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Make or Break Metrics

20 KPIs Every Growing Business Should Track

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Make or Break Metrics

20 KPIs Every Growing Business Should Track

Key performance indicators (KPIs) are quantifiable Business leaders increasingly realize they can leverage
business metrics that track and measure an this information to make better decisions.
organization’s progress toward its strategic objectives.
The immense amount of information available to
More than just numbers, KPIs tell a story about how well
decision-makers today can also be overwhelming, so
a company is performing. Understanding KPIs as they
we pared it down to 20 widely used KPIs relevant to
relate to your industry, company, and even separate
most businesses. This business guide explains why KPIs
departments within a company is essential for any
matter, the characteristics of a good KPI, and provides a
growing business.
list of popular financial and operational KPIs.

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Table of Contents

1 2
Overview What Is a KPI? 10 Popular
Financial KPIs

Page 2 Page 4 Page 5

3 4 5
10 Common How to Choose How Can Financial
Operational KPIs the Right KPIs for Software Help
Your Business With Setting and
Tracking Financial
Metrics and KPIs?

Page 8 Page 11 Page 13

CHAPTER 1

What Is a KPI?

A KPI measures a company’s performance against its average order fulfillment times, while others concentrate
primary business objectives. High-level KPIs focus on on employee or talent management metrics, such as
a company’s overall performance, while lower-level workforce retention and turnover.
KPIs focus on departmental processes, products, and
productivity. A company doesn’t need to monitor too KPIs fall into two categories: leading and lagging.
many KPIs — no more than 10 as a general rule. After Leading indicators predict what may happen in the
all, measuring everything clouds the picture of what future and offer businesses the opportunity to prepare
matters most to the organization. accordingly. For example, an increase in deal size or
employee headcount may portend revenue growth.
There are many different types of KPIs. Many focus on Lagging indicators reflect past results, measuring the
financial performance metrics, such as revenue growth aftermath of actions. Monthly recurring revenue and
rate and net profit margin. Others focus on customers, employee turnover are two examples of this type of KPI.
such as customer satisfaction or customer churn. Some Lagging indicators can uncover trends, help companies
KPIs measure operations, such as time to market and evaluate their progress, and influence future decisions.

They monitor
company health.
They reveal patterns
and trends.

They measure
progress
toward goals.
They uncover
trouble spots.

They indicate
whether a goal needs
to be adjusted.

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CHAPTER 2

10 Popular Financial KPIs

While organizations need a firm grasp of what will 3. Operating Cash Flow
make them successful and which industry-specific KPIs Operating cash flow (OCF) is the amount of cash a
matter to them, there are metrics relevant to most company generates through typical operations. This
businesses. Here are 10 popular financial KPIs used by metric can give a business a sense of how much cash
growing businesses. it can spend in the immediate future and whether it
should reduce spending. OCF can also reveal issues like
1. Gross Profit Margin
customers taking too long to pay their bills or not paying
Gross profit margin measures the amount of money left
them at all. There are two ways to calculate it: the direct
over from product sales after subtracting cost of goods
and indirect method.
sold (COGS). A higher gross profit margin indicates the
company is efficiently converting its product or service
into profits. The cost of goods sold is the total amount Operating cash flow (indirect method) =
to produce a product or service, including materials and Net income + Depreciation and amortization – Net
labor. Net sales are revenue minus returns, discounts, working capital
and sales allowances.
Operating cash flow (direct method) =
Cash revenue – Operating expenses paid in cash

( )
Gross profit Net sales – COGS
margin = x 100
percentage Net sales 4. Current Ratio
The current or working capital ratio measures the liquidity
of a business to determine if it can meet its financial
2. Operating Profit Margin
obligations. A working capital ratio of 1 or higher means
Operating profit margin shows the percentage of profit
the business’s assets exceed the value of its liabilities.
a company makes from operations before accounting
Companies often target a ratio of 1.5-2, and anything
for taxes and interest. Increasing operating margins can
below 1 signals future financial problems.
indicate better management and cost controls within a
company. To find your operating profit, subtract COGS,
operating expenses, and depreciation and amortization Working capital ratio = Current assets /
from total sales. Current liabilities

Operating profit margin percentage =

(Operating profit / Revenue) x 100

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5. Quick Ratio
The quick ratio, also called the acid test ratio, measures
whether a business can fulfill its short-term financial
obligations by evaluating whether it has enough assets
to pay off its current liabilities. Quick ratio is written as a
number, with a ratio of 1.0 meaning a company has just
enough assets to cover its liabilities. Anything below 1
could mean the company’s business model is not viable.

