Reporting Key Performance Indicators (KPIs) measure performance over a period of time. They provide important information for nearly every aspect of your business.
Generally, KPIs are tracked across five major categories:
- Customer Relations
- Employee Success
For guidance, here are 10 reporting KPIs your business needs to track.
10 Reporting KPIs Your Business Needs to Track
1. Cash Flow
Cash flow is arguably one of the most important KPIs a business can track. It is a measure of the money moving in and out of your business.
Tracking cash flow allows you to see how much cash you have to pay for day-to-day operations, pinpoint changes in assets, liabilities, and equity accounts, and create forecasts.
More often than not, a healthy cash flow results in a healthy business.
2. Customer Acquisition Cost
Bringing new customers on board can be costly. Customer acquisition cost is a measure of how much you are spending to acquire a new customer and is a great indicator of the success of your marketing.
A low customer acquisition cost means you are efficient in gaining new customers, however, a high number may mean you need to adjust your marketing strategy.
3. Customer Lifetime Value
Customer lifetime value is an estimate of the total revenue you can expect from a single customer throughout their relationship with your business. Ideally, your customers will work with you for an extended period of time and produce large amounts of revenue.
Typically, business owners will rely on customer acquisition cost and customer lifetime value to work hand in hand to determine how long it will take to be profitable from each new customer.
4. Gross Profit
Revenue minus direct costs, or costs of goods sold, leaves you with your gross profit. It is essential to have a gross profit because if you don’t, it means you are losing money as you produce your products.
When it comes to turning materials into finished products, efficiency is key, and gross profit measures that for you. It is also helpful for setting prices and determining profit potential.
5. Budget Variance
Comparing your budget to your actual spending and noting the difference is known as budget variance.
In a perfect world, you wouldn’t need to track this metric because your actuals would always match your budget. However, that is rarely the case, so instead shoot for a budget variance as low as possible. Sticking to your budget will help you do this.
6. Churn Rate
To help measure the performance of your team, you need to track churn rate. Churn rate measures the rate at which customers are ending their relationship with your business.
A low churn rate is ideal because it means you are retaining customers well. Inversely, a high churn rate means you are losing customers quickly and therefore losing revenue.
7. Accounts Receivable Ratio
The accounts receivable ratio provides the average amount of time it takes for a customer to pay you what they owe.
A low ratio indicates your customers are paying in a timely manner. If your accounts receivable ratio is high you need to implement a strategy to collect payments more quickly. Otherwise, your cash flow will suffer.
Revenue is a metric every business already tracks, so including it on this list seems a little obvious.
However, not only does tracking revenue give you insight into how well your sales team is performing and provide a clear indicator of the success of your marketing and advertising efforts, but it also shows growth over time and is used in measuring a variety of other KPIs like:
- Profit margin
- Gross profit
- Revenue per employee
- Average customer revenue
9. Revenue Per Employee
Revenue per employee is as simple as it sounds. It’s your total revenue divided by your total number of employees.
While it’s a good metric to know, it isn’t overly helpful on its own. However, when it’s compared to other businesses in your industry, it can provide valuable insight into how successful and efficient your employees are.
10. Cost Per Hire
From a human resource perspective, cost per hire is an essential metric. It takes into account recruiting and onboarding expenses.
As your business grows, hiring will become more and more common. So understanding the cost of each hire will aid in forecasting cash flows. When this KPI is matched with revenue per employee you can determine how long it will take before a new employee will start generating profit.
Want to Ensure You are Tracking the Right Metrics?
As your business continues to grow, reporting KPIs will play a greater role in your success.
They provide valuable insight into your financial state and, when tracked and applied correctly, help you make better decisions to drive your business forwards.
To ensure you are using KPIs to their full potential, consider working with an experienced accounting partner, like Novaa. We are experts in helping businesses track the right KPIs and will help you utilize the results to create success.
We work as an extension of your team to customize your KPIs and ensure you are collecting the right information to grow your business.
Contact us today to learn how we can help your business!