Do you want to know what metrics in business are? This article will discuss metrics in business, their benefits, and some metrics you can adopt for your business.
After reading this article, you will find it easier to set specific metrics in your business and use them effectively to measure business success.
Let’s dive right in.
What Is Metrics – What Is Metrics in Business
Every business needs regular maintenance and monitoring to be successful.
Setting up metrics is the best way to ensure that a business is well monitored.
Metrics are quantifiable assessment measures to track business processes and determine performance levels.
In other words, they are tools used to measure and track business performance and growth.
The information metrics provide are important as they can help you see how well your business is achieving its goals.
It can also help highlight areas of improvement to ensure you achieve your goals.
There are various kinds of metrics due to the different types of businesses that exist and different operations processes.
So, the metrics you use depend on your business type, business goals, and operations.
Generally, the individual departments or divisions in a company monitor their performance with the metrics meant for their job.
For example, the sales department uses monthly recurring revenue (MRR) metrics to monitor monthly revenues.
Likewise, senior executives use a more general metric to track business processes.
This means that metrics are not just limited to tracking one part of the business but different parts.
Business metrics are also referred to as Key Performance Indicators (KPIs).
Benefits of Tracking Your Business with Metrics – What Is Metrics in Business
Businesses need to use business metrics to track their business.
However, how important is it?
The following benefits of assessing and tracking your business with metrics will answer that question.
Businesses that don’t know their performance level cannot improve.
As a result, they keep operating the same way year in and year out with little to no progress, slimming their chances of achieving business success.
However, when you use the appropriate metrics to track your business, you will notice how poorly or well your business is operating.
This will give you insight into how to make improvements in its operations.
You can not know how well your business is doing in your industry when you don’t make a comparative analysis.
Therefore, by using the right metrics, you can discover if your business is underperforming or overperforming using other businesses in your industry as a benchmark.
There are governmental and regulatory agencies regulations that you cannot comply with without monitoring them.
Certain metrics are regularly utilised to monitor these regulations and save your business from compliance risk.
Alignment – What Is Metrics in Business
Goal alignment is very important in business.
Without goal alignment, individuals in a company will be working towards personal goals giving no or little interest to the company’s goals.
This can make a company not achieve its goals.
A company can avoid this by using business metrics that can monitor and ensure that every individual is interested and working toward company goals.
You will find it hard to identify a problem if you aren’t paying interest or monitoring a situation.
However, with the right business metrics, you can easily identify potential issues and problems early.
And fix the issues before they turn into major problems.
What are the Right Metrics for Your Business? – What Is Metrics in Business
There are many business metrics that can be used to measure your business, but what is the right one for you?
First, you need to understand that businesses are different, and all have different metrics important to them.
So, when thinking of the right metrics for your business, you should consider what is most important for your business.
Here are some important questions to ask yourself to help you make the right selection:
- First, what are the metrics that are relevant to my business performance?
- Also, can they be realistically measured?
- Can I use them to usefully predict my business future performance?
- Lastly, what are the necessary metrics needed for the different divisions in my business?
Some Business Metrics – What Is Metrics in Business
There are hundreds of business metrics.
Knowing the ones that you need for your company type and goals is very important.
However, some top business metrics that most businesses use include; sales, marketing, finance, and other vital divisions in a business.
In this discussion, the focus will be on some of those metrics.
Sales Metrics – What Is Metrics in Business
These are metrics that evaluate and measure sale-related activities.
Also, it measures the performance of a company, team, or individual over a specific timeframe; annually, quarterly or weekly.
Utilizing sales metrics lets a company know the things that are working and aren’t.
Additionally, it provides insights into what should be done to improve a company’s sales performance
Below are the key metrics you can use to track your business sales:
Net sales revenue – What Is Metrics in Business
Revenue is a business’s lifeblood because it is factored into the different aspects of business, especially sales.
So, when it comes to tracking revenue with metrics, there are different metrics you could use depending on your business maturity and size.
