5 Metrics every business should track to stay profitable.

Running a successful business requires more than intuition—it demands a deep understanding of your numbers. By tracking the right financial metrics, you can make informed decisions that drive profitability and ensure long-term sustainability. Here are five key metrics every business should monitor to stay on top of their game:

1. Gross Profit Margin

What It Is:
The percentage of revenue remaining after subtracting the cost of goods sold (COGS).

Why It Matters:
Gross profit margin reveals how efficiently your business produces and sells goods or services. A declining margin may indicate rising production costs or ineffective pricing strategies.

How to Calculate:

1. Subtract COGS from Revenue.
   Example: Revenue = $100,000, COGS = $60,000 → $100,000 - $60,000 = $40,000 (Gross Profit).

2. Divide Gross Profit by Revenue.
   Example: $40,000 ÷ $100,000 = 0.4.

3. Multiply by 100 to get the percentage.
   Example: 0.4 × 100 = 40%.

Gross Profit Margin = 40%

2. Net Profit Margin

What It Is:
The percentage of revenue left after all expenses, including operating costs, taxes, and interest, are deducted.

Why It Matters:
This metric reflects the overall profitability of your business. It shows how much of each dollar earned translates into profit.

How to Calculate:

1. Divide Net Income by Revenue.
   Example: Net Income = $15,000, Revenue = $100,000 → $15,000 ÷ $100,000 = 0.15.

2. Multiply by 100 to get the percentage.
   Example: 0.15 × 100 = 15%.

Net Profit Margin = 15%

3. Cash Flow

What It Is:
The money moving in and out of your business over a specific period.

Why It Matters:
Cash flow determines your ability to meet obligations like paying suppliers, employees, and other expenses. Even a profitable business can fail without healthy cash flow.

Key Types:

• Operating Cash Flow: Money from business operations.

• Free Cash Flow: Money left after expenses like equipment or loan payments.

Quick Tip: Use your cash flow statement from an accounting tool like Xero or QuickBooks to track and forecast trends.

4. Customer Acquisition Cost (CAC)

What It Is:
The total cost of acquiring a new customer, including marketing and sales expenses.

Why It Matters:
A high CAC can erode profitability. Tracking this metric helps assess the efficiency of your marketing and sales efforts.

How to Calculate:

1. Divide Total Sales/Marketing Expenses by the Number of New Customers.
   Example: Total Expenses = $10,000, New Customers = 50 → $10,000 ÷ 50 = $200.

CAC = $200 per customer

5. Revenue Growth Rate

What It Is:
The percentage increase in revenue over time.

Why It Matters:
Revenue growth is a clear indicator of your business's market position, customer demand, and overall health.

How to Calculate:

1. Subtract Previous Revenue from Current Revenue.
   Example: Current Revenue = $120,000, Previous Revenue = $100,000 → $120,000 - $100,000 = $20,000.

2. Divide the difference by Previous Revenue.
   Example: $20,000 ÷ $100,000 = 0.2.

3. Multiply by 100 to get the percentage.
   Example: 0.2 × 100 = 20%.

Revenue Growth Rate = 20%

Final Thoughts

Tracking these five metrics ensures you stay informed about your business’s financial health, uncover growth opportunities, and make data-driven decisions. Regularly reviewing these numbers empowers you to act proactively, preventing potential pitfalls while maximising profitability.

Need help gaining clarity on these metrics? Contact ClarityCounts for expert financial insights tailored to your business goals.