Key Metrics: Essential Metrics Every Business Should Have

Key Metrics
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For a business to achieve its strategic goals, it should constantly be evaluated. In other words, managers must first evaluate their goals in order to create a key metric. A number of companies in the past have made use of specific techniques that have spread throughout numerous industries and become standards. That said, finding the best outputs to measure the actions taken to achieve these goals is then crucial. Also, setting objectives and goals for KPI metrics that are integrated with business decisions is a final step. In this article, we will be discussing the essential key metrics in business and examples of key metrics in finance and marketing that should be evaluated to increase the performance of your business.

What are Metrics?

Metrics are values and statistics that we use to measure or track performance. Because in a business, we use metrics to assess how productive a department, production unit, sales team, or website has been performing. Furthermore, It is simply a system of measurements.

What Are Key Metrics?

A key metric is an important metric. It is also known as a KPI (Key Performance Indicator). A key metric is a statistic that gives a measure of an organization or department’s overall health and performance. Furthermore, key metrics are the essential metrics needed to see the progress of an organization.

The key metric varies according to the sector. In this way, the different sectors in an industry have different key metrics for example:

  • Financial key metrics.
  • Customer key metrics.
  • Operational key metrics.
  • Marketing key metrics.

 Importance of Key Metrics 

  • Provides objectives and clear information on progress towards an end goal.
  • Tracks and measures factors such as efficiency, quality, and performance.
  • Provides a way to measure performance over time.
  • It helps makes more informed decisions.

There are five commonly used key metrics, which include revenue growth, net profit margin, profit margin, client retention rate, and customer satisfaction.

Examples of Key Metrics

Key metrics serve as pointers to specify a goal. There are examples of key metrics which include sales revenue, net profit margin, gross margin, lead conversion rates, website traffic, retention rate, customer acquisition, customer lifetime value, employee satisfaction, and progress toward goals and deadlines.

Business Key Metrics 

For a business to achieve its strategic goals, it needs constant observation. Also, you can set up key metrics to watch the progress of a business. Business key metrics are values that help in tracking the performance of a business. Also, it is necessary to track relevant key metrics to attain your goals. However, tracking metrics that are not related to your business will slow you down without having any impact. That is why it is necessary to know the key metrics of your goal. Here we mention examples of the key metrics used in business. 

Examples of Business Key Metrics 

#1. Sales Revenue 

It is the amount of cash flow or income that comes from the sales of products and services. Moreover, it is an essential business key metric as it shows the profitability of a business. 

Also, this key metric helps to decide where to invest, measure profitability, and determine valuation. You can calculate sales revenue by multiplying the product sold by the sales price.

#2. Net Profit Margin

Net profit margin calculates the amount of profit generated as a percentage of revenue. It is mostly expressed as a percentage of the net profit margin, it also illustrates how much of each dollar in revenue collected by a company translates into profit. Net profit margin is an important key metric that indicates the company’s overall financial health. It also helps investors determine if a company’s management is generating enough profit from its sale.

#3. Gross Margin

Gross margin can also be calculated as the profit made from the company’s revenue. It is calculated by the company’s sales minus the cost of goods sold. This is one of the examples of key metrics that indicate the profitability of a business. It helps investors understand the company’s income rate

 #4. Monthly Recurring Revenue (MRR )

One of the many examples of key metrics is monthly recurring revenue (MRR). MRR is the total revenue resulting from your business from all active subscriptions in a given month. You can use MRR to access the financial health of the business. Then you can also calculate monthly recurring revenue (MRR) by multiplying the number of subscribers under a monthly plan by the average revenue per user (ARPU). In addition, subscriptions under annual plans are also calculated by dividing the annual plan price by 12 and then multiplying the result by the number of customers on the annual plan.

Key Metrics of a business

Business uses key metrics to track, monitor, and assess the success or failure of different businesses. Moreover, key business metrics are mainly used to communicate an organization‘s progress toward certain long- and short-term objectives. Therefore, tracking costs is the goal of using these metrics.

