Last month, we asked a very important question: Are you tracking business metrics for your company? If not, why not?
Being able to quickly and easily see quantifiable data surrounding different areas of your business is hugely beneficial in helping you make good – and quick! – decisions about improving the performance of different areas of your business. Things like your revenues and expenses, how your digital marketing campaigns are going, and what the traffic to your Website are like can all help you improve profitability and performance. Tracking business metrics keeps teams and stakeholders aware of performance so you can make confident decisions to grow your company and empowers teams and management to make necessary changes.
But, the hard part can be deciding which metrics to track. The key is to understand which focus areas are the most impactful when it comes to driving revenue, customer retention, and decisions that involve the growth of your business.
At the very least, businesses should track sales, marketing, finance, and human resources in order to see where they stand and how they may improve in the future.
Last month we looked at sales and marketing areas to track. This month, let’s talk about Finances and Human Resources.
Financial Metrics
1. Net Profit Margin
This is arguably one of the most important indicators of a business’s success and measures how much actual profit is netted for each dollar of revenue made. This shows that just because revenue increases, profits may not necessarily follow suit, which can lead to business problems.
It’s a good way to predict long-term business growth and to see whether your income exceeds the costs of actually running the business. Perhaps you need to look into increasing prices or selling more products/services, or where you might want to cut expenses. But that can’t be done overnight, so it’s important to follow this business metric closely.
2. Gross Profit Margin
Unlike net profit margin, gross profit margin shows a company’s profits before subtracting interest, taxes and operating expenses like rent, utilities and wages. This can show whether a business is able to cover all of its expenses and is an important factor when making business decisions. The higher the gross margin, the more your company earns by each sales dollar and you can invest it in other operations. It’s also an important metric for newer businesses, as it reflects the efficiency of the organization’s overall productivity and processes.
3. Current Ratio
A business must be able to pay off financial obligations, meaning it must be relatively liquid. The current ratio measures a company’s ability to pay off financial obligations that are due within a year and is calculated as a ratio of the current assets to current liabilities.
Generally, a current ratio above 1.0 is considered healthy. But it can be too high. For example, if a business has a current ratio above 3.0, it could indicate the business isn’t efficiently handling working capital. It’s also important to note that this is only a quick, short-term snapshot of solvency and must be calculated on a regular basis to stay informative.
Human Resource Metrics
1. Employee Turnover Rate
Every business will lose employees at some point, but high turnover rates can reflect unhappy workers or an unsuccessful pattern in hiring employees who were a bad fit for the role. Turnover rates higher than the industry average can also suggest competition may be more attractive.
It’s also important to track both voluntary and involuntary turnover. You want to know how often employees leave of their own free will versus how often they are let go. Turnover also typically increases when a company is performing poorly or a big change, like a merger, is in the air. In these cases, rising turnover rates can generally be expected.
You can also monitor various department turnover, as well. If one department is high, is it due to bad management? Is it the work itself? Is pay a factor? You can look at these metrics to make sure you flag any potentially serious issues.
2. Employee Satisfaction
Happy employees are generally motivated employees. They are more productive, deliver better service to customers and typically are more likely to go above and beyond. So, it is important to track job satisfaction.
Usually, this can be done with an employee survey. This will help you understand what they like and dislike about their roles and you can use it to help keep your team motivated. Results are then analyzed to understand where the business can do better. You will also want to use an objective third party to manage these surveys. This reduces the employee’s concern for retaliation for negative feedback. If you don’t get honest answers, it will help your business to track this.
3. Cost Per Hire
Knowing how much you are spending to bring in new talent can be an important business metric for leadership. It’s important to make sure that costs stay within budget. You need clear information on how much you are spending to secure a new hire. It will also help you budget for future hiring needs.
CREATE YOUR OWN CUSTOM DASHBOARD
As businesses continue to grow, more business metrics may need to be tracked. This will ensure they achieve the goals and performance that they are looking for over the long-term. There are SO many more business metrics that a company could look at and this is only a small slice of things that can be important to track.
At a certain point, it’s beneficial to use an online solution that can help to keep a business on top of metrics that are most important to them. We can do that! Knecht Business Solutions has created a customized, real-time dashboard we’re calling KashBoard for businesses. You can (easily!!) create exactly what your business may need (via QuickBooks Online, for example).
Your dashboard will provide valuable snapshots of a variety of areas that can be tailored to your business’ needs. We’re here to help! Click here to learn more, or contact us and we’ll create your own personalized dashboard.