Your company has grown and you now have several managers, each of whom is responsible for keeping tabs on various aspects of the business. One way the managers do this is by using business metrics that capture some measurable aspect of your company’s operations. Here’s what you need to know about business metrics and how to choose the right metrics to track.
What is a business metric?
Business metrics are quantifiable measures of crucial business activities like sales, expenses, online visitors, and customer service. You can use metrics to track processes. For example, a widget maker would track average unit production and an online retailer would look at the percentage of orders returned by customers. Each of these business owners would then analyze how those processes affect their business’s performance.
It’s typical to group business metrics by category, such as by sales, marketing, profitability, or employee efficiency. Some metrics such as sales growth or profit margin are universal metrics that every business uses, while others are used by specific types of businesses. For example, a manufacturer might focus on measuring raw materials and labor costs, while a provider of online services may track customer login rates.
Why is it important to track business metrics?
Business metrics allow a company to analyze its various activities and processes, identify strengths and weaknesses, and make informed decisions about allocating resources. Key performance indicators (KPIs) are metrics to benchmark against a particular goal or business objective.
Metrics communicate to employees, investors, creditors, suppliers, and stakeholders the business’s goals, performance, and even corporate culture. They also help demonstrate compliance with government regulations, such as labor and environmental regulations.
Business metrics to track
- Finance metrics
- Sales and revenue metrics
- Marketing metrics
- Social media metrics
- Website and SEO metrics
- Ecommerce metrics
- Workforce and human resources metrics
There are hundreds of examples of business metrics across many categories, so it’s important to choose the ones most relevant to your business. Tracking too many business metrics may hinder more than help—choose the ones that best align with your business goals. Here are some broad categories of business functions and their relevant metrics:
- Net income. Also called earnings or net profit, net income is a company’s revenue minus all expenses and taxes.
- Profit margin. Profit margin is profit expressed as a percentage of sales or revenue. Profit margins include gross margin, operating margin, and net margin.
- Working capital. These metrics measure a business’s liquidity—its ability to pay current obligations from current assets (cash and assets that will convert to cash within a year). Working capital is current assets minus current liabilities.
- Receivables turnover. Accounts receivable is money owed by customers who were given credit, typically 30 to 60 days. A high turnover ratio—total credit sales divided by receivables—means a company is efficiently collecting from credit customers.
- Payables overdue. Accounts payable is money a business owes to suppliers and creditors. Overdue payables are tracked as a percentage of total accounts payable.
- Operating cash flow (OCF). Operating cash flow is a company’s net income plus non-cash expenses such as depreciation and amortization. The operating cash flow ratio is used to measure a company’s ability to pay all liabilities from cash generated by operations.
- Cash burn rate. Startups or young companies that aren’t yet profitable or still developing their first product must get cash from loans or equity funding to keep operating. Cash burn measures how quickly such a company is spending this cash until it begins generating sales and profit, or until it needs a further cash infusion.
Sales and revenue metrics
- Net sales. The total amount of income generated from goods or services sold, minus customer returns or allowances. This is the starting point for many other business metrics.
- Sales growth. Sales growth is the percentage increase in sales compared with a previous period of time.
- Average selling price. This is the average dollar size of each sale or transaction. A higher average price may contribute to sales growth, even if sales volume (the number of units sold) decreases.
- Sales cycle length. Sales cycle length is the amount of time a customer takes to make a purchase from the initial decision to completion. The length of a sales cycle can vary depending on the product itself, the price of the product, and the type of purchaser.
- Leads, response times, and wins. A business’s sales team can track the number of potential new customers, called sales leads, and the average time until a potential customer is contacted after reaching out. The business also can measure its win rate, the percentage of leads resulting in sales.
- Quotas. Quotas are essentially numeric business goals. For example, a company may set a quota of 100 new leads per quarter for its sales department.
- Customer acquisition cost (CAC). Customer acquisition cost is the average cost to turn a sales lead into a customer. The average is based on a company’s total sales and marketing costs for a period of time, divided by the number of new customers.
- Conversion rate. Conversion rate is the percentage of window shoppers or browsers who become customers.
- Customer retention. A company’s retention rate measures the number of customers who return during a period of time.
- Customer churn. The churn rate is the percentage of customers who stop buying or end a subscription.
- Customer lifetime value (CLV). With customer lifetime value, a company calculates the profit they can expect to earn from a customer over the entire course of their relationship.
- Return on marketing investment. This measures how profitably a company’s marketing team advertises its products or services, based on the amount of new sales attributable to the marketing campaign.
Social media metrics
- Followers. Followers are the number of people who follow a business on social media platforms.
- Engagement. Engagement rate is the percentage of followers who interact with your social media content using likes, shares, and comments.
- Impressions. Impressions are the number of people who viewed a social media post.
- Click-through rate. Click-throughs represent the number of times people clicked on a link in a post.
- Account reach. This tracks the total number of people who have viewed any of a business’s social media content during a given period. It helps a business estimate its potential audience size for brand recognition.
Website and SEO metrics
- Website traffic. Web traffic is the number of visitors that come to your site in a given time—such as daily or weekly.
- Page views. This is the number of times a web page has been viewed. A business can use this to assess the popularity of particular pages and their content.
- Click-through rate. Click-through rate is the percentage of internet users who click on a website after it appears in search results. A higher click-through rate suggests that a website’s titles and descriptive content are interesting, and its choice of keywords is effective.
- SEO keyword rank. Search engine optimization (SEO) is the goal of raising a website’s visibility in internet searches. Ranking for keywords helps a business evaluate whether it’s using the right words and phrases in its titles and text to get the website the highest possible position in search results.
- Average order value. The average order value is the dollar size of customer orders in a period of time, such as a month. To calculate it, divide the total monthly sales by the total number of orders. You may further break it down by product category.
- Best sellers. A business can track which particular products, or categories of products, get the most orders.
- Cart abandonment rate. This is the percentage of online users who put a product or service in the cart but don’t proceed to checkout.
- Return and refund rates. This is the percentage of unit sales that customers return and the percentage of dollar sales that are refunded.
Workforce and human resources metrics
- Revenue per employee. The formula for revenue per employee is a business’s total for a period divided by the number of employees. Different industries can have very different readings of this metric. A type of productivity ratio, it may also be applied to departments and teams within a business.
- Employee retention and turnover rates. Retention measures the average length of time employees stay with a business; turnover tracks the percentage of employees who leave in a given period.
- Cost per hire. The expenses of hiring a new employee include advertising for the job, interviewing the applicant, new-hire orientation, and training. Use this metric for budgeting in human resources and assessing job-recruitment efforts.
Business metrics FAQ
Are business metrics the same as key performance indicators?
Metrics are used to track a wide variety of business activities, while key performance indicators compare a metric against a goal. For example, 20% sales growth is a metric; sales growth exceeding or falling short of a percentage goal is a key performance indicator.
What is the best metric to evaluate a company?
Some metrics are universal, regardless of the type of business, such as sales, expenses, and profit. Others are more specific to the type of business. A manufacturer would likely focus more on production metrics such as raw materials and labor costs, while an online retailer might target customer satisfaction metrics.
When should you track your company’s business metrics?
Track metrics regularly according to how often they meaningfully change. For example, check the results of SEO updates every quarter (since it takes roughly three to six months for web traffic to improve), and review average revenue per account every month.
How do you choose which metrics to track?
The choice of trackable metrics depends on the type of business. A manufacturer will focus on production metrics such as labor and raw materials costs. An online retailer will care more about tracking top-seller products and customer satisfaction data.