Also, effective use of business metrics often requires input from key stakeholders as to which metrics are relevant to their lines of business. Some organizations select business metrics in their mission statements. Organizations simply insert them into their general workflows.

Some examples of how different sectors of business use metrics are the following:

  • Marketing departments use key metrics to track the success of campaigns and advertisements to measure customer generation.
  • The sales team monitors the lead with lead generation and lead scoring pointers. They also track new opportunities and the amount of potential a business has at various stages of the pipeline.
  • Finance departments use key metrics to determine their profit. Investors also use key metrics to evaluate company finances before investing.

Why is Using Key Metrics in Business Important?

Key metrics help businesses achieve a certain goal. They help business owners and managers make better decisions when assessing the effectiveness of business operations. They use the key metrics to address the specific interests of business stakeholders.

Metrics make business insights quantifiable. Business managers can use those insights to develop and improve business strategies.

However, business metrics mean nothing without context attached to them; companies view metrics through the lens of existing benchmarks, practices, and objectives. Also, companies include metrics in a strategy to improve business practices and objectives and optimize performance.

There are key metrics attached to every part of a business, including sales, marketing, and finance. Choosing which metrics to track depends on a business’s needs, objectives and industry. Certain key metrics apply to all sectors of a business, like net profit margin.

Business metrics are important because of the following reasons:

  • It provides insights into business performance and goals.
  • It gives employees an understanding of what’s important to the business and its stakeholders.
  • It measures performance.
  • It highlights issues also related to a business’s strategy and methods.
  • It provides stakeholders with insight into a company’s performance over time.
  • It gives investors an understanding of the finances of a company.

Read also: How to Calculate Time and a Half.

What Are Key Metrics in Marketing?

Marketing metrics are what marketers use to monitor, record, and measure progress over time. The metrics themselves are varied and can change from platform to platform. Marketers need to hone in on their goals and choose the metrics that will track their successes and failures in campaigns. Marketing key metrics give a clear picture of the progress of their campaigns. Although there are many working metrics you could keep track of, you need to hone in on what matters for each campaign. 

Examples of Key Marketing Metrics

Some of the important key metrics used in the marketing sector have their definitions.

#1. Cost Per Acquisition (CPA) 

Cost per acquisition is one of the key metrics in marketing that measures the total cost of a customer completing a specific action. CPA shows the cost of bringing in a single customer. The marketing team calculates the CPA. It can be calculated by dividing the campaign cost by conversion. For example, the less you spend on a particular ad, the better your ad campaign is doing. CPA shows how effective your ad campaign is. 

#2. Cost Per Lead (CPL)

The cost per lead (CPL) is the amount of money it takes to generate a new customer for your sales team from a current marketing campaign. These prospective customers have seen an ad, clicked on it, and then given some of their contact details in exchange for a white paper or more information about your product, thus keeping your sales pipeline full. Moreover, CPL informs the marketing teams if they’re spending the appropriate amount on different ads. You can calculate it by dividing the total marketing cost by the number of customers generated.

#3. Customer Lifetime Value (CLV) 

Customer lifetime value (CLV) is a key metric that measures the total income a business will expect from a regular customer for as long as that person or account remains a client.

When measuring CLV, it’s best to look at the total average revenue generated by a customer and the total average profit. Each provides important insights into how customers interact with your business and if your overall marketing plan is working as expected.

For a more in-depth look, you may want to break down your company’s CLV by quartile or some other segmentation of customers. However, this can give greater insight into what’s working well with high-value customers, so you can work to replicate that success across your market. You can calculate customer lifetime value by multiplying the average transaction size by the number of transactions and retention period. A customer’s retention period is the amount of timetable to keep a customer.

#4. Click-Through Rate (CTR) 

In online advertising, the click-through rate (CTR) is the percentage of individuals viewing a web page and then clicking on a specific advertisement that appears on that page. This key metric measures how successful an ad has been in luring users’ attention. For example, The higher the click-through rate, the more successful the ad has been in generating interest. A high click-through rate can help a website owner support the site through an ad. It can be calculated by dividing the total measured ad impressions by the total measured clicks multiplied by 100.

