Sales Growth

Analyze the pace at which your sales revenue is increasing or decreasing.

Overview

Sales Growth metrics measure the pace at which your organization's sales revenue is
increasing or decreasing. This is a key metric for any organization to monitor since it
is an essential part of growth projections and is instrumental in strategic decision-
making. Monitor this metric over multiple time periods to gain a clear indication of
growth trends and normalize your values to account for monthly or quarterly spikes
in revenue.

At the highest level, the sales growth metric is used to provide executives and sales
directors with an assessment of the sales organization's performance. However, this
metric can also be broken down to show how each sales team or sales
representative can contribute to achieving organizational goals. Rather than
providing each sales team with a broad objective of increasing total sales by 20% this
year, provide attainable (yet challenging) objectives that will help them effectively
contribute to achieving your business objective.

Key terms

 Current sales revenue: The total dollar value of sales during the current time
period.
 Previous period sales revenue: The total dollar value of sales during the
period time period.

Success indicators

 A positive sales growth percentage over the specified time period.

Sales Opportunities
Organize prospects based on opportunity value and probability.

Overview

The Sales Opportunity metric organizes prospects based on opportunity value and

the probability of closing the sale. Each prospect has an estimated purchase value
associated with them to help your team prioritize their efforts.

Prospects are sorted according to the likelihood of a win (stage) and the value of a
win (estimated value). Each stage may have a weighted value associated with it to
demonstrate the probability of making the sale. For example, a prospect rated as
"negotiated" may have a weighted value of 0.5 applied to their estimated purchase
value. Therefore, a prospect with a "negotiated" stage and an estimated purchase
value of $10,000 will have a weighted value of $5,000.

Key terms

 Stage: Based on the type of contact your sales team has had with the
prospect. Stages may include proposal (sales quote sent and received),
qualified, or negotiation.
 Weighted value: A multiplier that is applied to the estimated value of a
prospect based on the probability of closing the sale.

Success indicators

 Increased value per prospect.

 Increased probability of win for each stage.
 Improving the flow from one stage to the next.
Product Performance
Rank products based on revenue performance.

Overview

The Product Performance KPI ranks product sales based on revenue performance to
inform your sales team which products are selling well. At the same time, you should
rank the poorest performing products to determine which products are failing to
resonate with your customers.

When monitoring this KPI, it's important to consider the specific contexts
surrounding each product. For instance, is a certain product receiving a boost due to
a viral marketing campaign? Or, are you experiencing a slump because your
competition is offering a similar product at a lower price?

Product performance doesn't always map directly to revenue performance. For

instance, low price, high volume products may account for more than 50% of your
products shipped and be essential to your business model, but these products may
not crack into the top 5 products in terms of revenue. As with any KPI, you need to
use measures and metrics that are consistent with your business model and
objectives.

Key terms

 Revenue: The total dollar value of revenue generated over a specific time
frame.
 Units sold: The total number of units of a specific product sold. See also,
"Units per Transaction."
 Purchase value: The total dollar value of each purchase order. See also,
"Average Purchase Value."

Success indicators

 Increase in product sales revenue.

 Increase in number of units per order.
 Increase in the average dollar value of each purchase order
Sales Target

Measure and compare current sales to a target or past performance.

Overview

The Sales Target KPI measures current sales (either dollar value or number of wins)
and compares that value to a target or past performance. This simple sales KPI taps
into the competitive nature of sales teams by visualizing their performance in a
tangible way.

The key to this KPI is setting an appropriate sales target. This requires a deft touch,
as a goal that is set too high will be viewed as unachievable and will drain morale; on
the other hand, a goal that is set too low will fail to motivate your team to go that
extra mile. One of the most common ways to develop this KPI is to compare current
performance to the previous period, for example, showing new wins this month
compared to wins last month.

Key terms

 Wins: The number of new customers over a certain time period.

 Revenue: Income received through sales activities.

Success indicators

 Surpassing a sales target or the previous period's value.

Average Purchase Value

Measure the average value of purchase orders.

