Key Business Metrics to Evaluate at Year-End to Foster Company Growth
Business metrics help track company performance, inform management decisions, and plan ahead. Here's what small and medium-sized businesses should focus on when wrapping up the year.
Evaluating effectiveness allows you to assess how the company performed over the year, which strategies succeeded, and which fell short of expectations. It's also a great way to better understand customer needs and employee challenges, and to forecast trends for the coming year.
Let's explore key business metrics that are crucial for companies to evaluate before the clock strikes midnight on December 31.
Financial Metrics
Basically, companies focus on three primary indicators:
- Annual Revenue — the total income the company generated over the year. Comparing this year's revenue with previous years can reveal trends in business growth or decline.
- Net Profit — this metric shows the difference between income and expenses.
- Operating Expenses — includes salaries, supplies, online service subscriptions, logistics costs, and other necessary company expenditures. Analyzing operating expenses helps understand the company's cost structure.
Additionally, these metrics can be beneficial:
ROI → Return on Investment → helps evaluate how effectively funds were invested in the business.
ROE → Return On Equity → is a profitability metric representing the relation of net income to invested resources.
*ROI depicts profitability from an investor's perspective, while ROE reflects it from the owner's point of view.
EBITDA → Earnings Before Interest, Taxes, Depreciation, and Amortization → is an analytical metric showing pre-tax and amortization profit, used to assess the operational efficiency of a business.
| Metric | Formula | Calculation Example |
|---|---|---|
| Net Profit | Income - Expenses | 800,000 - 300,000 = 500,000 |
| ROI | (Profit / Investment) * 100% | (500,000 / 1,000,000) * 100% = 50% |
| ROE | (Net Profit / Equity) * 100% | (500,000 / 200,000) * 100% = 25% |
| EBITDA | Operating Profit + Taxes + Interest + Depreciation | 300,000 + 150,000 + 100,000 + 50,000 = 600,000 |
For a more precise assessment of financial metrics, understanding business economic efficiency, and setting future strategies, the DuPont analysis can be used. This formula offers a different computation method for ROE.
In the classic model, ROE helps calculate capital profitability without considering production specifics. It's challenging to make investment decisions for the upcoming year or strategic decisions based solely on this metric. Hence, Eleuthère Irénée du Pont, founder of a major American chemical company, developed an alternate formula.
ROE = Net Income/Revenue * Revenue/Assets * Assets/Equity
NI/R — net profit margin for the period.
R/A — asset turnover, indicating how often you can earn on capital invested in the business within a specific period.
A/E — funds generated or set aside using own or borrowed resources.
This formula helps identify areas where the company should focus efforts to enhance ROE.
Customer Base Metrics
When assessing the quality of customer service in your company, focus on at least two metrics:
CRR → Customer Retention Rate → a higher CRR means fewer resources are needed to attract new customers.
CRR = (customers at the end of the period – new customers during the period) / customers at the beginning of the period x 100%
CAC → Customer Acquisition Cost → helps determine the amount spent to acquire a single new customer and the efficiency of marketing expenditures.
CAC = Total Marketing Expenses / Number of New Customers
Conducting regular customer surveys throughout the year is crucial to determine how satisfied clients are with support, how easily they interact with the product, how often complaints and issues arise, and the likelihood of clients recommending the company's products or services to acquaintances.
Marketing Metrics
There are numerous indicators to assess marketers' performance and the effectiveness of advertising campaigns. Let's cover a basic set of marketing metrics.
ROMI → Return on Marketing Investment → assesses the effectiveness of advertising strategies and budget allocation. Unlike the financial metric ROI, it only measures marketing expenses: mailings, SEO, contextual and targeted ads, marketers' salaries. ROMI is expressed as a percentage and doesn't account for product creation costs.
ROMI = (profit - marketing budget) / marketing budget x 100%
LTV → Lifetime Value → is the projected revenue from a customer throughout their engagement with the brand or product. Knowing this metric helps determine the marketing budget for acquiring new customers to remain profitable and to identify and retain the most loyal customers.
Three LTV Calculation Formulas ↓
| Simple | LTV = total revenue / number of customers |
| Basic | LTV = (average revenue per customer × average customer lifespan) - customer acquisition cost |
| Optimal | LTV = average transaction value × average purchase frequency × average profit margin × average customer lifespan |
ER → Engagement Rate → evaluates how actively users interact with content. Calculating engagement rate is meaningful if users can like, comment, or share content. Results are expressed as percentages — the higher the ER, the better. An ER between 1 and 3.5% is typical; anything above 3.5% indicates high engagement.
