Business metrics, often referred to as key performance indicators (KPIs), are measures of growth.
Business metrics are a critical factor in determining how well your business is performing and many of these calculations will need to be performed on a regular frequency if an accurate performance picture is to be maintained.
By using a data visualisation tool such as Microsoft Power BI, organisations can have up-to-the-minute reports on these KPIs instantly in a visually-understandable way. Alternatively, reports can be configured to deliver directly into relevant inboxes on the recommended frequency.
Key Business Metrics
If you’re trying to understand how your organisation is doing, here are five business metrics you should look to measure and report on:
Revenue growth is the key metric in measuring financial performance. This is determined by the number of sales that are generated, minus the cost of refunds and undeliverable items.
Sales - Refunds and Undeliverable
Most organisations will want to report on this on at least a quarterly basis, though most will track this on a monthly or even weekly frequency.
Fixed costs are overheads, such as office space, utility bills and storage. These are all fixed costs that stay the same each month.
Before your business can establish how much profit it can make on each product or service provided, fixed costs need to be taken into account. This is reached by calculating the gross fixed cost, divided by the total number of units or services produced. This calculation dictates what the potential for profit is on each product or service, and the maximum amount your business can spend on variable costs in order to still make a profit.
Gross fixed cost ÷ Total number of units
Fixed costs underly gross profit, so it is worth having these business metrics calculated in the background. Having this data in a Power BI report can also allow you to drill down into costs if trying to identify ways of making business savings.
Variable costs are the materials used to produce and sell one unit of product or service. For example: materials, employee wages, packaging and shipping. The variable cost is reached by calculating the gross variable, divided by the total number of products or services made.
Gross variable ÷ Number of products made
Variable costs underpin profit margins. Having an up-to-date report on material cost fluctuations, for example, can ensure you always buy at the lowest cost to maximise profits.
The break-even point is the quantity of product or service your business must sell before it incurs a financial loss. In other words, the gross revenue needs to equal the gross total costs (fixed and variable).
Gross revenue = Gross total
Having this business metric to hand can ensure your sales and marketing strategies remain agile. Tracking changes in gross total cost (if your variable costs reduce for example) can your organisation decide when it can produce offers on its products or the level to which discounts can be made before products become unprofitable.
The gross profit your business makes is determined by deducting all the costs incurred by making and selling your products, or services. It is calculated by subtracting the cost of goods or services sold from the sales revenue.
Cost of goods sold (COGS) – Sales revenue
This is the figure that many businesses will look at most as an indicator of success. While certain positive actions might reduce this figure (investment in the company for example), gross profit will often be the overall figure that management wants to know. Accurate gross profit information should always be available to help in shaping business strategy.
Better Business Metrics = Business Intelligence
Understanding and getting to grips with your business' financial metrics is vital. If you don’t, you have no way of monitoring its health and performance.
Akita can use data from a wide range of sources to create visually appealing Power BI reports that enable you to derive better business intelligence and plan more effectively for the future.
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