Overview

The Average Purchase Value KPI measures the average value of each purchase order
your sales team processes. This KPI is used to quantify the potential dollar
opportunity associated with each lead and help you to accurately predict the value
of a win.

This KPI can be combined with a number of other KPIs and metrics to provide a clear
picture of consumer purchase behaviours. For instance, consider pairing this KPI with
the units per transaction KPI to help your supply chain accurately forecast inventory
levels.

Key terms

 Purchase order: A document used to indicate the type of product ordered,

number of units, and agreed upon prices.
 Purchase value: The total dollar value of a purchase order.
 Units per transaction: The number of units sold in a purchase order.

Success indicators

 An increase in order value.

 An increase in order frequency coupled with stable or increasing purchase
value.
Sales by Contact Method

Monitor which contact methods are most effective at generating sales.

Overview

The Sales by Contact Method metric measures which contact methods are the most
successful at generating sales, such as email, telephone, or in person. It may be
worthwhile to consider this KPI in conjunction with sales rep performance metrics, as
some reps may be more effective using different contact methods.

It's also important to consider the costs associated with each contact method to
understand when to use different types of tactics. For instance, in person contact
methods tend to have higher win rates, but are more expensive upfront because
they include travelling expenses. Perhaps consider reserving in person contacts for
high value prospects, and rely on email or phone contact for other types of
prospects.

Key terms

 Contact method: The method by which your sales representative

communicates with customers. Methods range from in person to self-service.
 Contact cost: The costs associated with contacting a customer such as long-
distance phone charges or travelling expenses.

Success indicators

 Increasing sales volume/value for a method with a low cost per contact.
 Decreasing the percentage of sales associated with a low yield, high cost per
contact method.
Sales Bookings

Measure the value of bookings over a specific time period.

Overview

The Sales Bookings metric measures the value of bookings over a given time period,
where a "booking" is a won, signed, or committed sale. It's important to note that a
booking isn't necessarily invoiceable until you have delivered the product or
completed the required services.

This is a high level metric that is designed to be consumed by executives and

financial analysts, and it will be used in strategic decision-making and forecasting.
Depending on your business model, bookings can be categorized by region, by sales
representative, or client.

Key terms

 Booking: A won, signed, or committed sale where the purchase order has
been received and approved.

Success indicators

 An increase in the dollar value of bookings for a given time period.

Quote To Close Ratio

Measure the number of formal quotes sent compared to the number of deals closed.

Overview

The Quote to Close KPI measures the number of formal quotes sent out by your
sales team compared to the number of deals closed. To formalize a quote, send out
a quote that can be documented and that even requires a signature or some other
form of explicit acknowledgement. This KPI is used to help prioritize how much time
your sales team spends on any given opportunity and to gain an understanding of
your key conversion metrics.

The quote to close KPI can be used in conjunction with the current opportunities
metric to assess the probability of closing a particular deal. If your sales team has a
strong quote to close rate, you can say with certainty that opportunities with a quote
in hand are highly likely to convert and are well worth your team's time. Depending
on your industry and business model, however, your quote to close may be very high
in which case you may want to consider automating the quotation process to
maximize your sales team's efforts.

This KPI represents a point where sales and marketing intersect. Marketing's goal is
to attract qualified leads, and this KPI provides an indication as to how qualified
those leads actually are. If your lead to quote ratio is high, then you know that leads
are unqualified and not entering the sales pipeline for the right reasons. Consider
pairing this KPI with the cost per lead KPI to provide your marketing team with much
needed ROI data and to foster improved communication between sales and
marketing.

Key terms

 Quote: A formal or informal proposal for a sales transaction.

 Lead: New prospects generated by a marketing campaign.
 Wins / Closed deals: New customers generated through sales efforts.

Success indicators
 A low or decreasing quote to close ratio.
 A low or decreasing lead to quote ratio.
 An increase in the quality of leads.
Sales per Rep

Measure the performance of each of your sales reps or sales teams.

