.