6 Business KPIs Your Company Should Track
As a business owner, you may be wondering how to evaluate your business performance over time to ensure you’re on the right track, making the right decisions, and growing as planned. What are Key Performance Indicators (KPIs) and why should you track them? A KPI is strategic performance metric aligned with your identified business objectives that allows you to evaluate business growth in real-time. Identifying and tracking KPIs is an important tool to help you assess your company’s financial health as you strive to meet your goals. Following are six business KPIs your company should track.
Cash flow forecast
Cash flow forecasts help businesses assess their future financial position and are an essential part of a company’s financial management. Having a better understanding of where your company will be financially in six months, one year, or five years can help you make key business decisions. This metric projects your future financial position based on anticipated payments and receivables and can be estimated by the following formula:
Cash Flow Forecast = Beginning Cash + Projected Inflows – Projected Outflows = Ending Cash
Gross profit margin as a percentage of sales
Gross profit is the amount left after deducting the cost of making and selling your product. This metric is a good indicator of your company’s financial health as it helps you determine if your pricing and production costs are well balanced. To calculate the gross profit margin percentage, divide gross profits by total revenue.
Gross Profit Margin = [ Net Revenue – Cost of Goods Sold ] / Net Revenue
Revenue growth rate
Revenue growth rate measures the month-over-month percentage increase in revenue and is a great metric for startups to assess how quickly your company is growing. If you need a more regular assessment of revenue, replace ‘Monthly’ in the equation below with ‘Weekly’ to see your weekly revenue growth.
Revenue Growth Rate = [ Revenue Month B – Revenue Month A ] / Revenue Month A X 100
Evaluating the number of times inventory is sold, consumed, or replaced in a given time period can help you make better decisions on pricing, manufacturing, marketing, and purchasing new inventory. If your inventory turnover is slow, this indicates your inventory may be excessive or your sales strategy needs improvement, while a fast turnover could mean strong sales or insufficient inventory.
Inventory Turnover = Net Sales / Average Inventory at Selling Price
Accounts payable turnover rate
Accounts payable turnover measures the rate at which your business pays for goods and services in a given period. This metric measures short-term liquidity, with a higher payable turnover ratio being more favorable. Understanding your rate may indicate you need to take steps to reduce spending.
Accounts Payable Turnover Rate = Net Credit Purchases / Average Accounts Payable
Relative market share
Market share is the percentage of total industry revenue that flows to your company. If you divide your percentage share by the percentage share of the largest company in your market, you have your relative market share. As your percentage share increases, you can correlate stronger business growth and financial health.
Relative Market Share = Your Percentage Share / Largest Company Percentage Share
Partner with a financial team
There are many metrics to use to evaluate your business’ financial health and performance, but depending on your industry and specific goals, these can look different for everyone. Our experienced banking professionals are equipped with the knowledge, tools, and expertise to help you make the right choices for your business. Call us today at 866-762-8392 to learn more.