#5. Bounce Rate 

A bounce rate is the percentage of people who land on a page on your website, then leave. They don’t click on anything else or visit a second page on the site. Since the bounce rate is the percentage of visitors who only view one page on your site, you can calculate it by dividing the total number of single-page visits by the total number of visitors.

#6. Goal Completions 

The Goal Completion Rate is the count of the number of visitors who have completed all components of a goal, divided by the total number of visitors. When a lead or customer completes all the actions that come with a goal, then the goal is complete.

#7. Lead to Customer Rate

The lead-to-customer conversion rate, also known as the sales conversion rate or lead conversion rate, is the proportion of qualified lead results rated by a company that results in actual sales. Furthermore, the metric is critical to evaluating the performance of a company’s sales funnel. You can calculate it by dividing the number of qualified leads generated from sales by the total number of leads multiplied by 100.

#8. Multi-touch Attribution

Multi-touch attribution is a key marketing metric that determines the value of each customer touchpoint that leads to a conversion. Because the goal is to figure out how much influence each marketing ad has on a sale. 

#9. Engaged Time 

The audience is a big priority for publishers. Engaged times show how occupied an audience is to reap the rewards that come from reading their content accurately. It is the average amount of time visitors spend actively interacting with your content.

There are two main ways that inbound links help you to generate more traffic. The first way is that inbound links improve your ranking of SERPs (search engine results pages). In other words, you’re higher up the rankings. This way you increase the traffic you generate to your website.

#11. Social Media Engagement

Social media engagement is a measure of how people are interacting with your social media accounts and content. The term can cover a broad range of actions across all social platforms. For example, engagement might include Likes and Favorites. Comments, DMs, Replies.

#12. Unengaged Subscribers

This report shows a list of your most inactive subscribers. But marketers use this information to target certain lists or subscribers to clear from their lists.

#13. Website Conversion Rate

A website’s conversion rate is the percentage of website visitors that take the desired action on your site. This action converts them from visitors to leads (or customers). so the desired action might be downloading an ebook, signing up for a trial, completing a purchase, subscribing to a course, downloading a mobile app, booking a demo, or something else.

#14. MQL to SQL Ratio

Marketing Qualified Leads, commonly known as MQLs, are individuals who have indicated they’re more interested than other leads but are not quite ready to fully commit. Sales Qualified Leads (SQLs) are individuals qualified to make a sale. MQL can be converted to SQL and it determines the number of leads a marketer can convert.

#15. Internal Metrics

Internal metrics are approaches adopted and implemented to measure the efficiency of an inbound or outbound call center. Typically, a call center operates in a nerve-wracking environment where managers need to manage numerous things, including that every call is answered efficiently and also ensuring a high level of customer service and customer satisfaction.

Key Metrics in Finance

A financial KPI or metric is a measurable value that indicates a company’s financial results and performance and provides information about expenses, sales, profit, and cash flow to optimize and achieve the business’ financial goals and objectives.

Furthermore, the financial sector needs to regularly track, monitor, and analyze a company’s performance to maintain a healthy status and avoid monetary bottlenecks. But this is why financial key metrics have an impact on a business and have to be carefully watched to ensure the sustainability of a company’s finances.

#1. Operating Profit Margin

Operating profit margin is the ratio of operating income to net sales. These are one of the key metrics in finance that measure profitability on a per-dollar basis, after accounting for the variable costs of production but do not include interest or tax expense. There are various ways to calculate the ratio but typically, a higher ratio is better. 

EBIT refers to Earnings Before Interest and Taxes and can be calculated by taking total revenue less the cost of goods sold (COGS) and the regular selling, general, and administrative costs (SG&A).

#2. Operating Expense Ratio

In real estate, the operating expense ratio (OER) is a measurement of the cost of operating a piece of property compared to the income brought in by the property. The operating Expense Ratio is also one of the key metrics in finance. It is calculated by dividing a property’s operating expenses (minus depreciation) by its gross operating income.

