Important Business Metrics

Important Business Metrics

If you’re a business owner or manager, you have probably often wondered about the most important business metrics. Unfortunately, without proper context, there isn’t a straight answer to this issue. This is because all businesses are different. What may be important business metrics to one company may not be as relevant to another. Every business, sector, and industry is unique. That said, many metrics cut across industries, and we will begin by taking a few examples. 

Important Business Metrics That Cut Across Industries

There are several broad categories that important business metrics fall into as follows:

Operational Metrics

In business, operations refer to daily activities that increase value and lead to a profit. Operational metrics measure these aspects of the business. Specifically, they reveal how well the people, processes, and systems in a company are performing. Some of the most important business metrics in this regard include:

  • Absenteeism Rate: In human resource management, absenteeism rate is a useful metric to see departments where employees call in sick or skip work, and relate this to the department’s performance and the company. 
  • Overtime Hours: The number of overtime hours can be a precursor to high absenteeism. For example, many overtime hours indicate employees are overworked, and exhausted employees tend to call in sick and skip work more. 
  • Delivery Time: This is an operational metric that is useful in logistics. Delivery time is the measure between the placing of an order and the time the customer takes delivery. A company can set a baseline and communicate this to customers as they place their orders – this manages expectations since customers know how long they need to wait for fulfillment. 
  • Transportation Costs: This computes the total costs involved in distributing products. It is the sum of administrative costs, warehousing fees, order processing costs, other costs of carrying inventory, and the actual transportation costs related to vehicles, airplanes, and ships. 
  • Total Tickets vs. Open Tickets: This operational metric is common in customer service departments. Total open tickets could indicate that customers don’t understand how to use a product/service – hence more information needs to be made available through product documentation or online tutorials. A high number of total tickets may also indicate something inherently wrong with the product design, and the company needs to roll out an update or go back to the drawing board. A high number of open tickets means that problems are not being resolved – this is a pain point for any business and demands immediate attention. Frustrated customers often vent on social media when their complaint tickets are not addressed in time. 
  • Average Handle Time: This metric is useful for project management. It shows how long each team member took on an assigned task. Management can quickly spot deficiencies and take the necessary action. 
  • Revenue per employee: This straightforward operational metric arrived at by taking the sales revenue and dividing it by the number of employees. It is best used for historical comparisons or benchmarking against competitors. 
  • The proportion of digitized audit trail: Much of the auditing process is traditionally labor-intensive. Employees have to pore over records as part of the audit process. However, a robotic process automation (RPA) system can make logs for when users access, edit, or delete data. It can also connect data in disparate systems and close gaps that may result in compliance penalties. RPA can digitize and maintain the audit trail, and this metric measures the progress towards this digitization. 
  • The number of compliance deficiencies or errors: RPA reduces or eliminates errors in data entry. With fewer errors, there are fewer compliance issues. This metric shows a business now many errors or deficiencies have occurred after implementing RPA. When compared with the past, management can see the benefits of RPA. 
  • New projects undertaken: RPA boosts productivity by freeing up staff to focus on core tasks. An increase in new projects undertaken is a measure that employees can work on more projects. 
  • Process velocity: This is a measure of the time it takes to complete a process. Processes get completed faster when humans work side-by-side with robots. 

Customer Metrics

As the name implies, customer metrics measure customer satisfaction and experience. Important business metrics in this category include:

  • Net Promoter Score (NPS): This metric is the brainchild of Fred Reichheld. It is a straightforward metric that measures customer sentiment. On a scale of 1 to 10, customers are asked to register their willingness to recommend the company to someone. A high score indicates the customer is a promoter, while a low score indicates a detractor. Mid-range scores show the customer is neutral. NPS is simple yet effective, and one of the most important business metrics to measure company value. 
  • Customer Churn Rate: This metric measures customer turnover. It is beneficial in financial services and subscription-based businesses. A high turnover indicates customer dissatisfaction and vice versa. 
  • Customer Satisfaction Score (CSAT): This is a straightforward measure of a customer’s satisfaction with some business aspect. At the end of a transaction, the customer is asked to rank a process, interaction, or employee on a scale of 1 to 5. 
  • Customer Experience Score (CES): This metric measures customers’ experience throughout interacting with the business. 
  • Customer Acquisition Cost (CAC): There are several customer acquisition cost metrics, but this is the most straightforward. This metric is computed by taking your total sales and marketing costs and dividing this by the total number of clients signed up during a given period. It shows how efficiently the business applies its sales and marketing budget to reach new customers. Comparisons can be made with past periods and compared against the competition. 
  • Customer Lifetime Value (CLV): This forms part of relatively new customer acquisition metrics. CLV grew with the growth of subscription-based businesses. It measures customers’ total value over the entire period of doing business with you. 

