Key Business Performance Metrics

Business metrics help paint a picture of a company’s performance. While a single number may serve as an indicator of a brand’s health, analyzing several metrics is a better way to measure trends including long-term growth and whether a certain promotional tactic or advertising strategy is working or not.

Some examples of metrics include:

• Net profit margin
• Gross margin
• Year-to-date sales growth
• Customer acquisition cost
• Qualified leads per month
• Customer engagement
• Conversion rates
• Marketing qualified leads
• Sales qualified leads
• Marketing spend per customer
• Return on investment (ROI)
• Lifetime value of a customer
• Customer retention

KPI stands for Key Performance Indicators. These metrics are used to measure the efficacy of a marketing strategy, promotion, sales drive, or other goal-based initiative. There are high-level KPIs, which focus on broader performance questions, and low-level KPIs that zero in on specific departmental process such as sales numbers or employee retention.

In order to work, KIPs must be quantifiable, reliable, shared, objective, trackable, and balanced (you have to look at each factor from several angles for the most accurate understanding). Used correctly, KPIs can help focus attention on shared goals while providing information vital to the decision-making process.

Metrics are also called KPIs, or you may see them referred to as benchmarks, milestones, grades, bars, or parameters. In some situations, you may see metrics identified by name, such as “churn rate” or “productivity ratio.”

1. Key business metrics are measurable data points that are integral to understanding a company’s current level of success, identifying weaknesses and strengths, and finding ways to fuel progress.Though specific metrics may change somewhat depending on the industry and certain goals — for instance, financial metrics include liquidity ratio and contribution margins — these 10 are used frequently:
   1. Total revenue
   2. Cost of customer acquisition
   3. Customer retention
   4. Operating productivity
   5. Gross margin
   6. Monthly profit/loss
   7. Overhead/fixed costs
   8. Variable costs
   9. Inventory
   10. Cost of goods sold

Business metrics, or KPIs as they’re often called, are typically tracked using an analytics program or other similar platform. Customers can sign into their accounts and take a look at their business dashboard to see where those metrics stand. Keeping an eye on that data is the best way to track company development and see where you are in relation to reaching your goals.

You can also partner with a marketing agency or other similar firm who specializes in planning campaigns and tracking metrics. They’re likely to already have software in place to help track KPIs and the knowledge to interpret the results.

There are many different types of key performance indicators; the ones you choose will depend on your industry and your goals. For instance, if you’re a gym owner testing out new group classes, you might want to measure Average Class Attendance and New Customer Acquisition to understand how many people are signing up during your promo and how popular the new classes are. Those KPIs wouldn’t be relevant to a financial firm or gift basket company.

In digital marketing, the top 5 key performance indicators might be:

• Web traffic
• Cost per leads
• Bounce rate
• Conversion rates
• Customer lifetime value

There are hundreds of KPI examples depending on the type of business you have and what your goals are. Since the type of key performance indicators you need are dependent on your objectives, you first need to identify where you want to go, and only then can you select the KPIs that can help you get there.

Some KPI examples include:

• Total sales by month
• New customers
• Number of qualified leads
• Conversion rate
• Customer turnover rate
• Customer engagement level
• Web traffic by source
• Daily service usage
• Net profit margin
• Vendor expenses
• Net promoter score
• Retention rate
• Traffic from organic search
• Visits per channel

The term “metric” is defined as a data point that measures the progress (or lack thereof) of a specific business process. Like all metrics, marketing metrics must be quantifiable, shareable, understandable, and relevant to the goal. Every industry has their own metrics and may also use universal metrics related to revenue or customer value.

In marketing, analytics, metrics, and KPIs go hand in hand. In fact, those terms are often used interchangeably to refer to data points, figures, and values used to measure everything from email clicks to sales per channel. By understanding analytics, marketing professionals and business owners interested in playing a hands-on role in managing campaign and/or operational performance can increase efficiency and optimize ROI.

