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The key KPIs (Key Performance Indicators) that a business owner should track depend on the nature of the business (e.g., service, retail, SaaS, etc.), but broadly speaking, these KPIs help monitor financial health, operational efficiency, and growth potential. Here’s a breakdown of essential KPIs across categories that most business owners should monitor:
General Financial KPIs
- Accounts Receivable Turnover
- Operating Expenses as a % of Revenue
- Current Ratio
- Cash Ratio (liquidity)
- Debt to Equity Ratio
- Debt to Asset Ratio
- Cash Flow Coverage Ratio
- Current Liability Coverage Ratio
- Cash Flow Margin
- Gross Profit Margin
- Operating Profit Margin
- Net Profit Margin
- Revenue (Monthly Recurring
- Revenue / Total Sales)
Growth KPIs
- Customer Acquisition Cost (CAC)
- Customer Lifetime Value(CLV or LTV)
- Revenue Growth Rate
- Customer Retention Rate and Churn Rate
Operational KPIs
- Inventory Turnover (if applicable)
- Utilization Rate(for service businesses)
- Average Sale Size (or Average Transaction Value)
Customer/Market KPIs
- Customer Satisfaction (CSAT)
- Net Promoter Score (NPS)
- Online Review Score
- Reputation Rating
Strategic KPIs
- Break-even Point
- Burn Rate (for startups)
- Employee Turnover Rate
General Financial KPIs
1. Accounts Receivable Turnover
When to use: This looks at a business’s effectiveness in collecting the money customers owe.
Calculation: Accounts receivable turnover = net credit purchase/average accounts receivable.
What does this mean? A low accounts receivable turnover ratio suggests that the business takes longer to collect payments, which could result in a higher risk of bad debt and cash flow problems. It’s crucial for businesses to address these issues and improve the ratio to avoid the risk of unpaid debts.
2. Operating Expenses as a % of Revenue
When to use: This compares the percent of each revenue dollar that is spent on operations (like rent, salaries, marketing).
Calculation: (Total Operating Expenses / Total Revenue) * 100
What does it mean? The ratio is used to evaluate how efficiently a company manages its operating costs relative to its revenue. It’s a key metric for assessing profitability, cost control, and
scalability. Lower percentages typically indicate better cost control. As revenue grows, ideally operating expenses should grow more slowly. This ratio helps identify economies of scale.
3. Current Ratio
When to use: Indicates a business’s ability to generate enough cash to pay off all its debt once they become due.
Calculation: Current ratio = current assets/current liabilities
What does this mean? A current ratio greater than 1 signifies a healthy financial position, while a current ratio less than 1 could indicate trouble meeting short-term obligations
4. Cash Ratio
When to use: Indicates a business’s ability to pay immediate creditor demands using its most liquid assets.
Calculation: Cash ratio = liquid assets/current liabilities
What does this mean? A cash ratio greater than 1 indicates that the business has sufficient liquid assets to meet its current obligations, while a ratio less than 1 means that a business might have trouble meeting obligations.
5. Debt to Equity Ratio
When to use: This ratio compares the business’s total debt to total equity to see how much debt is present in comparison to the amount of equity.
Calculation: Debt to equity ratio = total liabilities / equity
What does this mean? Generally, a ratio below 1.0 is safe; above 2.0 is risky—compare within industry norms.
6. Debt to Asset Ratio
When to use: Shows the percentage of a business’s assets financed by creditors.
Calculation: Debt to asset ratio = total liabilities / total assets
What does this mean? A ratio of 0.7 means $0.70 debt per$1 in assets. Below 1.0 is usually safe; 2.0+ is risky, depending on the industry
7. Cash Flow Coverage Ratio
When to use: Shows the amount of cash available to pay interest expenses on a business’s debt.
Calculation: Cash flow coverage ratio = net cash flow / total debt
What does this mean? Less than 1 means insufficient funds for liabilities. Could require refinancing or restructuring.
8. Current Liability Coverage Ratio
When to use: Looks at a business’s ability to pay its short-term
obligations.
Calculation: Net cash from operations / average current liabilities
What does this mean? Greater than 1 is healthy. Negative numbers signal financial trouble.
9. Cash Flow Margin
When to use: Indicates how well the business converts sales to cash.
Calculation: Cash flow margin ratio = operating activity cashflow / net sales
What does this mean? Above 50% means strong cash creation. Negative margin means the business is losing money.
10. Gross Profit Margin
When to use: Indicates if a business needs to adjust pricing or COGS.
Calculation: Gross profit margin = (Sales revenue – COGS) / Sales revenue
What does this mean? Typical margins: 40–60%. Higher for niche or high-margin products.
11. Operating Profit Margin
When to use: Measures operational efficiency before interest/tax.