Overview

The Sales per Rep KPI measures the ability of each of your sales reps or sales teams
to generate revenue for your organization. By their very nature, sales teams are
competitive, so providing ubiquitous access to this KPI may help foster a healthy
level of competition amongst your team. It's important to provide your team with
ambitious, but realistic goals to encourage them to go that extra mile (see "Sales
Target").

One of the most important components of this KPI is to establish a baseline when
comparing your sales reps. Not all sales reps are created equally (so to speak) and
your baseline should account for differences such as seniority, location, and whether
they are inbound or outbound sales. Otherwise, this KPI should be used as
performance tool to foster improvement and growth within your team.

This KPI can also be used to hone in on the strengths and weaknesses of your sales
reps. For instance, perhaps one sales rep performs poorly during in person contacts
but performs exceedingly well when using email contacts (see "Sales by Contact
Method"). By the same token, teams selling different products shouldn't be
compared as the price, volume, and interest level may be very different.

Key terms

 Revenue: Income received through sales activities.

 Contact method: The method by which your sales representative
communicates with customers. Methods range from in person to self-service.

Success indicators

 Increased revenue for a single rep or team.

 Increased average revenue for all sales reps or teams.
Marketing KPIs

Return on Investment (ROI)

Measure the ability of marketing campaigns to generate new revenue.

Overview

The Return on Investment (ROI) KPI measures how much revenue a marketing
campaign is generating compared to the cost of running that campaign. In other
words, ROI answers the questions, "Are we recouping what we spend on marketing
in new sales?" ROI is the single most important KPI for any marketing team to
monitor and is the first KPI your marketing executive will ask for when assessing your
team's performance.

To calculate ROI, you will need to track the number of leads generated through each
of your marketing campaigns, such as a banner ad or AdWords campaign. Next, you
will need to determine the opportunity value of each lead. To calculate this, find
your average value per win and divide that value by your average lead to win ratio.
For example, if you know that the average value of a win is $20, and your lead to win
ratio is 10:1, then you can say that the average value of a lead is $2. This number will
provide an approximate value to help you assess the performance of your campaign
as you bring in each new lead.

Despite ROI being the quintessential marketing KPI, it can be quite difficult to come
up with a definitive ROI figure. One of the main difficulties facing marketers is that
lead conversion is typically attributed to the last interaction or click associated with
completing a goal, such as downloading a PDF on a website. The problem is that
someone may have viewed a banner ad but didn't click on the ad at that time,
instead returning to your site weeks later to convert. That conversion may be
attributed to another channel like social media or organic search, while the banner
ad played a key role in that conversion process. Despite this problem, you will need
to have a firm grasp of the value of leads and wins that can be directly attributed to
each marketing campaign.

Key terms

 Leads: New prospects generated by a marketing campaign.

  Incremental sales: New revenue generated by a marketing campaign (see
"Incremental Sales").
 Wins: New customers generated by a marketing campaign.

Success indicators

 Incremental sales are greater than campaign investment.

Purchase Funnel

Understand your customer acquisition process from awareness to purchase.

Overview

The Purchase Funnel analyzes your customer acquisition process to help you
understand how potential customers discover your product or brand and, more
importantly, how they eventually become a loyal customer. The purchase funnel
(alternatively called the marketing funnel) is typically broken down into five stages:
awareness, interest, consideration, preference, and purchase. From a measurement
point of view, this may map to a variety of sales and marketing channels from social
media and web visits to mailing lists and sales contacts.

The key to the purchase funnel is analyzing conversion rates from one stage of the
funnel to the next. The strength of the funnel is the ability to zero in on your
strengths and weakness. For instance, you may have strong brand awareness
(represented by a high number of web visitors) but your ability to convert leads into
wins may represent a weak point. The funnel allows you to see and act on this
information.

Key terms

 Funnel stage: Five key stages that represent the typical customer acquisition
process. Stages include: awareness, interest, consideration, preference,
purchase.
 Conversion rate: The percentage of people that move from one funnel stage
to the next.
Success indicators

 A high conversion rate through all stages of the funnel.