Some of the other revenue metrics types you might need to track are revenue by market or territory, average generated revenue per customer and recurring annual revenue.
However, the key sales revenue track is net sales revenue.
Net Sales Revenue formula
You can calculate net sales with this formula:
Net Sales = Gross sales – Discounts – Returns – Costs associated with returns and discounts
If you are seeking to increase your sales quotas, then you will need to know what you already have.
Also, if you seek to increase sales in a specific market or region, you will need to know where and how to focus your effort.
Quota attainment metrics work to monitor and identify the areas where you need to focus on.
The formula to measure Quota attainment:
Quota attainment = Amount of sales achieved by a particular region or rep / Goal for that region or rep
Growth rate – What Is Metrics in Business
Knowing your sales growth rate will tell you how healthy your business is.
Comparing to benchmarks of the industry will tell you how poorly or well your sales department is performing in contrast to your competitors.
The formula for calculating growth rate:
Sale growth rate = (Current year revenue – Previous year revenue) / Previous year revenue x 100
You would also want to know how and what it takes for a sale representative to contact new leads.
The response time for a lead is important in business.
This is because the earlier a person’s question is answered by a salesperson, the better the engagement and chance of making a sale.
The formula for calculating lead response:
Lead response time = Sum of time between lead contact to sales rep response for all contacts / Total number of leads.
Finance Metrics – What Is Metrics in Business
Your business’s financial status is a big determinant of how healthy your business is.
If your business’s financial health is poor, its survival rate and success will also be poor.
There are several metrics you can use to track your business finance.
So, ensure your financial team work mostly with those metrics that reflect your business.
Net Income – What Is Metrics in Business
Net income or net earnings is one of a business’s greatest financial concerns.
It is considered to be an essential starting point to calculate other essential metrics such as earnings per share and net profit margin.
In a business income statement, net income is shown at the bottom.
Net income assessment can help you identify if your business expenses exceed revenue or the other way around.
The formula for calculating Net Income:
Net income = Total revenue – Cost of goods sold – Operating expense – Other expenses – Interest – Taxes – Depreciation and Amortization.
Gross Profit Margin
Gross profit margin is the profits of a business before paying off taxes, operating expenses, and interest.
A good gross profit margin shows that a business can cover its expenses and still have substantial profit left.
The formula for calculating Gross Profit Margin:
Gross Profit Margin = (Revenue – Cost of goods or services sold) / Revenue
Net Profit Margin – What Is Metrics in Business
Net profit margin is the key indicator of a business’s profitability as it measures the profit from each amount of revenue (money) made.
It is essential because an increase in revenue does not always mean increased profitability.
Therefore, to calculate the net profit margin, you need to calculate your business’s net income.
The formula for Net Profit Margin:
Net Profit Margin = (Net Income / Total Revenue) x 100
Working capital is the money needed to meet a business’s short-term tasks and needs.
However, having excessive cash in a business can mean that the business is missing out on investing for future growth.
Therefore, tracking working capital in your business can indicate when and how to use your free cash effectively.
It can also help you to learn to minimise depending on external funding while understanding your business liquidity.
The formula for calculating Net Profit Margin:
Working capital = Current assets – Current liabilities
Marketing Metrics – What Is Metrics in Business
Businesses need to market their products and services to get sales and generate revenues.
They do this through different channels such as email, direct mail, social media, and websites.
Every business needs to know which marketing channel and method mix will fix their business the most.
Using essential marketing metrics will enable your business marketing team to know the different channels’ levels of effectiveness in prompting your business success.
Finally, use the most effective channels to do so.
Customer Acquisition Cost (CAC)
One of the basic objectives of marketing is to get customers to patronise a business.
For them to do this, they have to turn perspectives (people) into customers.
However, it comes at a cost.
Knowing the cost of getting a customer will help a business to know if it should reduce its marketing expenses.
It can also help to know when to take out expensive marketing channels that fail to deliver expected conversion rates.
CAC takes the sales and marketing costs of getting customers into account.
The best length of time to calculate for CAC is one that covers both the valleys and peaks in a business.
