Top KPIs for Managing Performance and Profitability

Top KPIs for Managing Performance and Profitability

February 23, 2018 | Scott Soucy

Tracking the right metrics on your business dashboard can help you achieve your goals

Love the idea of being able to see all of your company’s top metrics in one place, but not sure what you should be looking at?

A customized business intelligence dashboard shows you a real-time, high-level overview of your company’s key performance indicators (KPIs) so you can see at a glance how your business is performing. By automatically tracking the right metrics up front, your dashboard can help you turn data into actionable insights to improve your company and enable you to get back to running – and growing – your business faster.

Designing your business intelligence dashboard on Kaufman Rossin Connect is an important part of the onboarding process when you become a real-time accounting client with Kaufman Rossin. Our team will help you set up your dashboard with the KPIs that matter most to your business.

So how do you decide which KPIs should be front and center?

While the specific metrics your company tracks will vary based on the type of company and the business goals, the following KPIs are a good starting point for measuring performance and profitability at almost every company.

  1. Gross Revenue (aka Gross Sales) – This top-line KPI shows the total earned from the sale of goods or services. It does not take into account expenses, deductions, allowances, or other costs that could affect the bottom line. A company’s gross revenue measures sales performance, but not necessarily profitability.
  2. Gross Profit Margin – This KPI measures the percentage of total sales revenue that a company retains after incurring direct costs. Gross profit margin shows revenue minus direct costs, expressed as a percentage.
  3. Net Profit Margin – You may have the ability to earn revenue, but how much do you have left after accounting for all of your expenses? This indicator, expressed as a percentage, helps you see how much of each dollar collected as revenue translates into net profit.
  4. Accounts Receivable (A/R) – How much do your customers owe you? Can you manage your cash flow without collecting your receivables? Late-paying customers are more likely to default. Accounts receivable also helps you derive what you have sold to customers even if not collected yet. Keeping track of uncollected amounts and how long it takes your company to collect those payments on average can give you a clearer picture of your cash inflows than simply tracking cash collections. The ability to gain insights from accounts receivable is one of the advantages of using the accrual method instead of the cash method of accounting.
  5. Current Ratio – The current ratio is a measure of a company’s liquidity, which is a firm’s ability to pay its short-term obligations. This KPI is the ratio of your current assets versus your current liabilities
  6. Days of Cash on Hand – This KPI shows how long your organization theoretically can continue to pay its current bills/liabilities without an additional cash injection. Consider this cash measure along with total cash on hand, current ratio and cash flow to understand your company’s liquidity.

Expanding your business intelligence dashboard

The top-level indicators outlined above are a good place to start building your business intelligence dashboard to track profitability and performance. After that, you can drill down further to gain more insights based on your company’s goals. For example, if your business has multiple locations, product lines or service lines, you may want to collect and measure data at the lowest possible levels – per office location, product line or service line – in addition to tracking KPIs for the company as a whole.

You may also want to incorporate KPIs that are specific to your industry or type of business (e.g., days in inventory for a manufacturer or reimbursement rate for a dental practice). Competitive benchmarking (i.e, comparing your metrics to industry standards) and looking at trends overtime are valuable ways to use data to identify opportunities to improve performance and profitability at your business.

Tracking the right KPIs is imperative to making it work. The more tailored your business intelligence dashboard is to your needs, the more valuable it will be in helping you to achieve your business goals. Contact me or another member of the Kaufman Rossin Connect team to learn more about best practices for tracking key performance indicators and designing an actionable business intelligence dashboard.

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Scott Soucy, CPA, CGMA, is an outsourced services principal in the Naples office of Kaufman Rossin, one of the top 100 CPA and advisory firms in the U.S. Scott leads the firm’s real-time accounting practice, which is powered by Kaufman Rossin Connect. You can reach Scott at ssoucy@kaufmanrossin.com.