7 Essential Financial Metrics to Track for Business Success & Growth

1. Revenue Growth

Revenue growth is undoubtedly one of the simplest yet most effective measures to follow. It measures how optimally the company is in the process of customer acquisition as well as making the current customers purchase more. 

Strive for to achieve extra 10-30% spending growth on a yearly basis depending on the industry and the business. Yes, we prefer higher growth because it leads to the achievement of a company’s objectives faster; nonetheless, it has to be sustainable and the company must be in a position to accommodate the growth capital. There is need to analyze revenue growth by product line, customer segment, sales channel etc in order to get more light on the issue.

2. Gross Margin 

Gross margin tells us how profitable our business is after deduction of cost of sales. It shows the extent to which your firm is utilizing material, manpower and manufacturing in诪生产和销售产品或服务。  

We calculate gross margin as ((Total Operational Revenue) – (Cost of Sales)) divided by the total revenue.

On average aim to make a gross profit of 40-60%. At most, the optimal margin quite depends on your type of industry and kind of business you are operating. Essentially, the areas of concern include comparing your gross margins over time and over competitors. Rose margins are an indication, your company is operating efficiency and the profitability as compared to before.

3. Operating Expenses

Marketing, sales, technology, administrative (and any other expenses related to costing of the general running of the business) would be operating expenses. Revealing the flow of operating expenses allows for determination of the efficiency of spending.

Strive to maintain the operating expense ratio within 0.30 to 0.45 of the revenue based on business type. Compare more about spending by department and category over time. There are examples where properly managed operating expenses can make a significant impact on the profitability.  

Working Cost Proportion = Complete Working Costs/All out Working Income

4. The Client Securing Cost prevalently known as CAC

The measure of CAC aids in defining how marketing costs should be distributed to grow profitability appropriately. CAC is determined by dividing the total sales and marketing expenditure for acquiring new customers to the number of customers thus obtained.  

For instance, $100,000 in marketing to attract, 20,000 new customers constitutes $5 CAC. Software companies probably have CAC ranging from $1 to $20+ depending on their approach. Assess CAC on a frequent and segmentation basis: by acquisition channel.

5. Client Lifetime Worth (CLV)

CLV alludes to the gross income of your business per endorser throughout the time you two are collaborating. A customer’s CLV is computed as the product of the Average purchase value per period, number of repeat purchase periods of the customers, and profit per sale.

For example:

$50 average purchase value

Five buying times per customer 

25% profit margin per sale

The CLV= $50 x 5 periods x 25% profit = $62.50

CLV is used in setting the right parameters for the acceptable CAC and how much to spend on retaining the customers. As for the cost of acquisition, most businesses prefer to see CAC below 50% of CLV. Upsell and cross-sell to increase customer lifetime value” [source: Binzagr, S. & Al-Angari, S. 2008].  

6. Cash Burn Rate  

Cash burn rate is the negative cash flow per month. It demonstrates what level of funding will be able to support a budget in its current state.  

Monthly cash burn rate is total negative cash flow for given period divide by number of months.

It is recommended to strive to have a cash burn rate which can be offset out of the current amount of funding at least for 18-24 months. By doing so, the project finishes without taking in cash even at the point where something was supposed to be rolled out and the account has run dry.

7. Net Profit Margin

Net profit margin captures business profitability to the last dime after excluding all business costs. It mainly focuses on fiscal responsibility throughout operations, pricing and costs.  

Net Profit Margin = Net Income of firm / Total Revenue of the firm

Even at our long term plans of operation; ensure that not less than 10 percent profit margin is targeted. Marginal nets above 25% are said to be very good most companies and are regarded as the industry standard. Analyse the current net margins on a product line and geographical location basis. Proactively increase growth of high margin products and segments.

Monitoring these seven SaaS metrics opens incredible clarity into the financial efficiency of the business. Regular checks on these score cards assist in identifying such trends, capture the opportunities hence correctly allocate resources to allow for sound, sustainable business growth.