When running a business, you cannot only rely on your gut instincts, especially when it comes to financial reporting. You must be objective rather than subjective when determining your company’s financial health. One way to track the health of your business is through key performance indicators (KPIs). In this article, Bernard Marr explains financial metrics every company should keep a close eye on.
Metrics to Track
Financial KPIs vary from one organization to the other, depending on your goals. However, here are some essential metrics that you must be tracking to ensure your business is on the right path:
Sales growth is one of the most fundamental success metrics for any business. Calculate revenue growth with the following steps:
Track sales by compiling income reports with your favorite accounting software from one period to the next.Then, subtract the previous period’s revenue from the current period.Finally, divide the numbers by the total of last period’s revenue.
The goal here is to aim for positive growth. “Doing that can also help you spot revenue concentration, where most of your sales are generated from one product or one customer, which can leave your business vulnerable,” explains Marr.
Analyze your revenue streams—revenue per client and service. Evaluating your revenue streams help you:
Determine profitable customers and segmentsMake informed decisions to help your business grow
Net Profit Margin
Net profit margin tells you what percentage of your revenue was profit. This metric helps you project future profits and set goals. Net profit margins vary widely by industry. A good benchmark to aim for is nearly 10%. If your company is below 5%, then the net profit margin is low. On the other hand, if the profit margin is above 20%, your organization is comparatively on the higher side.
To read the original article, click on https://bernardmarr.com/the-4-best-financial-kpis-every-company-should-be-measuring/.