Quick ratio = (Cash + Cash equivalents +

Marketable securities + Net accounts receivable) /
Current liabilities

6. Return on Assets (ROA)

Return on assets measures the profitability of a business
compared to its total assets. This return on investment
(ROI) metric shows how effectively a company uses
its assets to generate earnings. A higher ROA means
a business is operating more efficiently. To calculate
average total value of assets, add up all assets at the
end of the current year plus all the assets from the prior
year and divide that by two.

ROA = Net income / Average total value of assets

7. Days Payable Outstanding (DPO)

The average number of days it takes a company to
make payments to creditors and suppliers is days
payable outstanding. This ratio helps the business see
how well it’s managing cash flow, whether it’s taking
advantage of discounts for early or on-time payments
from vendors, and if it’s a business that will build strong
relationships with suppliers.

DPO = (Total accounts payable in given period /

COGS) x Number of days in period

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8. Days Sales Outstanding (DSO) 10. Budget Variance Rate
This metric shows how long it takes, on average, for Just as it sounds, budget variance rate compares a
customers to pay a company for goods and services. company’s actual spend or sales in a certain area against
A higher days sales outstanding indicates a company the budgeted amounts. Although budgets are usually
takes longer to collect payment, which can lead to tied to expenses, budget variance can also compare
cash flow problems. Generally, the lower your DSO, the actual and forecasted revenue. This variance analysis
better, but this number usually climbs during times of helps small business leaders identify areas where
economic uncertainty or recessions. they’re overspending that may need further attention.
It also reveals areas of the business that outperformed
expectations and warrant additional investment.
Days sales outstanding = (Total accounts
receivable in given period / Total credit sales in
period) x Number of days in the period Budget variance percentage =
(Actual / Forecast − 1) x 100

9. Cash Runway/Net Burn Rate

Cash runway shows how long a company has before
it runs out of cash based on the money it currently
has available and how much it spends per month. This
metric helps businesses understand when they need to
cut back spending or get additional funding. If your cash
runway shortens over time, it’s a sign your company is
spending more money than it can afford to.

Cash runway is closely tied to burn rate, which measures

how much money a company spends over a certain
period (usually monthly). Burn rate is frequently used
by investor-backed startups that lose money in their
early days.

Net burn rate = (Monthly revenue – COGS)

– Monthly expenses

Cash runway = Total capital / Monthly expenses

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CHAPTER 3

10 Common Operational KPIs

Operational KPIs show how well your business is While the formula below is for total lead time, it can
running. Improved internal business processes and easily be adjusted to measure customer lead time,
metrics lead to more satisfied customers, which is supplier lead time, or production lead time. Also note
imperative for growing businesses. that manufacturing time only applies to companies that
make their own products.
1. Cost Per Unit
Cost per unit is how much a single unit of product
costs a company to produce or buy. It is best used in Cumulative lead time = Procurement time +
companies that manufacture or sell large amounts of Manufacturing time + Shipping time
the same product. Knowing the cost per unit helps
companies understand if they are making products in a
cost-effective manner, how to price products, and when 3. Cash Conversion Cycle
they’ll turn a profit. This metric tells you the length of time between when
you pay suppliers for materials and when your customers
pay for the final finished product. You want the cycle time
Cost per unit = (Total fixed costs + Total variable to be as short as possible. Tracking this metric will help
costs) / Number of units produced identify potential causes of cash flow issues. Although
this metric varies depending on what you sell and your
customer base, some of the most efficient companies
2. Lead Time have cash conversion cycles of less than one month.
Lead time measures the amount of time that passes However, it can be much longer, especially if you’re in an
between the beginning and end of any supply chain industry with long lead times.
process. This could be the time between a business
ordering a product from a supplier and receiving it,
between a customer placing an order and receiving it, Cash conversion cycle = Days sales outstanding
or between the start and end of a production process. + Days of inventory outstanding –
In that way, this KPI measures the efficiency of the Days payable outstanding
entire supply chain or certain steps within it. Lead time
is important because it determines the amount of
inventory a company needs to have on hand to fulfill
orders and therefore impacts stock availability and
customer satisfaction.

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4. Inventory Turnover Ratio 6. Gross Margin Return on Investment (GMROI)
Inventory turnover ratio is the number of times a The gross margin return on investment measures how
company sells and replaces its stock in a certain much money a company makes on a specific inventory
time frame, usually one year. It measures how well a investment. Tracking this metric gives your company
company turns its inventory into sales. Businesses can insight into which inventory items are especially strong
use their turnover ratio to determine if they’re carrying or weak performers so you can plan accordingly. In
too much inventory compared to how much of their general, a GMROI of 200% or higher is a good target.
stock is selling.

