All Posts
No items found.

5 Financial Metrics Every CEO Should Track

If you do a Google search on important financial metrics for your business, you’ll come up with dozens of “must-have” metrics. But you only need 3-5 to succeed!

June 17, 2024

If you do a Google search on financial metrics or KPIs that are most important for your business, you’ll come up with dozens of “must-track” metrics. But are all metrics created equally? Of course not! As a fractional CFO, I’ve helped countless businesses choose the best metrics for their business’ objectives and pain points. 

In this article, we’ll look at the top 5 financial metrics every CEO should track, and they include: 

  • Growth metrics
  • Profitability metrics
  • People metrics

KPI #1: Revenue Growth 

Growth will always be number one. Why? If you aren’t growing, you’re dying. Of course, growth isn’t the only metric that matters, but it is the lifeblood of your business. It directly measures how well your company is expanding its market presence and increasing its sales. It shows how well your marketing efforts and business strategies are working and is a sign that you’re on the right (or wrong!) path. 

Revenue growth measures the increase in sales over a specific period and pours fuel into all your other metrics, giving everything a boost. If you’re a hyper-growth tech business, you want to aim for an annual growth rate of 100% or more. For more mature companies, 20-30% annually could be considered strong. 

How to Measure Revenue Growth: 

Revenue Growth Rate = (Current Period Revenue - Previous Period Revenue/Previous Period Revenue) x 100

Calculate revenue growth by:

  1. Subtracting the previous period's revenue from your current period's revenue. 
  2. Then, divide that amount by the previous period's revenue. 
  3. Take that sum and multiply it by 100 to get your percentage. 

You can do this by quarter, year, or any period you like by subtracting the initial period from the current period, dividing that answer by the revenue of the initial period, and multiplying that amount by 100. 

For example, if your company’s revenue was $2 million in Q1 and $2.4 million in Q2, your revenue growth rate is 20%. 

(2,400,000-2,000,000/2,000,000)x100 = 20%

What Your Team Should Focus On To Grow Revenue 

  1. Customer Acquisition. To grow your business, you must bring on new customers. 
  2. Customer Retention. Happy customers stick around, so invest in strategies solely focused on customer happiness. 
  3. Product Development. Multi-product companies have more opportunities to make more money. 
  4. Market Expansion. Explore new markets and geographic regions to expand your customer base. This could be domestic or international. 
  5. Pricing. Experiment and iterate on your pricing strategies frequently to figure out what works best and to reflect the value you provide customers. 
  6. Sales efficiency. Make your sales team as effective as possible so they’ll close deals faster and increase revenue. 

Tracking revenue growth provides you with critical insights into your company’s performance. By focusing on bringing in new customers, making your current customers happy, product development, expanding into new areas, pricing, and sales efficiency, your team can drive revenue growth and help your company succeed long-term. 

KPI #2: Gross Margins

Gross margins are another key financial metric to keep track of. They give you a clear picture of your company’s financial health and operational efficiency. They show how well you’re managing resources, and optimizing this metric can lead to higher profit margins and better cash flow. 

Gross margins measure the percentage of revenue that exceeds the cost of goods sold (COGS) and indicate whether you have money to reinvest in the business after you’ve covered your direct costs. 

How to Measure Gross Margin

Gross Margin = (Total Revenue - COGS/Total Revenue) x 100

To calculate gross margin, subtract COGS from your total revenue, divide that by the total revenue, and multiply the answer by 100. 

For example, if your company’s total revenue is $5 million and COGS is $1.5 million, the gross margin is 70%. 

(5,000,000-1,500,000/5,000,000)x100 = 70%

That means that 70% of your revenue remains after covering direct costs. 

What Your Team Should Focus On to Grow Gross Margins

  1. Cost Management. Negotiate better terms with suppliers, optimize processes, and minimize waste. 
  2. Pricing. Again, you can evaluate and adjust pricing to ensure you’re pricing based on perceived value to the customer. 
  3. Product experimentation. Going multi-product or assessing your current offerings allows you to promote higher-margin items. 
  4. Automate. Leverage AI and automation to streamline your processes as much as possible. 

Your team can ensure your business stays competitive and profitable by improving gross margins. 

KPI #3: Burn Rate

You probably hear a lot about burn rate and burn multiples. Why do they matter? In the fast-paced world of startups and hyper-growth companies, they provide valuable insights. 

Burn rate measures how quickly you're spending cash reserves. It’s an important metric to understand your cash flow and runway. Tracking your burn rate ensures you aren’t depleting your resources too quickly to survive. 

Burn multiple takes it further and evaluates how efficiently you use cash to generate revenue. If that's your business model, it measures the amount of money burned to create one dollar of annual recurring revenue (ARR). This number is more attractive if you’re raising or have already raised money from investors. 

How to Measure Your Burn Rate and Burn Multiple

Gross Burn Rate = Total Monthly Operating Expenses 

Net Burn Rate = Total Monthly Operating Expenses - Monthly Revenue

Burn Multiple = Net Burn/Net New ARR

For example, if your net burn is $30,000 per month and your net new ARR is $10,000, your burn multiple is 3. This means you’re spending $3 to generate $1 of ARR. Or, if you burned $500,000 and added $1,000,000 in ARR, your burn multiple is .5x. A healthy burn multiple is .5x, but 1 to 1.5x means your company is close to breaking even. 