A good standard will be a year.
The formulae for calculating CAC:
Customer acquisition cost = Total marketing and sales spend / Number of new customers
Incremental Sales Revenue – What Is Metrics in Business
Incremental sales revenue calculates returns generated from a given marketing campaign.
It can do this by tracking marketing performances immediately after the end of a campaign and is dependent on the given campaign (ROI) Return on investment.
The formula for calculating Incremental Sales Revenue:
Incremental Sales Revenue = Total Sales – Expected sales without the marketing campaign
Return on Marketing Investment (ROMI)
This metric is harder to calculate than ROI metrics because ROMI focuses only on the incremental sales profits credited to marketing activities.
Simply put, it calculates profits generated by a marketing department.
ROMI separately calculates every advertising and marketing channel.
It can give you an insight into the value of general marketing activities.
Or differentiate the values and relative performance of the different marketing campaigns and channels.
The formula for calculating ROMI:
Return on marketing investment = (Sales growth – Marketing cost) / Marketing Investment x 100
Customer Retention – What Is Metrics in Business
No business wants to lose its customers.
Rather, they want to retain them, so they find ways to do so.
A great way to track how well you retain your customer is by calculating the number of existing customers your business has.
The customer retention metric tracks and calculates this by determining the present customers’ percentage over a given period.
The formula for calculating Customer Retention:
Customer retention = (Number of customers at the end of a period – Customers added during the period) / Number of customers at the beginning of the period
Customer Lifetime Value (CLV)
Knowing the cost of getting a customer does little if you don’t know the worth of a customer’s patronage.
CLV metrics can help you track and measure the profits you earn from a customer throughout their period of patronage of your business.
So, if you would rather calculate the CLV of more than one customer, you can also do that with these metrics.
Note that calculating customer lifetime value can be different for some businesses.
This is because some businesses include the value they get from customer reference to their patronage.
The formula for calculating CLV:
Customer lifetime value = (Average transaction value x Average number of transactions in a year x Average customer retention in years) x profit margin
Human Resources Metrics – What Is Metrics in Business
Your employees are an important aspect of your business’s growth and success.
Their performance and satisfaction are determinants of how well your business is doing.
Therefore, the human resource department needs to track and measure your employees’ performance and satisfaction.
If they find out any issues, then they will be able to use the insight they got from tracking to solve them.
Key Metrics that the HR human resource department can use to track are:
Employee Engagement Rate
Your business performance and productivity will be lacking if your employee engagement rate is low.
This is because engaged employees perform more proficiently and promote productivity in your business than unengaged employees.
In short, this works better in satisfying employees than paid benefits.
Employee engagement rate has no formula to calculate it.
What works as a metric for this is creating a survey that will help you discover how much your employees feel engaged toward their jobs.
Employee Turnover Ratio – What Is Metrics in Business
Employees leave businesses for different reasons.
Regardless of their reasons, employees voluntarily leave businesses.
You might not be able to find out why they leave, but you can find out the rate at which they leave.
An employee turnover of 20 per cent downward is considered good and not alarming.
The formula for employee turnover ratio:
Employee Turnover Ratio = Number of employees who left / Total Number of Employees
Your employees need time to rest and recharge after working well.
This is why giving them leaves and days for work is highly recommended.
However, more unplanned leaves than planned ones can take a toll on your business.
You can calculate your employees’ absentee rate using the absenteeism rate metric.
How many times have they taken permission to be absent from work? This excludes planned/paid leave.
You can calculate the absenteeism rate yearly, monthly, or quarterly.
The formula for Calculating the Absenteeism rate:
Workers Absenteeism Rate = (Total unplanned leaves / Number of working days in a given time) x 100
Conclusion on What Is Metrics in Business
There are several metrics used in measuring business performance.
You just need to find out the ones that will be relevant for your business.
If you don’t use metrics in your business, you are missing out on amazing benefits.
Hopefully, this discussion has enlightened you on utilizing metrics for tracking your business performance.