Key performance indicators (KPIs) are quantifiable business metrics that track and measure an organization’s progress toward its strategic objectives. More than just numbers, KPIs tell a story about how well a company is performing. Understanding KPIs as they relate to your industry, company and even separate departments within a company is essential for any growing business.
Business leaders increasingly realize they can leverage this information to make better decisions. The immense amount of information available to decision-makers today can also be overwhelming, so we pared it down to 20 widely used KPIs relevant to most businesses. This business guide explains why KPIs matter, the characteristics of a good KPI and provides a list of popular financial and operational KPIs.
While organizations need a firm grasp of what will make them successful and which industry-specific KPIs matter to them, there are metrics relevant to most businesses. Here are 10 popular financial KPIs used by growing businesses.
1. Gross Profit Margin
Gross profit margin measures the amount of money leftover from product sales after subtracting cost
of goods 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 to produce a product or service, including materials and labor. Net sales are revenue minus returns, discounts and sales allowances.
Gross profit margin = Net sales – Cost of goods or services sold / Net sales x 100
2. Operating Profit Margin
Operating profit margin shows the percentage of profit a company makes from operations before subtracting taxes and interest. Increasing operating margins can indicate better management and
cost controls within a company. Gross profit minus operating expenses is also known as earnings before interest and taxes (EBIT).
Operating profit margin = Gross profit – Operating expenses / Revenue x 100
3. Operating Cash Flow
Operating cash flow (OCF) is the amount of cash
a company generates through typical operations. This metric can give a business a sense of how much cash it can spend in the immediate future and whether it should reduce spending. OCF can also reveal issues like customers taking too long to pay their bills or not paying them at all.
Operating cash flow = Net income + Non-cash expenses – Increase in working capital
Download all 20 KPIs here