Business performance metrics: Performance metrics examples
Your business might have dozens of different metrics at its disposal to measure the health of your company.
So what are the most important ones?
And depending on your industry, there are a few performance metrics examples that are more useful than others.
And you should ensure that you’re keeping an eye on those statistics above all else.
So we are to look at some of the most commonly used business performance metrics and performance metrics examples.
And you can choose which ones will be most helpful to you in your field.
Performance Metrics Definition
Performance metrics are quantifiable measures that business owners and managers use to evaluate:
— an organization,
— business unit,
— or individual success in meeting predetermined goals.
And common types of performance metrics include:
— profitability ratios,
— employee productivity measures,
— customer satisfaction levels,
— and operational efficiency levels.
And in other words, a performance metric is a set of measurements used to measure the execution of a business.
Business Performance Metrics
Business performance metrics aren’t hard to understand.
So there are a lot of different metrics that you can track to measure the performance of your business.
And choosing which ones to use can be tricky if you do not know where to start.
And to help you decide what to measure in your business.
So we’ve compiled 12 business performance metrics from businesses across the world.
12 Business Performance Metrics:
1. Cash Flow from Operations
Operating cash flow is one of the most crucial business performance metrics.
And it measures the cash that flows in and out of your business from day-to-day operations.
So there are three components of operating cash flow, each with its meaning:
— net income,
— depreciation and amortization,
— and changes in working capital.
And Long-term investors use operating cash flow to indicate the company’s ability to generate funds internally.
So to fund its activities without having to raise external funds or borrow money.
And Long-term investors also view this metric as an indication of how well a company manages its assets like inventory.
And liabilities like accounts payable.
2. Cash Flow from Investing Activities
A company’s cash flow from investing activities is the difference between its cash inflows and outflows from investing.
So cash flow from investing activities is the amount of cash generated or used by a company from investments.
So this can be a positive or negative number.
And a positive number indicates that the company has generated more cash than it has used.
And a negative number indicates that the company has used more cash than it has generated.
3. Cash Flow from Financing Activities
So cash flow from financing activities is one of the performance metrics a business can use to gauge its financial health.
And this metric measures the cash that flows in and out of your business from its financing activities.
And such as:
— issuing debt or equity,
— taking out loans,
— or repaying loans.
So a positive cash flow from financing activities means that more cash is coming into the business than is going out.
And this is a good sign of financial health.
And a negative cash flow from financing activities means that more cash is going out of the business than is coming in.
So this is a bad sign for financial health.
4. Revenue -Business Performance Metrics
So revenue is one of the most crucial business performance metrics.
After all, revenue is the money that a business brings in.
And there are a few different ways to measure revenue.
So one way is to look at the total revenue for some time, such as monthly or yearly.
And another way to measure revenue is to look at the average revenue per customer.
And this metric can help you understand how much each customer is worth to your business.
5. Profit -Business Performance Metrics
The first and most important metric for any business is profit.
So this is the bottom line and determines whether a business is successful or not.
And to calculate profit, take your total revenue and subtract the total expenses.
So this will give you your net profit.
Another important metric is revenue growth.
And this measures how much your revenue has increased (or decreased) over time.
So to calculate this, take the current revenue and divide it by the revenue from the same period last year.
6. Gross Margin -Business Performance Metrics
Gross margin is a metric that calculates how profitable a company is.
And it is summed by deducting the cost of goods sold from revenue, then dividing by the revenue.
The gross margin percentage is the ratio of gross margin to revenue.
And for example, if a company has a gross margin of $100 and revenue of $200.
Its gross margin percentage would be 50%.
7. Operating Margin -Business Performance Metrics
Operating margin is a profitability ratio that measures the percentage of the revenue left after accounting for all operating expenses.
So a higher operating margin indicates a more profitable company that generates more income per dollar of sales.
And there are several ways to calculate operating margin.
But the most common is to take net income divided by total revenue.
So operating margin is crucial for comparing companies in the same industry.
And because it normalizes for different levels of revenue.
8. Return on Equity -Business Performance Metrics
One of the most crucial performance metrics for any business is a return on equity (ROE).
So this metric measures how much profit a company generates for each dollar of shareholder equity.
And for example, if a company has an ROE of 20%, it made $0.20 in profit for every $1.00 shareholder equity.
And the higher the ROE, the better.
So an ROE over 15% is good -and over 20% is excellent.
In some industries, like utilities and banking, a 10% ROE can be acceptable.
And because profits are more stable and less dependent on market fluctuations than in other industries.
And like manufacturing or retailing where margins are thinner and competition greater.
9. Days Sales Outstanding -Business Performance Metrics
And Days Sales Outstanding (DSO) measures how quickly customers pay invoices issued by a company.
So the lower the Days Sales Outstanding, the better.
And because it means that the company is collecting its receivables faster and vice versa.