#3. Working Capital

Working capital, also known as net working capital (NWC), is the difference between a company’s current assets, such as cash, accounts receivable (customers’ unpaid bills), and inventories of raw materials and finished goods, and its current liabilities, such as accounts payable.

It is calculated by taking a company’s current assets and deducting current liabilities. 

 #4. Current Ratio

The current ratio is a liquidity ratio that measures a company’s ability to pay short-term obligations or those due within one year. The financial department also uses it as one of the key metrics in finance to calculate the liquidity ratio in a company. It tells investors and analysts how a company can maximize the current assets on its balance sheet to satisfy its current debt and other payables. Furthermore, you calculate the current ratio of your company by dividing current liabilities by current assets.

 #5. Quick Ratio/Acid Test

The acid ratio (ATR), also known as the quick ratio, measures the liquidity of a company by calculating how well current assets can cover current liabilities.

You can learn more about acid test ratio, click here

#6. Berry Ratio

The berry ratio is a financial ratio that compares a company’s gross profit to its operating expenses. The ratio is an indicator of a company’s profit in a given period however a ratio of 1 or more indicates that a company’s profit is above operating expenses, while a ratio below 1 indicates that a company is losing money.

#7. Account Payable Turnover

The accounts payable turnover ratio is a short-term liquidity measure used to quantify the rate at which a company pays off its suppliers. It is also another key metrics in finance.

#8. Account Receivable Turnover

Accounts receivable turnover is the number of times per year that a business collects its average accounts receivable.

#9. Vendor Payment Error Rate

Vendor Payment Error Rate measures the diligence of the Accounts Payable Department in issuing and paying vendor invoices (i.e., money owed by the company to creditors/vendors). Errors may include overpayments, underpayments, payments made to the wrong entity, etc.

#10. Budget Variance

These key metrics describe situations where actual costs are either higher or lower than the regular cost. However, a negative budget variance indicates a budget shortfall, which may occur because revenues miss or costs come in higher than anticipated.

#11. Return On Assets (ROA)

Return on assets is a key metric the financial team uses to indicate a company’s profitability with its total assets. ROA can be used by management, analysts, and investors to determine whether a company uses its assets efficiently to generate a profit. Also, you can calculate the ROA of a company by dividing its net income by the total assets owned.

#12. Return On Equity (ROE)

Return on equity (ROE) is a measure of financial performance calculated by dividing net income by shareholders’ equity. Because shareholders’ equity is equal to a company’s assets minus its debt.

#13. Economic Value Added (EVA)

Economic value added (EVA) is a measure of a company’s financial performance based on residual wealth. It can be calculated by subtracting its cost of capital from its operating profit, adjusted for taxes on a cash basis. EVA refers to the economic profit that attempts to capture the true economic profit of a company. Also, this measure was devised by the management consulting firm Stern Value Management.

#14. Employee Satisfaction

Employee satisfaction measures if employees are happy or content with their jobs and work environment.


#15. Payroll Headcount Ratio

The payroll headcount ratio is one of the key metrics in finance. You can also calculate it by dividing HR full-time positions by the total number of employees. You can include freelancers, part-time employees, and contractors, for example, to be able to evaluate, in the best possible manner, how well your company is utilizing its workforce. So this metric shows how many people engage in the payroll procedure.

Payroll headcount ratio = HR headcount / Total company headcount.

Conclusion

Key metrics track the performance of a business. It is also important as it describes the progress of a business.

Examples of business key metrics include sales revenue, gross profit, net profit margin, and so on. Moreover, there are key metrics in finance for tracking the financial performance of a company.

Effective marketing strategies also include tracking numbers, analyzing data, and measuring results. Moreover, the marketing department uses different key metrics to analyze its campaign.

FAQs

what are metrics?

Metrics are values and statistics that we use to measure or track performance.

what are examples of key metrics used in business?

Examples of key metrics include sales revenue, net profit margin, gross margin, lead conversion rates, website traffic, retention rate customer acquisition, and customer lifetime value.

What is a sale revenue?

It is the amount of cash flow or income that comes after the sales of products and services.

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