 High volume through each stage of the funnel.
 Improving conversion rates for stages performing poorly.
Goal Completion Rate

Measure how effective your campaigns are at prompting your audience to complete
a goal.

Overview

The Goal Completion Rate (GCR) metric measures the number of people that
complete a specified marketing goal, such as signing up for a trial or subscribing to a
mailing list. Marketing metrics like GCR are an important part of the purchase funnel
as it typically demonstrates your conversion rates from the awareness stage to the
consideration stage. Similarly, GCR should be paired with sales KPIs such as your lead
to win rate to provide an indicator as to the quality of leads your marketing efforts
are attracting.

The GCR metric is used extensively in website optimization and A/B testing (also
called split tests), since GCR is a leading indicator of how well your website resonates
with your target audience. Content strategist and website analysts will use your
site wide GCR as a baseline value to compare all the pages on your website. Pages
below the threshold require optimization, while pages above the threshold should
be analyzed so you can repeat your success elsewhere.

Key terms

 Goals: A marketing objective for your audience to complete, such as

subscribing to a mailing list.
 Lead: An individual that has expressed interest in your product or service by
completing a goal.
 Completion rate: The number of web visitors divided by the number of goals
completed.

Success indicators

 A high goal GCR shows that your campaign is encouraging your target
audience to act.
 A high lead to win rate shows that your campaign is generating highly
qualified leads for your sales team.
Incremental Sales

Demonstrate how your marketing campaigns are resulting in increased sales

revenue.

Overview

The Incremental Sales KPI measures the contribution of your marketing efforts to
increasing sales revenue. This KPI emphasizes the close relationship between sales
and marketing, and how that relationship benefits your organization. Marketing
attracts qualified leads, and sales converts those leads into paying customers (which,
hopefully, become brand advocates to further fuel marketing efforts).

The incremental sales KPI is one of the most consistent ways to measure your
marketing return on investment as it demonstrates new revenue that can be directly
attributed to a marketing campaign. The problem for marketing teams is that
campaigns may generate new leads or sales indirectly. For example, a banner
campaign with a large volume of impressions may encourage people to complete
what is called a "view through conversion." This means that a visitor may see an ad,
visit the website in a separate browser tab or window, and then complete a goal
without actually clicking on the banner ad. The result is the same, but the path and
credit for the completion are very different.

Key terms

 Lead: An individual that has expressed interest in your product or service by

completing a goal.
 Wins: New customers generated by a marketing campaign.
 Campaign: A marketing communication on a dedicated channel intended for
a business' target audience.

Success indicators
  Incremental sales that exceed the initial marketing investment.
 Indirect increase in sales that can be attributed to a marketing campaign.

Traffic Sources

Understand which traffic sources are driving visitors to your website.

Overview

The Traffic Sources metric measures which traffic sources are driving visitors to your
website, and provides a comparison of each of those sources. The three main traffic
sources are direct, referral, and search, although your website may also have traffic
from campaigns such as banner ads or paid search. In addition to measuring the
number of visitors from each traffic source, consider analyzing the number of goal
completions from each source.

Each traffic source can be analyzed to provide more granular information about your
web traffic. Search traffic, for instance, can be analyzed according to the landing
page and associated keyword rankings; referral traffic can be broken down into
categories such as social referrals, blog mentions, or service listings. As well, each
source is an indicator of the health of your website. For instance, a high volume of
referral traffic shows that your brand or website is being talked about frequently by
3rd party websites or on social media sites.

Key terms

 Direct traffic: Visitors that visit your site by typing your URL into their
browser, or through an undefined channel.
 Referral traffic: Visitors that visit your site by clicking on a URL on another
website.
 Organic traffic: Visitors that discover your website by entering searching a
keyword in a search engine (Google, Bing, Yahoo) and that click on your
listing.
 Campaign traffic: Visitors that visit your website through a dedicated
campaign or clicking on a link with certain tracking parameters.