Metrics are data points used to quantify the status or success of a specific process. Metric comes from the Latin word metiri which literally means “measurable”, and these numbers are often relative in that they are presented as ratios or are evaluated in tandem with other numbers. Facts, on the other hand, are static bits of data that can stand alone. Facts are used to inform metrics. For example, knowing you have 100 new SMS sign-ups this month is a fact. Knowing how that relates to SMS sign-ups last month and where those new subscribers are coming from is a metric.

If you’re launching a new product or revamping an existing one, it’s vital that you understand everything about that product’s success as it happens. By tracking progress in real-time, you can adjust your campaign and maximize reach, conversion, and ROI. To do so, use these five important metrics:

1. Conversion Rate: How many consumers who look at or otherwise consider the product actually go on to make a purchase? Low conversion rates could indicate a pricing issue or lackluster copy. High conversion rates indicate your messaging is on target.
2. New Customers: Is the product attracting new customers? While any product purchase is considered a positive, knowing how many new customers there are vs. repeat customers could help predict growth.
3. Active Users: How many people are actually using the product? This metric is typically time-restricted; you might measure daily users or look at an entire week or month.
4. Net Promoter Score (NPS): How likely are customers to recommend the product to other people? Surveys can be especially useful here.
5. Feature Usage: How often are consumers using specific features? This is a very useful tool when the product is digital or service based. Understanding product usage can help shape future product versions and save money by eliminating underutilized features and reallocating associated resources.

In marketing, metrics are quantifiable data points used to track certain business processes and/or evaluate the success of a campaign or promotion. A matrix is a way to plot those data points so it’s easier to see how they relate to one another. For example, you may measure the number of brand mentions you get on Instagram each week (those are your metrics), and then put all of those stats on a graph (your matrix) to help pinpoint trends.

Project management metrics are an essential part of overseeing a success project. Metrics and key performance indicators (KPIs) measure the efficacy of certain strategies and also help product managers make more informed decisions. Metrics can prove value, improve productivity, identify shortcomings in relation to competitors, and help keep a product on budget.

Important product management metrics include:

• Productivity: How are resources being used? Are there ways to encourage staff performance or streamline the workflow? Can you remove friction to make it easier for team members to do their jobs?
• Scope of Work: What tasks does the project entail? This list may change from the pre-project planning stage depending on other changes like moving deadlines or budgetary shifts.
• Quality Assurance: Products should be tested at every stage to ensure customer satisfaction and prevent defects from going to market. Remember, “product” can be something tangible, like a shoe, or something less tangible like a web-based app.
• Cost: Everything has a price tag. As other project management metrics show up, costs could skyrocket or there could be a budgetary surplus. Knowing this as it happens allows for adjustments, so the rest of the project stays on track.
• Gross Margin: Gross margin refers to the money remaining after you subtract the cost of goods sold from the net sales revenue. Since most projects are aiming for profitability, knowing whether you’re coming out ahead is crucial.

“Operational efficiency” is a metric that measures whether the profitability of a project or company justifies the outlay of resources used to reach that profit. An efficient operation is likely profitable thanks to productive employees and well-organized systems. An inefficient operation is a sign that there needs to be improvements in order to ensure a positive customer experience, deliver value, and achieve (or increase) profitability.

To measure operational efficiency, look at these metrics:

• Manufacturing/Production Efficiency: How long does it take to produce a product or service?
• Revenue Per Employee: Are your employees paying for themselves or are you overstaffed for the tasks at hand and losing capital as a result?
• Overhead: In addition to employee costs, what are your other fixed and variable expenses? Can you find ways to scale back on utilities or cut costs by outsourcing administrative tasks?
• Marketing: Is your marketing campaign delivering? Evaluate things like your Google ranking and organic traffic to see if your strategies are paying off (literally) or if it’s time to redistribute your budget to make each dollar stretch a little further.

