There are many key financial metrics and KPIs to monitor when growing a business. Here are a few of the most important:
- Revenue: This is the total amount of money your business generates from sales. It’s important to track revenue growth over time to see how your business is performing.
- Cost of goods sold (COGS): This is the cost of materials, labor, and other expenses directly related to producing your products or services. COGS is subtracted from revenue to calculate gross profit.
- Gross profit: This is the profit your business makes after deducting COGS from revenue. A high gross profit margin indicates that your business is efficient in producing its products or services.
- Operating expenses: These are the costs incurred by your business to operate, such as rent, salaries, and marketing. Operating expenses are subtracted from gross profit to calculate operating income.
- Net income: This is the profit your business makes after deducting all expenses, including taxes. Net income is the most important financial metric because it represents the amount of money your business has left over after all expenses have been paid.
In addition to these financial metrics, it’s also important to track customer acquisition cost (CAC), customer lifetime value (CLTV), and churn rate.
- CAC: This is the average amount of money it costs your business to acquire a new customer. A high CAC indicates that your business is spending too much money on marketing and sales.
- CLTV: This is the average amount of money your business makes from each customer over the course of their relationship with your business. A high CLTV indicates that your business is successful in retaining customers.
- Churn rate: This is the percentage of customers who stop doing business with your company each month. A high churn rate indicates that your business is losing customers too quickly.
By tracking these key financial metrics and KPIs, you can get a clear picture of how your business is performing and make informed decisions about how to grow your business in the future.
Here are some additional tips for monitoring financial metrics and KPIs:
- Set goals: Set specific, measurable, achievable, relevant, and time-bound goals for each metric. This will help you track your progress over time and make sure you’re on track to achieve your desired results.
- Get regular reports: Get regular reports from your accountant or bookkeeper so you can stay on top of your finances. This will help you identify any potential problems early on so you can take corrective action.
- Make adjustments as needed: As your business grows and changes, you may need to adjust your goals and metrics accordingly. Be prepared to make changes as needed to ensure that your metrics are still relevant and helpful.
By following these tips, you can effectively monitor your financial metrics and KPIs and make informed decisions about how to grow your business.