Success indicators
 An increase in volume from any traffic source, while maintaining consistent
traffic from other channels.
 A high or improving goal conversion rate related to any traffic source.
Keyword Performance

Measure keyword rankings to understand how effective your SEO efforts are at
driving traffic to your website.

Overview

The Keyword Performance metric measures your keyword rankings to understand

how effective your SEO efforts are at driving organic traffic to your website. Keyword
rankings is a leading indicator which provides valuable information about your ability
to improve on existing rankings or rank on new keywords. That said, SEO efforts
need to account for the "big" marketing picture and analyze other factors such as
goal completion rates and return on investment.

The search engine marketing landscape has been transformed in recent years as
Google continues to release key updates such as Panda, Penguin, and Hummingbird.
The net result of these updates is to counter so-called "black hat" tactics, such as
questionable link building tactics and keyword stuffing, in favour of "white hat"
tactics, such as social sharing and creating high quality content. As search engine
marketing matures, the importance placed on keyword rankings will diminish (but
not disappear), while the importance of other key metrics surrounding keyword
performance will increase.

Key terms

 Keyword: A search term that is entered into a search engine like Google or
Bing.
 Click-through rate (CTR): The percentage of people that click on a search
listing compared to the number of impressions or the number of times the
listing appear in search results.
 Goals: A marketing objective for your audience to complete, such as
subscribing to a mailing list.
 Completion rate: The number of web visitors divided by the number of goals
completed.

Success indicators
 Improving rankings for a keyword or keyword group.
 Improving click-through rates for ranked keywords.
 Improving goal completion rates for organic traffic visitors.
End Action Rate

Measure how effective marketing campaigns are by monitoring the last action taken
by your audience.

Overview

The End Action Rate KPI measures how effective marketing campaigns are by
monitoring the last action taken by your audience. This KPI may also incorporate
non-sales related objectives such as contact requests or bounce rates. While similar
to the goal conversion rate KPI, end action rate provides a broad assessment of
campaign performance by monitoring all possible outcomes.

The end action rate KPI is intended to provide your team with actionable information
about your campaign performance. For example, if you are running a banner ad
campaign with a specific landing page, you will want to monitor secondary metrics as
well as goal completions. These secondary metrics will tell you how well the page
resonates with your audience and if the campaign was generally well received. It's
important to remember that many prospects aren't ready or willing to commit to a
purchase or share contact information on their first visit to your website, but a good
first impression can result in future engagements.

Key terms

 End action: The last interaction a campaign visitor has with your website.
 Lead: New prospects generated by a marketing campaign.
 Wins: New customers generated by a marketing campaign.

Success indicators

 Campaigns that result in a high number of leads or wins.

 Campaigns that generate positive events like social engagements or contact
requests.
 A reduction in negative events like bounces and exits.
Cost Per Lead

Measure the cost-effectiveness of marketing campaigns.

Overview

The Cost per Lead metric measures how cost-effective your marketing campaigns
are when it comes to generating new leads for your sales team. This metric is closely
related to other key business metrics such as the cost to acquire new customers. The
purpose of this metric is to provide your marketing team with a tangible dollar
figure so they understand how much money is appropriate to spend on acquiring
new leads.

The cost per lead metric also provides important data to use in your return on
investment calculations. In fact, each stage of the purchase funnel should have
similar metrics associated with it, such as cost per visitor and cost per win. Likewise,
these metrics can be used to monitor individual campaigns such as AdWords, banner
ads, or social ads, or the sum of your marketing efforts.

Key terms

 Lead: An individual that has expressed interest in your product or service by

completing a goal.

Success indicators

 A low cost per lead with a high volume of quality leads.

Email Marketing Engagement Score

Measure how effective email marketing campaigns are at engaging your audience.

Overview

The Email Marketing Engagement Score metric measures how effective your
campaigns are at engaging your audience by tracking key metrics like open and click
rates. Each of these metrics represents a different type of engagement which will
help you assess the performance of your campaign. Open rates are linked to subject
line performance, the credibility of the sender, and the time the campaign was sent;
click rates, on the other hand, are indicative of how well the content resonates with
the audience and the relevance of the message.

