Net Profit

This KPI is an easy one to track and calculate. It’s the money you can pocket at the end of the day, after you’ve paid all of your bills: 

Net profit = total revenue – total expenses

There’s no “magic number” here, although you do want it to be a profit and not a loss.

Net Profit Margin

Calculate how much of your revenue was actually profit with this KPI, which accounts for both fixed and non-fixed expenses as well. This is a great indicator of future profits and will help better assess your profitability goals.

• Net profit margin = (total revenue – total expenses) ÷ total revenue

Compare this metric to the gross profit margin to help determine if you need to scale back on non-fixed costs to grow your overall revenue.

Current Ratio

If you’re looking to keep cash flowing, this is the number to keep an eye on. It’s a metric that speaks directly to your liquidity, and the higher it is the less likely you’ll need to depend on a line of credit if you need to pay off big bills or make a major business purchase.

• Current ratio = current assets ÷ current liabilities 

Current assets are cash on hand or cash expected within the next year, and liabilities are just that — debt that you’ll have to pay back within the same amount of time. Ideally this number should be between 1.5% and 3%. Anything that falls below 1% should sound warning bells and could indicate a serious cash flow problem. 

Quick Ratio

This is a quick glance at liquidity that determines your ability to pay financial debts ASAP. Although the current ratio KPI is a great metric to help determine long-term financial health, a quick ratio gives a much better picture of cash flow.

• Quick ratio = (current assets – inventories) ÷ current liabilities

You may already know of this metric as the acid test that truly speaks to cash on hand and very short-term liquidity.

Customer Acquisition

Want to know how much money you make by bringing in each new customer? This is the KPI to watch.

• Customer acquisition ratio = net expected lifetime profit from customer ÷ cost to acquire customer

While acquisition costs can vary from business to business and throughout industries, you should consider the cost of bringing this customer on board and how often they’ll be buying from you. The goal here is a result of one — that means for every dollar you spend bringing in new customers, you’ll get a dollar in return. Higher than one is great, lower than one means you’re spending too much to get buy-in. 

The bottom line is that you need these KPIs to truly understand your bottom line. Without a clear vision of how financially healthy your business is, it’s hard to make important decisions that will help it grow and thrive.

Need help creating a personalized set of SMARTER goals and KPIs for your business? Request to qualify for a one-on-one business diagnostic and meet the advisory board.