Operational performance metrics are a type of key performance indicator (KPI) that gives you insight into what’s going on in your business. Rather than guessing whether you’re profitable, you should know without a shadow of a doubt how much money you’re bringing in, how much money is going out, and where that leaves you financially. That’s just one example of operational performance metrics at work. Here are some others:

• Overtime hours
• Cost per acquisition
• Delivery time
• Lead to sales conversion ratio
• Cost per click (marketing)

Operational efficiency refers to how a business’s output relates to its input. In other words, does the revenue, and more specifically the profit, justify the expenditures? It’s beneficial for companies to be efficient, as that means they’re being productive and using their resources wisely. Note that efficiency isn’t the same as success. Inefficient companies may reach their objectives, but they could be sacrificing profits or losing other resources along the way.

Achieving operational efficiency requires evaluating all of your processes and seeing how you can improve on each aspect until you’re sure every action is happening in the best possible way.

To understand how to calculate efficiency in operations management, you must first understand the difference between efficiency and productivity. Productivity focuses on the overall output achieved by an employee or team. Efficiency also considers the resources used to achieve that output. Therefore:

Efficiency = (Work Output/Work Input) x 100>#/p###

“Work” in this equation refers to all the resources used in production, such as labor, time, paper, pencils, etc.

To calculate efficiency, we use this formula:

Efficiency = (Work Output/Work Input) x 100>#/p###

Multiplying (Work Output/Work Input) by 100% gives you a percentage that quantifies in no uncertain terms how efficient a business or project truly is. This is an invaluable asset as it allows you to understand how you’re allocating resources and quantify any changes in efficiency as you strive to make improvements.

In a perfect world, your efficiency would be 100%, but in reality that’s a very difficult number to achieve. Lapses in customer service, shopping delays, cumbersome software, poor interdepartmental communication, and lack of transparency are all things that can negatively influence efficiency. Many of those factors can be addressed with operational changes and training, but others (such as weather issues preventing deliveries) are out of your control.

Operational indicators are essentially the same as key performance indicators with an added focus on real-time analytics. These indicators represent quantifiable data gathered using predetermined parameters such as what’s being measured, who or what is measuring it, when/how often it’s being measured, and when that data will be evaluated.

Businesses use operational KPIs to see what’s happening with their operation at that very moment and how current numbers stack up against KPIs that reflect other time periods. For instance, whether today’s cost-per-click numbers are better than yesterday’s and what changes need to be made to make tomorrow’s numbers even better.

Operational KPIs differ from strategic KPIs in that operational KPIs may be monitored by the day or even the hour. Strategic KPIs are more about monitoring trends.

To understand operational efficiency, you need to know how a business’s output relates to its input. To be efficient, organizations must be able to deliver quality, satisfactory products while still being cost effective in both production and execution. This requires using technology and other resources to minimize waste and maximize profit margins. Efficient businesses are often the most competitive, as they’re able to deliver comparable or better products than their competitors while also achieving an economic advantage.

One example of efficiency would be a company that replaces manual assembly with machinery that makes more products per hour while also greatly reducing or even eliminating human error that could affect quality or slow down production.

Another example of efficiency, this time in marketing, would be using chat bots to add value to the customer experience without requiring extra manpower.

Not really. Operational efficiency is more of a tactic, in that gathering information about operational efficiency is way to understand the status of certain business processes and projects and decide how to progress from there. This all happens in real time; as you get data about operational efficiency, you’re also acting on it. It’s a way to achieve goals rather than a way to plan out those goals.

Strategic planning is the precursor to operational efficiency. The strategy you (or your marketing team) creates as a path toward your primary objective is what will shape everything from budgeting to messaging to which channels you’ll use to get that message out. Operational efficiency measures whether the actions you’re taking as part of that plan are serving your business or whether there are changes that need to be made to protect your bottom line and give you the best competitive advantage.

Work efficiency refers to how long it takes an employee to complete a designated task versus how long it should theoretically take the employee to complete that task. The formula for work efficiency is the same formula used to measure efficiency in general:

Efficiency = (Output/Input) x 100

Multiplying the result by 100, as illustrated above, delivers work efficiency as a percentage. That’s helpful both to understand how an employee is performing and to compare that number to other employees. Work efficiency doesn’t have to pertain to employees, though. This efficiency formula can be used to evaluate other processes or projects too, such as seeing whether a marketing strategy is efficient or calculating the efficiency of a pay-per-click campaign.

