The break-even point is a key indicator of a successful business, as it represents the amount of money a company must earn in a given period, monthly or quarterly, to cover its costs and sustain itself. To determine the revenue growth rate, subtract revenue from the most current period from revenue from the previous quarter or the same period from the previous year. Then, divide that number from the previous period. In this scenario, first-quarter revenues increased by 11% year-on-year.
The gross profit margin is another important return ratio to assess the financial health of your company. To calculate the gross profit margin, take the total revenue and subtract the cost of sales (labor and manufacturing) and then divide it by the total revenue. With 12 offices across Canada, we know the ins and outs of your business first-hand so you can benefit from all potential tax savings opportunities. A good employee retention rate is a key indicator of a healthy business with processes in place for success. A low employee retention rate is a clear sign that the company is wasting its resources on hiring, training, and absorbing new employees.
This will prevent a company from using its resources to drive growth. The concept is simple, but many companies don't take this first step. What often sabotages people is a lack of clarity and alignment with respect to key objectives. There is almost always a small amount of noise from sources other than the desired result, so try to minimize noise instead of wasting resources searching for a “perfect” metric that is difficult to achieve. Another mistake is to reduce noise by making the metric more complicated.
As noted earlier, complicated metrics lack clarity and are less effective. A panel of key performance metrics of your key performance indicators (KPIs) provides clarity and accountability for turning objectives into actions. Get regular information on whether your company is on track to achieve its objectives. I have more information in a post about the three steps to using a small business KPI dashboard. Key performance indicators (KPIs) measure a company's output compared to a set of industry goals, objectives, or peers. It's a key metric if you accurately measure your progress toward achieving a key objective of your business strategy. One of the best tools for communicating and tracking your metrics is a panel of key performance metrics.
To measure results and evaluate the effectiveness of your strategies, you must quantitively monitor business performance indicators. A quick ratio is an indicator of financial health that measures a company's ability to meet short-term obligations with liquid assets. Lagging indicators can determine whether the offsets were made in a way that would increase overall profitability or another high-level objective. For example, a software company striving to achieve the fastest growth in its industry may consider year-over-year revenue growth as its primary performance indicator. Employees are crucial to the success of any company, considering how they affect daily operations and long-term success. Key performance indicators (KPIs) refer to a set of quantifiable measures used to measure the overall long-term performance of a company.
Here are seven essential business performance indicators you should monitor if you want to grow and continue to succeed in the long term:
- Revenue Growth Rate
- Gross Profit Margin
- Employee Retention Rate
- Key Performance Indicators (KPIs)
- Quick Ratio
- Lagging Indicators
- Return on Capital Employed (ROCE)