Gross margin return on investment =

Inventory turnover ratio = [COGS / (Beginning (Gross profit / Average inventory cost) x 100
inventory value + Ending inventory value) / 2)] x 100

7. Cost of Stockouts
5. Sell-Through Rate Running out of some goods will be more costly to
Sell-through rate is a comparison of the amount your business than others. To measure the impact of
of inventory sold versus the amount of inventory stockouts, you can use the cost of stockouts metric.
produced or received from a supplier. Sell-through Companies can use this to calculate the money lost
rate is important because it helps you understand how when they run too lean or experience an unexpected
efficiently you’re selling through inventory. A high sell- surge in demand, leading to stockouts. The cost
through rate is positive because it means you’re moving of stockouts may also affect the amount of items a
product quickly. A low sell-through rate, on the other business keeps on hand.
hand, suggests you’re paying to stock excess inventory.

Cost of stockouts = Number of days out of stock

Sell-through rate = (Number of units sold in x Average units sold per day x Price per unit
period / Number of units received in period) x 100

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8. On-Time Delivery Rate 10. Perfect Order Rate
On-time delivery rate measures the percentage of Perfect order rate is a measurement of how many
orders that arrive on time to customers (either on or orders a company ships without any issues, such as
before the scheduled delivery date) and analyzes supply damage, inaccuracies, or delays. While every company
chain efficiency. A low on-time delivery rate could be a aspires to a perfect order rate close to 100%, what’s
sign of slow processes in your supply chain, shipping realistic for your organization will vary. This metric is
bottlenecks, or slow and unreliable delivery methods. strongly linked to customer satisfaction and
Regardless, it will hurt customer satisfaction and could operational efficiency.
keep the customer from buying from you again.

Perfect order rate = [(Number of orders delivered

On-time delivery rate = ((Total orders – Late on time / Total orders) x (Number of orders
orders) / Total orders) x 100 complete / Total orders) x (Number of orders
damage-free / Total orders) x (Number of orders
with accurate documentation / Total orders)] x 100
9. On-Time Shipping Rate
The on-time shipping rate shows how often orders
go out to customers within the promised shipping
window. Tracking this metric is important in assessing
the efficiency of your order fulfillment and shipping
processes. It can also help you pinpoint the proper on-
time delivery benchmarks for various products.

On-time shipping rate = (Number of items

shipped on time / Total items shipped) x 100

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CHAPTER 4

How to Choose the Right

KPIs for Your Business

Before a business can select any of these KPIs, it must

first establish its overall goals. Only then can it know The Difference Between Metrics and KPIs
the aspects of the business and functions on which While the terms metrics and KPIs are often
to focus. From there, choosing the right KPIs helps an conflated, each has a distinct meaning. Metrics
organization gauge whether it’s on track to achieve its are any quantifiable data a company monitors to
business goals. track performance and improvements across the
business. Once an organization starts tracking an
But what does a good KPI look like? What characteristics
important metric, it has a baseline against which
should you look for? Consider the following criteria:
it can compare future numbers to see how the
• Goal alignment. A strong KPI reflects a business’s performance of various processes or teams has
strategic goals. Goals will vary by the type of company, changed over time. As a business grows, it often
such as business-to-business (B2B) or business-to- starts tracking more metrics, including ones
consumer (B2C), and business model. A software specific to certain initiatives or departments.
company, for instance, will have different measures of
KPIs are metrics that are particularly important
success than an industrial manufacturer. If the goal is
to your business because they measure
to increase ecommerce revenue by 30%, a company
progress against critical company objectives.
might choose metrics that measure average order
A distinguishing feature of KPIs is they usually
value, conversion rate, and cart abandonment.
have predetermined goals, which is not true of
KPIs can also align to the goals of different all metrics — a company might monitor certain
departments, teams, and individuals. If the purchasing metrics for years without specific targets in mind.
department wants to improve inventory management At least a few KPIs should be financial metrics,
to lower costs, the most effective KPIs might include like revenue growth, profit margin, and cash flow.
inventory turnover ratio and perfect order rate.
In short, KPIs reveal if a business is achieving
• Growth-stage alignment. A good KPI also matches its primary objectives or targets. Metrics simply
where a business is in its life cycle. The metrics for track the status of different processes that are of
a growing business, for instance, might center on varying importance to the company.
customer feedback and business model validation.
KPIs for more established companies could be
monthly recurring revenue, customer retention, and
customer acquisition cost.