Successful email marketers extensively A/B test subject lines, call out text in an
email, and the time emails are sent. The result is an email marketing program that is
fine-tuned to your subscription list with campaigns capable of generating a high level
of engagement. As with any marketing activity, email campaigns are designed to
generate leads for your business. Therefore, engagement scores should be tracked
alongside goal conversion rates and social interactions to demonstrate marketing
ROI.

Key terms

 List subscribers: The number of people who subscribed to an email list

maintained by your marketing team.
 Open rate: The percentage of list subscribers that open an email message
sent by your team.
 Click rate: The percentage of list subscribers that click links included in your
email message, including calls to action, social share or follow links, or
generic links back to your website.

Success indicators

 A high and/or improving open rate.

 A high and/or improving click rate.
Social Interactions

Measure how effective your social media campaigns are at fostering positive
interactions with your audience.

Overview

The Social Interaction KPI measures how effective your social media campaigns are
at fostering positive interactions with your audience on a social media platform. Key
interactions can play a pivotal role in a post or story going viral, so ensuring you are
nourishing the right types of interactions is very important. As well, a strong social
media measurement strategy will map these interactions to other marketing goals,
such as website conversions or new wins.

When measuring social interactions, it's important to remember that not all social
interactions are equally valuable; each social platform comes with a number of
different ways to interact with your audience. For example, one could argue that a
"retweet" is more valuable than a "favourite" on Twitter because a retweet ensures
the content stays in circulation longer. Similarly, different social media sites will have
varying importance to your brand. One brand may find that Facebook is a hotbed of
positive engagement, while another brand really hits its stride on Pinterest.

Key terms

 Interaction: A communication between an audience member and your

brand's social profile. This may take the form of platform specific interactions
such as Mentions on Twitter, Likes on Facebook, or +1's on Google+.

Success indicators

 A high level engagement that corresponds to the completion of key

marketing objectives.
 Viral posts that require little or no nurturing on your behalf.
 Sustained engagement over a long period of time.
Financial KPIs

Current Ratio

Measure the ability of your organization to pay all of your financial obligations within
a year.

Overview

Current Ratio measures the ability of your organization to pay all of your financial
obligations in one year. This ratio accounts for your current assets, such as account
receivables, and your current liabilities, such as account payables, to help you
understand the solvency of your business. Generally speaking, a ratio between 1.5
and 3 is preferable and indicates strong financial performance.

A current ratio of less than 1 indicates that your organization would be unable to
meet all of your financial obligations if they came due at the same time. While this
certainly is not good, it's not uncommon for organizations to operate in the red for
short periods of time, especially if the business is funding growth by accumulating
debt. On the other hand, a high current ratio may be mean that the business is
sitting on a large amount of cash, instead of investing it back into the business.

Current ratio provides investors and financial analysts with an indication of the
efficiency of your company's operating cycle. In other words, is your business able to
generate a constant revenue stream and collect account receivables in a timely
manner? These important questions tell potential investors a lot about the financial
health of your organization.

Key terms

 Assets: An economic resource that has cash value.

 Liability: A financial obligation that stems from previous transactions, such as
a purchase order.

Success indicators
 A current ratio between 1.5 and 3.
 A current ratio that is greater than 1 and that is stable over the long term.
Quick Ratio / Acid Test

Measure the ability of your organization to meet short-term financial obligations.

Overview

Quick Ratio measures the ability of your organization to meet any short-term
financial obligations with assets that can be quickly converted into cash. This ratio
offers a more conservative assessment of your fiscal health than the current ratio
because it excludes inventories from your assets. Like your current ratio, a quick
ratio greater than 1 indicates that your business is able to pay off all of your accounts
payable.

The quick ratio gets its name from the fact that it demonstrates your ability to
quickly generate cash to pay off your financial obligations. The reason inventory is
excluded from this ratio is that it's assumed that you may not be able to quickly
convert your inventory into cash. Quick ratio is an important financial measure, but
may not give you the complete picture. For example, your organization may have a
large amount in account receivables causing your quick ratio to be low while your
financial health is actually quite strong.

