Metrics and key performance indicators
Similar to metrics, key performance indicators (or KPIs) are targets used to measure the success of an organisation or employee.
Knowing which metrics and key performance indicators to follow, and why, will help you spot problems and keep track of how your business is doing.
Which metrics and key performance indicators to use, and how to track them, depends on your industry and your business model.
Talking to a business advisor can help you determine which areas you should be focusing on and how to do it in a way that suits your business.
Current customers
This is the number and value of your customers.
Keep track of how many customers you have, and how often and how much money they spend.
The more you know about your customers, the more you can:
- maintain good relationships
- create great customer experiences
- drive your marketing.
As your business grows, the kinds of information you keep about your customers will probably change and grow too.
Revenue
Your revenue is how much money your business has made. This only includes your income, not your expenses.
Your revenue is all the money you make from your products or services, as well as any other income you earn – for example, interest on savings and income from investment. It’s different from cash flow.
Revenue is one of the most important numbers to keep track of to make sure you’re covering your costs and still able to operate your business.
Net profit
Your net profit is your revenue minus your expenses – or the bottom line.
Profit is almost always a good thing, and loss isn’t always bad. It’s common to operate at a loss if you’re just starting out, or if you’ve made an investment with a plan for it to pay off later. But if your business is continuously losing more money than it’s making, you’ll need to make some changes.
Net profit margin
Your net profit margin is your net profit as a percentage of your revenue, year to date. To calculate it:
- divide the net profit by the revenue
- multiply the result by 100.
This figure will tell you how successful you’ve been at making a profit as opposed to covering costs.
Utilisation rate
The utilisation rate is the level to which your people and big assets are in use.
To calculate it for your employees:
- divide the amount of billable hours each person clocks by the total number of hours
- multiply the result by 100.
The utilisation rate for your assets (for example, machinery) is either:
- the percentage of how much each asset is in use compared to its full capacity
- the percentage of how much revenue each asset actually earns compared to its maximum earning potential.
Keeping track of your utilisation rates will help your business work towards its potential. But don’t expect any of your employees or assets to give you a 100% return.
For example, Nicola owns a small marketing firm. Justin, one of her full-time employees, works 40 hours a week and spends 30 hours on work Nicola can charge her clients for. This means Justin’s utilisation rate is 75%.
Net promoter score
Your net promoter score (NPS) is how likely your customers are to recommend you.
Your net promoter score will tell you:
- how valued your business is
- how recommendable you are
- who your most valuable current customers are.
A net promoter score is a simple way to calculate customer loyalty based on responses to a single question: on a scale from 0-10, how likely is it that you would recommend our company/product/service to a friend or colleague?
Customers who rate you 9 or 10 are the ones who are likely to enthusiastically refer your services to others.
Word-of-mouth marketing is one of the most important ways to grow your business.
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