In any business, measuring what you do is essential to understanding whether you are making progress and improving your bottom line.
What you can measure, you can manage.
In any business, measuring what you do is essential to understanding whether you are making progress and improving your bottom line. When it comes to scaling a business, this is even more critical. By tracking the right metrics, you can manage your growth and make sure that each step you take leads in the right direction.
The metrics that you need to measure
The first metric that you should be tracking is your revenue. This may seem obvious, but it is important to track both:
- Actual revenue against your budget;
- Actual current year/period revenue against last year's/last periods revenue.
Cost of Goods Sold
Another important metric to track is the Cost of Goods Sold. Each industry will have different performance benchmarks, however in its basic form, the lower the Cost of Goods Sold, the greater your potential bottom-line profit will be.
For example, in a professional legal or accounting practice, if the Cost of Goods Sold amount is maintained and controlled under 40% than the profit will look after itself at above 25% (after Partners’ salary)
Average Fixed Cost
Fixed costs are any cost that remain constant as revenue increases or decreases. An example of this would be rent.
Once again it may seem relatively simple, but the lower the average fixed cost the higher the chance of turning a profit
Net profit is what is left over after deducting all operating expenses from revenue.
The higher the number, the more money you are making.
Net Promotor Scores (NPS)
The Net Promotor Score is simply how happy your clients are and how happy your staff are. These are completed by surveys at various times.
- A NPS of 9 or 10 out of 10 will mean your clients will go out of their way to refer you to new clients.
A NPS of 7 or 8 will mean they are happy, but they will not go out of their way to refer you to a friend.
- A NPS of 4 or 5 means they will leave as soon as someone approaches them, and finally;
- A NPS score of below 3 means they will go out of their way to badmouth your business.
Whatever the industry, tracking the right metrics is critical in getting clarity on current business operations and to ensure the right actions are taken to get better results.