Being able to start and run your own small- to medium-sized enterprise (SME) or startup in the Philippines may be an exciting prospect, but it will also be a road littered with challenges. One that you’ll be preoccupied with from the minute you launch your business is how exactly to measure its success. This is where financial metrics come in. When running a business seems difficult and unclear, these metrics will serve as a compass—a means of guiding your efforts and your decision-making through the turbulent waters of entrepreneurship.
Nowadays, entrepreneurs in the Philippines can easily keep track of their business’s financial status through digital solutions such as Maya’s online business banking and payment gateways for e-commerce stores. Thanks to fully digital banks like Maya offering SME business banking solutions, it won’t be as hard to achieve a full overview of your business’s financial operations and build a solid understanding of your present-day financial performance. In terms of managing a business, that’s already half the battle won.
On top of having a means to track your finances, you’ll also need to know which numbers to look at and what they mean for your business’s growth. Here are ten financial metrics that you should expect to monitor:
1) Revenue Metrics
Revenue, or your company’s total income from selling products or services, is a fundamental financial metric for your business’s growth and sustainability. Keeping your eyes on this metric will help you understand your business’s performance and identify relevant trends over time. The numbers will tell you, for example, whether it’s good to utilize multiple revenue streams or roll out more innovative pricing strategies.
Some of the key performance indicators or KPIs related to revenue are the following:
- Total revenue. Also known as gross sales, this figure represents the total income generated from selling products or services before deducting any expenses.
- Revenue growth rate. This KPI measures the percentage change in your company’s total revenue over a specific period compared to the previous period.
2) Gross Profit Margin
The gross profit margin is a metric that determines how efficiently your business manages its direct costs of goods or services. To get the gross profit margin, you’ll need to subtract the cost of goods sold (COGS) from revenue and divide it by the net revenue. Being able to understand and improve upon this metric will enable you to optimize your pricing strategies and identify areas for cost reduction.
3) Net Profit Margin
While the gross profit margin focuses on direct costs, the net profit margin takes all operating expenses into account. This metric provides insights into your business’s overall profitability and sustainability. You can enhance your net profit margin and ensure your business’s long-term viability by finding ways to reduce expenses or increase revenue.
4) Cash Flow
Cash flow is the heartbeat of your business, and maintaining a positive cash flow is crucial for day-to-day operations. What’s more, monitoring cash inflows and outflows allows you to manage your working capital effectively. With a healthy cash flow, you’ll be able to pay suppliers on time and avoid cash shortages that can hinder your business growth.
In this regard, entrepreneurs would benefit quite a lot from business banking online solutions. With a dashboard like Maya Business Manager, which is ideal for small business banking, you can monitor and track your cash flow accurately and in a timely manner.
5) Burn Rate and Cash Runway
Startup and SME owners must also learn to track their burn rate metric. This metric represents the rate at which a business spends its cash reserves to cover operating expenses before generating a positive cash flow.
In the same vein, cash runway refers to how many months a business can operate before running out of cash. Knowing these figures will help you plan for the future, especially in times of financial emergencies.
6) Customer Acquisition Cost (CAC)
Acquiring new customers is essential for growth, but remember that every new customer comes at a cost. The customer acquisition cost or CAC metric reveals just how much it costs to reach out to a new customer and accommodate their needs. This metric will allow you to calculate your marketing costs, as well as determine how to optimize them to acquire high-value customers. As a result, you’ll be able to maximize your return on investment with regard to how much effort you put into growing your audience.
7) Customer Lifetime Value (CLV)
Conversely, while it’s important to acquire new customers, you’ll want to put as much attention into retaining existing ones. To achieve this, you should look at the figures that comprise your customer lifetime value or CLV. This measures the average revenue generated from a customer for the duration of their relationship with your business. A high CLV indicates strong customer loyalty and satisfaction, which can lead to long-term business success.
8) Churn Rate
Churn rate measures the percentage of customers who stop using your products or services during a specific time period. This metric is relevant because high churn rates can lead to decreased revenue and hindered growth. If you’ve noticed significant changes in your churn rate, put the focus on customer retention strategies and enhancing the overall customer experience in order to boost your profitability.
9) Debt-to-Equity Ratio
Debt-to-equity ratio compares an organization’s total debt to its total equity. In other words, this metric reflects your company’s leverage and risk profile. While debt can be a valuable source of funding, managing it responsibly is crucial if you want your company to achieve financial stability. As such, aim to strike the right balance between debt and equity financing to optimize your capital structure.
10) Current Ratio and Quick Ratio
The current ratio and quick ratio are measures of short-term liquidity. The current ratio compares current assets to current liabilities, while the quick ratio excludes inventory from current assets. In short, these metrics provide insights into your ability to meet short-term financial obligations. Make it your goal to maintain healthy ratios to ensure you can cover immediate expenses and avoid cash flow crises.
Takeaway
While you can definitely hire an accounting firm to keep your books and file your taxes, as a business owner, you should know the bare-bones basics of maintaining your business’s financial health. That’s why it’s so important to learn about and keep track of your financial metrics.
These metrics will tell you the details of the story behind your business—nothing more, nothing less. Learn to decipher them using business banking Philippines solutions and other innovations, and you’ll be better poised to succeed in terms of your financial performance.