Profitability Metrics

business metricsProfitability metrics measure the bottom line and let management and stakeholders know how good the business is at delivering profit. Below are important business metrics for this category:

  • Shareholder’s funds: Also called shareholder’s equity, these are funds attributed to shareholders – includes a mixture of common stocks and preferred stocks.
  • Operating Costs: These are fixed costs incurred to run your business. Examples include payroll costs, factory costs, rent, utilities, marketing, and administrative expenses. High operating expenses make your business uncompetitive. Increased operating expenses can kill your business prospects when left unchecked.
  • Balance Sheet Assets: These are either fixed or current resources. They are fixed or current, depending on their liquidity. Liquidity measures how quickly you can convert the asset into cold hard cash. Bank deposits and cash at hand are the most liquid, while buildings and land are the most illiquid. 
  • Revenue: This term is often interchanged with turnover and sales to mean the same thing – it is the total amount of money collected from selling company products. 

Sales and Marketing Metrics

Marketing metrics measure the total of all the company’s efforts in driving sales, while sales metrics measure the attainment of sales goals. Below are some important business metrics in this category:

  • Cost per click (CPC): This is a critical operational metric in online advertising. It measures the advertising spend it takes to attract a single click from an online user. The CPC differs across industries, sectors, and niches. Some niches have very high CPC rates due to intense competition. This metric is useful for startups considering venturing into a particular niche. It informs founders on how much they should expect to spend on online advertising to make any headway. 
  • Cost per acquisition (CPA): Rather than focus on clicks, CPA quantifies the cost spent to acquire a single customer. It is a useful business metric to show the effectiveness of sales and marketing operations – the lower this figure, the more efficient the sales and marketing operations. 
  • Conversion Rate: Many people may be interested in your product – but what matters most is whether you convert interested people into paying customers. Your marketing efforts need to convert leads to paying customers. The conversion rate is an excellent measure of your marketing campaign success – the higher it is, the better. A low conversion rate may indicate that the marketing campaign is deficient at convincing potential leads. 
  • Monthly Recurring Revenue (MRR): This is the revenue a firm can expect to earn every month. But how do you calculate your monthly recurring figure (MRR)? Add up the total paying clientele and multiply that with the average revenue per user (ARPU). Any business aims to increase the MRR figure monthly continuously. 
  • Marketing return on sales: This is the net marketing contribution by a market, region, or business unit divided by its sales.
  • Marketing return on investment: This business metric measures the return on a sales and marketing investment. It is arrived at by taking the net marketing contribution and dividing it by investing in sales and marketing.

Important Business Metrics for Startups

Finally, any discussion on important business metrics is incomplete without delving into the most important KPIs for startups. The rate of startup failure is high because most entrepreneurs fail to measure the business’s critical areas and use the data to make changes that would lead to success. Below are some important metrics for startups: 

  • Awareness: These are a series of important business metrics that focus on your marketing efforts’ brand-building aspect. This is measured using impressions, click-through rates, attention in minutes, website visitors, and vanity metrics such as likes, shares, and comments in online marketing. These metrics are improved by focusing on tasks that increase awareness, such as search engine marketing, SEO, advertising, public relations, word of mouth, etc. 
  • Acquisition: This set of important business metrics measure the company’s interactions and potential users of their product or service. This is typically a non-monetary transaction. Examples of measurement include the number of new leads, the number of email subscribers, social media page likes and followers, and any other form of contact. 
  • Activation: This is when a customer finally decides to try your product or service for the very first time. Examples of how to measure activation include the number of new trials, the number of freemium products taken up, etc.
  • Revenue: The revenue metric refers to when a lead finally pays for goods or services. Revenue is measured by examining customer acquisition costs. Acquisition costs that are higher than sales, the business makes a net loss. Other important business metrics that affect revenue include shopping cart abandonment rate, checkout flow, customer experience, etc.
  • Retention: Retention metrics measure all aspects that lead to customer retention. More retention leads to an improved bottom line without any additional investment to acquire customers. Important business metrics in this regard include customer lifetime value and customer satisfaction rate. 
  • Referral: Word of mouth marketing is one of the most important customer acquisition channels. It is a great way to acquire new customers without taking customers through all the stages of a buyer journey. The effectiveness of referrals is measured using important business metrics such as net promoter score, social shares and tags, positive online mentions, and reviews.

These are examples of the most important business metrics – however, each organization has its own objectives, goals, and priorities that determine the metrics the business should focus on.

William Goddard

William Goddard

William Goddard is the founder and Chief Motivator at IT Chronicles. His passion for anything remotely associated with IT and the value it delivers to the business through people and technology is almost like a sickness. He gets it! And wants the world to understand the value of being a technology focused business in a technological world.