So to calculate Days Sales Outstanding, divide the total receivables by the number of days in the period.
10. Accounts Receivable -Business Performance Metrics
Accounts receivable is one of the most crucial performance metrics for a business.
And this metric measures how quickly a business can collect payments from customers.
So a high accounts receivable turnover ratio indicates that a business is collecting payments quickly and efficiently.
And a low turnover of accounts receivables indicates:
— a business cannot collect payments from customers.
11. Accounts Payable -Business Performance Metrics
Accounts payable is a metric that measures how quickly a company pays its invoices.
So this metric is important because it shows how well a company manages its cash flow.
And a high accounts payable turnover ratio indicates that a company is paying its invoices quickly and efficiently.
And a low accounts payable turnover ratio may indicate that a company is not managing its cash flow properly.
12. EBITDA Margin -Business Performance Metrics
A company’s EBITDA margin is its earnings before:
— and amortization.
And this metric is used to assess a company’s overall financial health.
So is often used as a proxy for profitability.
So a high EBITDA margin indicates that a company is generating a lot of income relative to its expenses.
And a low EBITDA margin could indicate upcoming trouble in the form of declining profits or poor cash flow management.
Performance Metrics Examples
Performance metrics examples are illustrations of measurements of the performance of an individual or a team.
So they are crucial in the workplace as it helps employees to understand their work.
And how it affects the business performance.
So Performance metrics examples are a good starting point for determining what data you should collect.
And for example, if you want to measure the effectiveness of a new sales strategy.
Then your first metric would be the amount of revenue generated as a result of the new strategy.
And you might want to consider how quickly those revenues were generated.
And whether they were profitable or not.
So you could use other business performance metrics like the number of new customers.
Or return on investment (ROI) to measure success as well.
So the following are illustrative examples of performance metrics.
6 Performance Metrics Examples:
1] Customer Satisfaction Score (CSAT) -Performance Metrics Examples
The Customer Satisfaction Score is one of the most important customer service metrics.
And is a measure of the customer’s satisfaction with a product or service.
So CSAT results are expressed as a percentage:
Where 100% means that all customers were completely satisfied.
And 0% means that all customers were completely dissatisfied.
And this metric can be used to assess different aspects of the customer experience:
— Product quality—for example, “What do you like most about this phone?”
— Service delivery—for example, “Were your questions answered promptly?”
— Price—for example, “How much did you pay for it?”
And this can be measured in terms of the amount produced or sold.
As well as the number of customers served and the percentage of repeat sales.
So Quantity metrics are used to measure the amount of something.
And these can include:
— Number of units sold, produced, returned and shipped
— And the number of units on backorder and/or on order.
So high levels of quantity mean high-performance metrics and vice versa.
And this can be measured by customer satisfaction scores.
So this gauge a customer’s overall satisfaction with your product or service based on:
— their perception of its value for money,
— ease of use,
— quality control standards and so on.
And Quality is also the degree to which a product or service meets the expectations of a user.
In other words, quality is how well you do what you do.
And for example, if you’re a mechanic with over 20 years of experience.
Your customers will rightly expect you to deliver excellent work.
And if they are not happy with your quality and don’t recommend others to use your services.
Then it’s time for some changes.
This refers to how quickly you deliver the goods after an order has been placed.
Or how quickly you complete a task requested by your clientele.
So you could also consider measuring wait times at restaurants.
Or how long it takes for customers to get through during peak hours if you’re in retail.
And this will give you an idea as to whether any bottlenecks within your business operations need addressing immediately.
And being on time, or more importantly, ahead of schedule is a critical metric to measure.
If you’re running a business.
And being late with deliveries impacts customer satisfaction and the bottom line in significant ways.
While we all know that time is money, it’s not just about saving money when it comes to being timely.
It’s also about making money for your business by staying on schedule with deliveries or meeting deadlines.
So to determine your company’s cost, start by looking at each of the following categories:
a] Cost of goods sold.
So this is the total amount you paid for the raw materials that went into making your products or services.
b] Cost of labour.
And this is how much it costs to pay employees to do their jobs plus any benefits they get:
— such as health insurance.
c] Cost of materials used in production processes (i.e., raw materials).
And these are things like wood chips that go into making furniture;
— steel bars needed for building construction projects;
6] Problem Solving Time
And if you want to decrease the amount of time it takes to solve a problem.
So you need to measure the current average problem-solving time.
And this will help you identify areas that need improvement.
So to calculate this, add up the total time spent solving a problem and divide by the number of problems solved.
And this will give you your average problem-solving time.
And you can consider:
— the customer service problem-solving time
— How long does it take your customer service team to solve a customer’s problem?
There are many different types of business performance metrics that you can use to measure the success of your business.
So the most important thing is to choose the right metrics for your business and track them regularly.
And doing so will give you a clear picture of how your business is performing and where you need to make improvements.
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