Business process outsourcing, or BPO, is the practice of contracting out work to a third-party company. This can be a great move for businesses that need help with administrative tasks, marketing, production, and other specialty jobs, but understanding whether these outside vendors are efficient is important as that efficiency affects your ability to deliver exceptional customer experiences.

To calculate BPO efficiency, many people look at the rate of productivity:

Occupancy Rate + Available Rate = 100% (per given time period)

In this case, “occupancy rate” is defined as whether the contractor is actually working versus the “available rate” which means they’re available to work. In a call center environment, if there are 100 employees available to take calls but only 30 actually on calls, there’s a 30% productivity rate. That indicates waste, as you have 70 employees on the clock that aren’t currently delivering value. That’s inefficient.

For a true understanding of efficiency though, you have to look beyond productivity to consider things like service level. If you drop the number of agents from 100 to 30, since only 30 were actively taking a call in the example above, what happens if you suddenly have 35 callers? Are the 5 customers who get frustrated waiting for assistance worth the savings? Understanding efficiency as the sum of several linked metrics is crucial to making informed and constructive decisions.

The two basic measures of the operational efficiency of a company are:

1. Inventory Turnover Ratio: Inventory that just sits in your warehouse or on store shelves is trapped money. You’ve made the investment, but it’s not paying off. You may even be losing money because of the overhead required (rent, labor, utilities, etc.) to store and monitor that inventory. Your inventory turnover ratio represents how frequently you have to replenish your stock. You can find that number by dividing your cost of goods sold by your average inventory balance, or you can express the ratio in terms of how many days a product sits before being sold.
2. Working Capital Turnover Ratio: Businesses use their working capital turnover ratio to determine how efficiently they’re using working capital to generate sales. The higher the ratio the greater the efficiency, but only to an extent; if the ratio is too high, it could indicate that the business is growing faster than existing capital can support. To calculate your working capital turnover ratio, you need to divide your net sales by your working capital (where working capital is current assets minus current liabilities).

Human resources (HR) uses key performance indicators (KPIs) to measure departmental performance as well as seeing how the department is contributing to the overall health and success of the business. Though there are theoretically hundreds of HR metrics you can track and analyze, most won’t have anything to do with your underlying strategy or goals. For instance, it may be interesting to know what the company’s average salary is, but it’s unlikely that number has any bearing on how efficient the HR team is.

If you’re looking for data to help support HR strategies such as promotion employee satisfaction and reducing churn, these HR KPIs are likely to be useful:

• Employee absence rate
• Cost of employee absence
• Employee productivity
• Employee satisfaction
• Employee engagement
• Internal promotion rate
• Net promoter score
• Workforce cost percentage
• Quality of hire
• Turnover rate
• Involuntary turnover

“KPI matrix” is a common search error when people are actually looking for “KPI metrics.” Key performance indicators (KPIs) are important metrics that help measure the effectiveness of a campaign and/or how well a company is doing in achieving its goals. KPI metrics must be measurable, meaning they’re often numbers or percentages that are calculated not just once but many times. Those numbers are then looked at as groups. You can see whether your number of qualified leads is trending upward or downward or see if your net profit margin is on the rise.

Just to erase any confusion, technically speaking KPIs and metrics are not the same thing. KPIs are measurable values that demonstrate efficacy by evaluating targets, timeframes, and outcomes, while metrics track the status of a specific process and may not be based on any of those same factors.

A good KPI provides objective data that can be used to evaluate progress, adjust strategies, and achieve goals. They should also be:

• Clear. KPIs should be universally understood with zero confusion about what’s being measured.
• Actionable. Whatever data you’re getting back thanks to the KPI should be useful for adjusting and improving your campaign or other initiative.
• Attainable. There’s no point measuring performance if you’re hoping for a result that isn’t realistic.
• Flexible. Choose KPIs that can be adjusted as needed. For instance, if you’re investing in software that measures order fulfillment time, be sure you can tweak the algorithm if operational changes require it.

A good metric can’t live in a vacuum. Instead, it should work with other metrics to create a broader understanding of the current health of a campaign or business process.