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• Quantifiable and measurable. Good KPIs are easy to • Attainability. A good KPI measures achievable goals
measure and based on clear, trackable goals. They rather than unrealistic targets. Attainable also means
can be expressed as ratios, percentages, or rates the data needed to calculate the KPI is available,
so teams can see at a glance where they stand and accessible, trusted, and presentable to stakeholders.
where they need to go. For example, “lower customer
• Actionable. An actionable KPI indicates measurable
acquisition cost by 15%” is a measurable goal, but
tasks that lead a business toward its goals. Without a
“lower customer acquisition cost” makes it harder to
goal, the KPI is just a metric, not an indicator. KPIs can
determine whether you reached that goal or not. KPIs
inform decisions, such as whether to adjust a sales
for this goal might include conversion rate and lead
plan based on how well a product is performing in
generation cost by channel.
the market. They also reveal trends that impact
• Substance. Does the KPI concentrate on what truly future strategies.
matters to move the business forward? Or does it
focus on surface-level vanity metrics that appear to
cast a product or the business in a successful light,
such as number of downloads for a free app or social
media followers? In most cases, the majority of these
users will not become paying customers, so the value
is limited. The right KPIs offer value, point to a trend,
or inform next steps.

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CHAPTER 5

How Can Software Help

Set and Track Financial and
Operational Metrics?

Tracking even basic metrics like revenue, expenses, and Business leaders must make it a
income can become cumbersome with spreadsheets
or other manual methods. It’s difficult to keep all this priority to pinpoint the KPIs that matter
information up to date, especially as a company grows most to their organization, monitor
and its transaction volume increases. That leads to
inaccurate information and, consequently, numerous
them, and continually adjust based on
other problems that could inflict lasting damage. what the data tells them.
Manually calculating more complex metrics, such as Back-end business systems with integrated reporting
some of the financial and operational KPIs discussed and analytics capabilities can go a long way toward
above, is even more challenging and error-prone. helping companies track these numbers and spot
Leading ERP systems like NetSuite collect all the changes that will have a positive or negative impact on
financial and operational data needed to calculate any their financial health. Growing businesses need a way to
and all KPIs your business might want to track. constantly check on these metrics, because they can be
NetSuite can display this information in dashboards that a deciding factor in whether they make it.
update in real time and automatically distribute reports
to all relevant stakeholders.

Growing businesses must set clear KPIs and track a

wide variety of metrics to excel in today’s turbulent
environment. Without insights, these companies have
no real sense of how they’re progressing toward goals
and whether they’re financially healthy or headed in the
wrong direction.

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 Why Do KPIs Matter for Your Business?
KPIs help companies achieve their short- and long-term business goals and make adjustments
to stay on track. They are particularly meaningful when analyzed in the context of and alongside
other KPIs, often in a dashboard that provides a comprehensive view of how different aspects of
a company are faring.

KPIs provide a variety of insights, and businesses rely on them to:

• Measure progress. By their very definition, KPIs measure progress on a company’s key business objectives. If a
company has the goal to increase annual sales by 20%, then KPIs like monthly sales growth and monthly sales
bookings can help it gauge progress toward that goal.

• Adjust goals and targets. Circumstances may change after a company establishes its goals. By monitoring KPIs
often, even daily, a company may realize an objective is unrealistic or no longer aligned with its revised plan.
This insight gives leaders a chance to rethink their plans to better match an organization’s goals.

• Identify problems to solve. Analyzing KPIs can uncover an issue that might otherwise go undetected. For
example, marketing KPIs related to the company’s website, such as a high bounce rate or a drop in daily active
usage, can signal that pages are loading too slowly or your site has broken links.

• Spot patterns. When these numbers are measured over time, such as month over month, patterns and trends
often emerge that can shape decision-making. If sales for a particular product aren’t growing, perhaps a new
marketing campaign is in order. If the rate of returns for a certain product has decreased over a six-month
period, that could indicate an issue with manufacturing.

• Pinpoint inefficiencies and cost-cutting opportunities. When KPIs are applied to business processes,
companies can more easily identify bottlenecks, resolve them, and reallocate resources. All of this should
boost efficiency and lift the bottom line. For example, if it takes five business days for inventory received to
be available to sell, then you may want to consider hiring more warehouse employees or moving to a new
warehouse management system to stock items faster. This should reduce inventory carrying costs and
expenses related to putaway.

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