ER = (number of interactions / reach) × 100.
CTR → Click-Through Rate → measures the number of clicks an ad receives compared to its impressions. The higher the CTR, the more appealing and useful the ad is. Average CTR ranges from 5% to 20%.
CTR = (number of ad clicks / number of impressions) × 100.
Operational Metrics
These metrics help evaluate the effectiveness of routine work processes. Consider the following:
- Task completion time — shows how long an employee takes to complete a specific task. Use time trackers or work planning apps to determine this.
- Inventory level — crucial for companies in production or retail to constantly monitor stock levels.
- Productivity — indicates the volume of goods produced by employees within a specific timeframe or the number of projects completed by the company.
- Response time — this metric tracks how quickly employees respond to client queries and resolve issues.
Employee Satisfaction Metrics
A happy employee is a productive employee. Therefore, tracking staff turnover and satisfaction is vital for successful business operations.
ETR → Employee Turnover Rate → helps understand how frequently staff leave and the average tenure.
ETR = (number of employees who left / average number of employees) × 100.
ESS → Employee Satisfaction Score → measures how comfortable employees feel working in the company. Anonymous surveys, questionnaires, and focus groups can help assess this score. Also, a "360-degree feedback" survey, where colleagues, subordinates, and management review each other, is beneficial.
ESS = (number of satisfied employees / total number of employees) × 100%.
To continually reduce turnover and increase employee satisfaction, it's important to care for the team’s morale by often organizing team-building activities and corporate games.
With the holidays approaching, companies frequently organize a Secret Santa game. This is a great way to lift spirits, strengthen team bonds, diversify the winter office party, and save on gifts. Everyone becomes a Santa for someone else and secretly prepares a gift. As a result, everyone enjoys the festive spirit, joy of giving, and receiving gifts.
The MySanta service automates the game process and allows even large corporations to conduct Secret Santa smoothly. There's no limit to the number of participants. HR professionals and managers don't have to manage lists, pair everyone up, or notify them when the game starts—the system handles it all automatically.
Our service is also frequently used by remote teams to set up the game in just a few clicks, send gifts by mail or delivery, track gifts' status, and more. After everyone has received their surprises, a big holiday video call is set up to share impressions.
The extensive set of features in the MySanta service makes the game even more engaging. We offer handy wishlists, a vast gift store, the ability to set exceptions, track who is whose Santa, a dedicated Telegram bot, and much more.
Tools for Tracking and Monitoring Business Metrics
Today, numerous effective tools assist in evaluating business efficiency and profitability. Here’s what you can use for these purposes:
Process Mining – an active business analytics platform designed to monitor employee performance and customer journeys. It provides dashboards, analytical reports, informative panels, and other features for tracking business metrics and achieving set goals.
Google Analytics – a free service by Google that offers comprehensive analytics tools. It allows you to quickly generate reports, assess advertising effectiveness, monitor clicks, and identify traffic sources.
CallRail — an omnichannel marketing platform. It integrates with advertising, analytics, and call tracking systems. CallRail helps attract traffic, track how budgets are being spent, determine which ads work, and guide customers to sales.
Conclusion
Wrapping up the year is a crucial phase for any company, regardless of size or industry. Analyzing key business metrics allows you to see the business from different angles and determine its development pathways. Moreover, the earlier a company considers closing out the year, the easier it is to gather a complete picture and measure results.
FAQs
How often should I be reviewing these key metrics?
Ideally, review key metrics quarterly to track progress, identify trends, and make timely adjustments. Year-end analysis provides a comprehensive overview, but regular monitoring enables proactive management.
What are some common mistakes businesses make when analyzing their year-end metrics?
Common mistakes include focusing solely on revenue, ignoring industry benchmarks, not considering external factors, and failing to translate insights into actionable strategies. Don't just collect data; interpret and apply it.
How do I set realistic goals based on our year-end metric analysis?
Start by identifying areas needing improvement and set SMART goals (Specific, Measurable, Achievable, Relevant, Time-bound). Use past performance as a baseline, factor in market trends, and consider available resources to create achievable targets.