Calculation: Operating profit margin = operating earnings / sales revenue
What does this mean? Higher margins show good cost control and profit from core operations.
12. Net Profit Margin
When to use: Indicates the percentage of net income per dollar of sales.
Calculation: Net profit margin = net profit / sales revenue
What does this mean? Above 10% is healthy in many industries. 2–5% in competitive sectors.
13. Monthly Recurring Revenue (MRR) / Total Sales
When to use: Used to measure the proportion of predictable, subscription-based income (MRR) compared to a company’s overall sales.
Calculation: MRR = Monthly Recurring Revenue / Total Sales
What does it mean? Higher ratio = more stable, predictable income. Crucial for SaaS, service-based businesses.
Growth KPIs
1. Customer Acquisition Cost (CAC)
When to use: Measures how efficiently a company gains new customers.
Calculation: CAC = Total Sales and Marketing Expenses / Number of New Customers
What does it mean? High CAC signals inefficiency. Ideal CAC: LTV:CAC ratio of at least 3:1
2. Customer Lifetime Value (CLV or LTV)
When to use: Estimates total revenue or profit from a customer over time.
Calculation: CLV = Avg. Purchase Value × Purchase Frequency × Customer Lifespan
For SaaS: CLV = Avg. Monthly Revenue × Gross Margin / Churn Rate
What does it mean? Long-term profitability of customers. Key for retention and marketing ROI.
3. Revenue Growth Rate
When to use: Tracks how quickly revenue is growing.
Calculation: ((Current Revenue – Previous Revenue) / Previous Revenue) × 100
What does it mean? Indicates business momentum and scalability.
4. Customer Retention Rate and Churn Rate
When to use: Used to identify customer loyalty (retention) vs customer loss (churn rate)
Retention = ((Customers at End – New Customers) / Customers at Start) × 100
Churn Rate = 100 – Retention Rate
What does it mean? High retention = loyal customers.
High churn = service or product problems.
Operational KPIs
1.Inventory Turnover
When to use: Measures inventory efficiency.
Calculation: Inventory Turnover = COGS / Avg. Inventory
What does it mean? High = strong sales. Low = overstocking or slow-moving goods.
2. Utilization Rate
When to use: Tracks billable time for service staff.
Calculation: Utilization Rate = Billable Hours / Total Available
Hours × 100
What does it mean? High utilization = effective use of time.
Key for productivity and profitability.
3. Average Sale Size
When to use: Measures average revenue per transaction.
Calculation: Average Sale Size = Total Revenue / Number of Transactions
What does it mean? Helps optimize pricing, sales strategy, and identify high-value clients.
Customer/Market KPIs
1. Customer Satisfaction (CSAT)
When to use: Used to gauge immediate feedback post-interaction.
Calculation: CSAT = (Satisfied Customers / Total Responses) × 100
What does it mean? Measures how well expectations are met
2. Net Promoter Score (NPS)
When to use: Measures customer loyalty and referral likelihood.
Calculation: NPS = %Promoters – %Detractors
What does it mean? High NPS = brand advocates.
Used for long-term brand health.
3. Online Review Score / Reputation Rating
When to use: Measures public perception across platforms.
What does it mean? Influences conversions, brand trust, SEO, investor readiness.
Strategic KPIs
1.Break-even Point
When to use: Identifies the point at which revenues = costs.
Calculation: Break-Even Units = Fixed Costs /
(Price – Variable Cost)
What does it mean? Key for planning, cost analysis, pricing strategies.
2. Burn Rate (for startups)
When to use: Measures cash usage when not yet profitable.
Calculation: Burn Rate = (Start Cash – End Cash) / Months
Runway = Cash on Hand / Monthly Burn Rate
What does it mean? Measures time until funds run out.
Key for fundraising and survival.
3. Employee Turnover Rate
When to use: Measures organizational health and satisfaction.
Calculation: Turnover Rate = (Employees Left / Avg. Employees)
× 100
What does it mean? High turnover = morale or culture issues.
Drives hiring and training costs.
Commonly Used KPIs
Here’s a breakdown of commonly used KPIs across the different categories discussed above
- Average Sale Size (or Average Transaction Value)
- Break-even Point
- Burn Rate (for startups)
- Cash Flow Margin
- Cash Ratio (liquidity)
- Current Ratio
- Customer Retention Rate and Churn Rate
- Employee Turnover Rate
- Gross Profit Margin
- Inventory Turnover (if applicable)
- Net Profit Margin
- Operating Expenses as a % of Revenue
- Operating Profit Margin
- Revenue Growth Rate
- Revenue (Monthly Recurring Revenue / Total Sales)
- Utilization Rate (for service businesses)
Summary of KPI Formulas
