Situation: A CEO has been analyzing the metrics that she uses to track her company’s performance. Historically she has used common metrics like sales, gross and net margin, profit and net operating income, budget plan vs. actual expenses, and sales forecast vs. actual sales. She is curious what other companies use to track performance. What are your key business metrics?
Advice from the CEOs:
- The most important financial metric for many companies is actually cash flow – how much cash you have on hand and your cash flow forecast. Two metrics that can help you to better understand and boost cash flow are:
- Receivables – aging rate
- DSO – Days Sales Outstanding
- Additional financial metrics include:
- Portfolio performance
- Variable versus fixed cost ratios
- To augment understanding of profitability, track “good” profit – revenue from customers who are profitable, as opposed to revenue that is either break-even or unprofitable.
- Sales metrics to measure future revenue include:
- Order backlog – by month for X months out
- From this, forecast beyond visible orders
- Marketing metrics include:
- Net promoter score – would the customer refer us to a friend or family member?
- Client and referral client retention rate
- Metrics for utilization of resources for a service provider include:
- Total hours paid versus total hours billed
- Resource utilization
- Business trend tracking. If business is seasonal, look for historic peak to peak times – this may be 3 months and may be 18 months. Determine this and make the rolling cycle equivalent to your business cycle.
- Review your metrics regularly to reinforce their importance across the company