What are some common business metrics?

Business metrics are sometimes confused with Key Performance Indicators (KPIs), which are more strategic measurements that work toward overall goals. The business metrics definition is more about period-to-period measurements that support the KPI but aren’t critical to moving the business forward.

They’re used in just about any aspect of an organization. Some of the most common business metrics examples are:

• Monthly profits: The total profits the company makes in a month.
• Gross margins: The difference between the revenue from a product and the cost of making the product.
• Overhead: The essential costs of running the business.
• Monthly losses: The difference between revenue and costs.
• Inventory: The amount of a product on hand.
• Online sales: The revenue earned through online purchases.
• In-store sales: The amount of money earned through in-person sales.
• Sales revenue: The profits from product sales.
• Productivity ratios: The product produced over the cost of creating the product.
• Customer retention: The number of repeat customers over a specific period of time.

These are some common business metrics that help companies see where the business stands at any given time and can help decision-makers come up with tactics and strategies that align with overall business goals. For the most part, metrics can be defined as financial or nonfinancial.

Financial metrics

Financial metrics are used to determine a company’s fiscal health. They’re shared internally and externally and are often expressed in the form of ratios. Some common financial metrics examples include debt-to-equity ratio and gross profit margin.

Nonfinancial metrics

Nonfinancial metrics are mostly used internally to assess the effectiveness of business practices and procedures. They help businesses see if managers and employees are working effectively and efficiently. Examples of nonfinancial metrics include a measure of employee engagement or customer satisfaction.

Related: How to Create a Performance Improvement Plan

Where to start with business metrics

There are countless business metrics a company can use. Selecting which metrics matter is a necessary step in using metrics to inform decisions. One of the first steps is to take a look at where you are now, which will give you an idea of the opportunities or challenges you need to address. Consider the following when selecting the best metrics for your company:

• What are the company’s financial objectives? Whether you want wider profits or bigger cash flows, you need to use data that aligns with where the business needs to be in the next five or 10 years. Your metrics definition may start with finding out your current market share and how many products you have to offer.
• What are the company’s customer objectives? Managing customer relationships is a long-term strategy that improves business credibility and builds loyalty. You could start with understanding the number of service issues customers experience and find ways to improve on those.
• How can we measure our financial objectives? Profitability is one of the most common objectives, especially with startups. Two metrics to look at are the net profit and return on assets. These show the company’s ability to efficiently use its resources to generate cash. You may also start with measuring liquidity to ensure the business can pay its obligations in a timely fashion.
• How can we measure our customer objectives? As a nonfinancial metric, customer satisfaction is a leading indicator of retention. In some businesses, identifying customer dissatisfaction may start with measuring product returns or cart abandonment percentages. Measuring customer objectives starts with familiarizing yourself with end-user statistics.
• What is the easiest way to track the metrics? Once you have a good idea of your company’s objectives, the easiest way to track metrics is to create a simple dashboard within your customer management or sales management system. With that visual tool, it’s easy to see how the business is progressing and where it’s lagging behind goals.

The cost of not properly defining metrics

Some companies overlook using metrics, or they use them ineffectively. In either case, ignoring metrics can have negative repercussions for the company. Here are some examples of the costs of not effectively defining or tracking your business metrics:

• Ineffective processes. It’s challenging to measure the effectiveness of processes and procedures without metrics. You can’t know how effective a change in procedure has been if you didn’t take measurements both before and after implementation.
• Lost profit opportunities. Your company could be losing profitable opportunities. Metrics can help establish markets or target customers your business is neglecting from which you could sell more products.
• Inability to identify problems. Metrics help you understand where your company is functioning well and where your company needs assistance. Without this knowledge, it can be a challenge to identify problem areas and remedy them.
• Poor market insight. Your company may be losing money in a particular market. Without metrics, you might not realize the extent to which that loss is impacting your bottom line.
• Loss of confidence in the company. Without clear metrics explaining your decisions, stakeholders may lose confidence in your company and be unwilling to offer further support.
• Overwhelmed with unnecessary information. Just as not using metrics can come at a cost, trying to use too many metrics can also hurt a company. Everything can be measured, but that doesn’t mean everything should be measured. Carefully and wisely select the metrics that will inform your business’s growth and profits, rather than attempting to measure every aspect of the business.

The bottom line for business metrics

The right data is valuable. Define metrics that can improve your sales, customer communication or other business aspects of value. Measure those items and use that information to make informed and fact-based decisions.

Metrics FAQs

Here are some FAQs related to metrics:

Which metrics should I choose?

Selecting the right metrics for your company will depend on factors, such as industry, goals, company size and location. Define your objectives, and see which metrics competitors in your field are tracking. If you know there are areas within your business for growth or assessment, add those to your metrics list.

Should I share my company’s metrics?

Some metrics are useful for external and internal stakeholders to have, such as quarterly profit reports for investors and customer satisfaction reviews for front-facing employees. These metrics instill confidence in your business in the eyes of stakeholders. However, not all metrics are meant to be shared, and not everyone needs every metric. Customize the information you share by user groups. This way it stays relevant to each audience segment, and you can speak to them in the proper context.

How should I track my company’s metrics?

Automated dashboards are the preferred way to manage metrics. These computer-based programs tally and track your selected metrics, making it easy to see data and run reports. Automated dashboards can be easily installed and maintained.

Which industries should use metrics?

Every industry can benefit from using metrics to tell its stories. However, the type of metrics you choose depends on the company’s goals, industry and other factors. Consider using the same metrics leaders in your industry are using.