In today’s business world, I’m sure the big bosses rely on the financial department and accountants to keep track of all expenses and income. While this is a good way to save time and effort on your side, it’s also important to track some financial metrics directly as well. This goes especially during specific milestones and seasons throughout the business year.
But what exactly should you be tracking? Read on as I’ll be showing you the top eight financial metrics to track for your business now.
Top Financial Metrics to Track for Your Business
I know what you’re thinking: Why bother tracking finances when you have someone to do it for you? Doing so can mean you’ll know your business’ exact situation, improving strategies or cutting back on certain expenses. So here are the important metrics to track and what it means for you and the business:
- Cost Per Acquisition
Cost per acquisition is also well known as the customer acquisition cost. This is a metric which shows ratios of how much a business spends when acquiring a customer to the revenue they can bring you within a timeframe.
The lower the ratio is the better! This is to spend less and gain more when you get a new client. If you see the ratio is too high, it’s best to change your methods and marketing strategies. Even the smallest changes can make positive and significant differences!
- The Retention Rate and Value
This is a crucial factor in your business since you want to keep all your customers happy. It’s better to keep your existing customers consistent rather than gain new ones, making it easier to gain sales and profit.
The result of keeping a high retention rate, you gain loyalty. With customer loyalty, you have many people supporting your business and the chance of them referring it to other people. Strive for higher retention rates and customer value with excellent services!
- Your Revenue Per Employee
What you pay employees is a bit tricky since you want to pay more to encourage them without incurring losses. Fortunately, there IS middle to giving your employees more, and it doesn’t have to stretch or pinch their pay.
Make sure that your employees are paid the right amount according to law, and that you offer social benefits. Whether it’s giving them time off, wellness plans, or even allowing their kids, anything that helps them feel more comfortable and empowered to work.
- The Cash Flow
All businesses require cash to continue operating, and you need to monitor all these numbers. The numbers will show if your business is doing well or not.
So when monitoring your cash flow, look into all your expenses, the burn rate (how quick your company spends), and evaluate the necessities and purchases. You can even consider saving more by negotiating with vendors or lessening any wastage by purchasing materials only as needed.
Besides this, understand the cash drivers and how you can collect more efficiently.
- Sales Revenue
The sales revenue is another key factor to track if you want to make sure that your business runs smoothly. Without sales, you won’t be able to have profit and revenue to keep your company alive! When looking into the sales revenue report, evaluate the following:
- Are the methods working? Should you maintain such methods or do even more?
- Are there any changes you need to make to reach goals?
- Check the overall business health to see if your company will last for the long-term
- Gross Profit Margin
Healthy businesses should have a high-profit ratio, which you can determine through measuring sales and investments and the gross profit margin. You can calculate this by dividing your gross profit and revenue. The higher the results are the better.
What you can do to improve such numbers is by increasing your sales revenues and decreasing the costs to deliver the products or services.
- Debt Ratios
All businesses will incur debt at one point, especially during the beginning of it. And obviously, you wouldn’t want to stay in deep debt forever, which is why you need to track your debt ratios to ensure that everything is being paid on time,
You can calculate your debt ratio by dividing your total debt with your total assets. This shows you the leverage of your company, with the lower ratio being even better.
- Days Sales Outstanding
Lastly, you need to also track your days’ sales outstanding, which measures the average daily age of your accounts receivables. If the average trends higher, then the more the company may struggle with cash flow. When you determine your DSO, it can help you see if you need to improve your policies in receiving payments and collections.
Wrapping It Up
When it comes to dealing with your business’ finances, you shouldn’t always leave it to your employees alone. You should also get involved and learn what your expenses and revenue are as well so you know the business’s true state. That way, you know what to improve on and what strategies to continue for ultimate success!
I hope that this article taught you all about what financial metrics to track for the business. So invest in the best software for financial advisors and begin learning the ins and outs of the financial world too!
Do you have any questions or would like to share your own advice on finances in the business? Let us know in the comment section below, all your thoughts are appreciated!