Key terms

 Assets: An economic resource that has cash value.

 Liability: A financial obligation that stems from previous transactions, such as
a purchase order.

Success indicators

 A quick ratio between 1.5 and 3.

 A current ratio that is greater than 1 and that is stable over the long term.
Working Capital

Measure your organization's financial health by analyzing readily available assets.

Overview

The Working Capital metric measures your organization's financial health by

analyzing readily available assets that could be used to meet any short-term financial
liabilities. Working capital includes assets such as on-hand cash, short-term
investments, and accounts receivable to demonstrate the liquidity of the business
(the ability to generate cash quickly). Working capital is calculated by subtracting
current liabilities from current assets.

Key terms

 Assets: An economic resource that has cash value.

 Liability: A financial obligation that stems from previous transactions, such as
a purchase order.

Success indicators

 When expressed as a ratio, a working capital greater than 1 indicates that

your company can cover its current liabilities.
Debt to Equity Ratio

Measure how your organization is funding growth and how effectively you are using
shareholder investments.

Overview

The Debt to Equity Ratio measures how your organization is funding its growth and
how effectively you are using shareholder investments. A high debt to equity ratio is
evidence of an organization fuelling growth by accumulating debt. This is a common
practice, as outside investment can greatly increase your ability to generate profits
and accelerates business growth; reaching too far, however, can backfire and leave
the company bankrupt.
Accounts Payable Turnover

The Accounts Payable Turnover KPI measures the rate at which your company pays
off suppliers and other expenses. This ratio is important for understanding the
amount of cash that your business spends on suppliers during any given period. It
shows how many times over the course of the year your business is able to pay off its
accounts payable. Used in conjunction with Current Ratio or Quick Ratio, this
financial metric shows your ability to meet your financial obligations.
Accounts Receivable Turnover

The Accounts Receivable Turnover KPI measures the rate at which you collect on
outstanding accounts. The problem in maintaining a large bill for a customer is that
you are essentially offering them an interest-free loan. Monitoring this metric is
essential to ensure that accounts receivable is collecting on bills in a timely manner.
This KPI is an essential piece of understanding your organization's cash flow process.
Return on Equity

Measure profitability by examining your ability to generate revenue for each unit of
shareholder equity.

Overview

The Return on Equity KPI measures your organization’s ability to generate revenue
for each unit of shareholder equity. Use the following formula when calculating
return on equity:

Net income ÷ Shareholder’s equity

The return on equity ratio not only provides a measure of your organization’s
profitability, but also your efficiency. A high or improving ROE demonstrates to your
shareholder’s that you’re using their investments to grow your business.

Key terms

 Shareholder’s equity: Financing acquired through selling common and

preferred shares to investors.
 Net income: Also called net profit, this is the amount of earnings after you
subtract cost of goods sold, taxes, and other expenses.

Success indicators

 A return on equity rate between 15% and 25% is generally considered good.
Inventory Turnover

The Inventory Turnover KPI measures how often you are able to sell off your
entire in-stock inventory in a given year. This KPI is closely related to your supply
chain, and indicates the ability of your organization to generate sales and increase
revenue. As well, it's important to move aging inventory since it the cost of carrying
inventory increases at the same time the value of that inventory decreases.
Net Profit Margin

The Net Profit Margin KPI measures how effective your business is at generating
profit on each dollar of revenue you bring in. This financial KPI is a measure of the
profitability of your business and is instrumental in making long- and short-term
financial decisions. Understanding this KPI may even give you an advantage in a
pricing war with your competitors. See also: Gross Profit Margin.
Gross Profit Margin

The Gross Profit Margin KPI measures how much profit you make on each dollar of
sales before expenses. This ratio is calculated by looking at the difference between
production costs (excluding overhead, payroll, and taxes). It is important to note that
gross profit margin isn't a true indicator of whether your business is marking a profit
– for that you will need to refer to another financial KPI: Net Profit Margin.