Companies with significant venture capital use burn multiples to show problems within the company, like low gross margins or poor sales efficiency. A lower burn indicates better efficiency and a higher likelihood of product market fit. 

What Your Team Should Focus On to Improve Burn Rate and Multiples

  1. Cost Management. We’re in a world where growth and efficiency matter. Identify and reduce unnecessary expenses to reduce this number. 
  2. Revenue Growth. Optimize metric #1 without increasing expenses, and you’ll organically improve your burn rate along the way. 
  3. Customer Acquisition Costs. Experiment with strategies to lower the cost of acquiring customers. 
  4. Operational Efficiency. You see the theme here. Efficiency is the name of the game when it comes to cutting costs. Streamline your operations and watch that burn rate go down. 
  5. Product Market Fit. If you have great product market fit, you increase the likelihood of more sales and lower churn, improving both metrics. 
  6. Scenario Planning. Have a fractional CFO or finance expert regularly conduct scenario planning so you understand the impact of different strategies on your burn rate and runway. 

By understanding and optimizing these metrics, you help improve investor confidence and the long-term well-being of your business. By lowering your burn, you can drive growth and profitability. 

KPI #4: NRR and Churn

Like burn rate and burn multiple, Net Revenue Retention and churn can go hand-in-hand, depending on your business model. If you have recurring revenue, NRR works, and if you don’t, churn is a great metric that provides deep insights into customer behavior and the health of your revenue streams. 

NRR measures the percentage of recurring revenue retained from existing customers over a period of time, including upsells, cross-sells, and downgrades. But it excludes new customer revenue. 

Churn measures the percentage of customers who stop doing business with you and is a powerful indicator of your customer success strategies. High churn rates can signal product, service, or customer experience issues. 

Both of these metrics have to do with customer success and customer happiness. We all want happy customers because it builds brand loyalty and virality. 

How to Measure NRR and Churn

NRR = (Revenue at End of Period - Churned Revenue + Expansion Revenue/Revenue at Start of Period) x 100

Churn = Customers Lost at End of Period/Customers at Start of Period) x 100

NRR is calculated by taking the total revenue from existing customers at the end of a period, including upsells and cross-sells. Dividing that number by the total revenue from those same customers at the beginning of the period and multiplying the answer by 100. 

For example, if you start with $1 million in revenue from existing customers, lose $100,000 due to churn, and gain $200,000 from upsells, your NRR is 110%. 

(1,000,000-100,000+200,000/1,000,000) x 100 = 110%

Your churn rate is calculated by dividing the number of customers lost during a period by the number of customers at the start and then multiplying that by 100. 

For example, if you start with 1,000 customers and lose 50 during the quarter, your churn rate is 5%. 

(50/1000) x 100 = 5%

What Your Team Should Focus On to Improve NRR and Churn

  1. Customer Success. If you don’t have a dedicated customer success team, you should invest in one. These people shouldn’t be tied to revenue goals and, instead, focused solely on making customers happy. 
  2. Customer Feedback. Constantly be gathering customer feedback to help improve your product, onboarding processes, and communication. 
  3. Engagement and Training. Ensure a smooth onboarding process with ongoing training to help customers get the most out of your product, and regularly engage with them to stay top of mind. 
  4. Use Data. Use your data to identify patterns in customer behavior to predict trends and remedy problems. 

Tracking NRR and churn provides insights into customer satisfaction, revenue stability, and growth potential. High NRR and low churn rates signal a healthy, thriving company and provide a solid base for future growth. 

KPI #5: Cash Flow and Profit

Cash flow measures the inflow and outflow of cash and helps you understand your company’s liquidity and ability to meet short-term obligations. Positive cash flow ensures you can cover expenses, invest in growth opportunities, and weather financial challenges that come up for most growing businesses at one time or another. 

Profit, however, measures how much profit you’re making after all expenses have been deducted from revenue. It shows your overall financial performance and the long-term viability of your company if you stay on your current path. 

How to Measure Cash Flow and Profit

Operating Cash Flow = Net Income + Non-Cash Expenses - Changes in Working Capital

Net Profit = Total Revenue - Total Expenses

Cash flow is calculated by adjusting your net income for non-cash items and changes in working capital. For example, if your net income is $500,000, non-cash expenses are $100,000, and changes in working capital are -$50,000, your operating cash flow is $650,000. 

500,000+100,000-(-50,000) = $650,000

For net profit, if your total revenue is $1,000,000, COGS is $400,000, operating expenses are $300,000, and taxes and interest are $50,000, your net profits are $250,000. 

What Your Team Should Focus On to Improve Cash Flow and Profit

  1. Cost Management. Keep an eye on unnecessary expenses if you want to improve these numbers. 
  2. Revenue Growth. Find ways to increase revenue! 
  3. Streamline Operations. By automating and streamlining operations, you can reduce costs and improve efficiency. 
  4. Cash Flow Management. Monitor and manage your cash flow closely. 
  5. Optimize Profit Margins. Analyze your profit margins and find areas for improvement. 
  6. Invest in Growth. Growth is still number one, and it solves a lot of problems when you combine it with strategies that drive efficiency. 

You don’t want to track a million different metrics as a CEO or founder. Instead, pick 3-5 that are important to your current business objectives and problems. By understanding and doing an honest assessment of each, you can make better-informed decisions, drive growth and profitability, and ensure the long-term success of your company. 

How to Cut Costs, Not Corners with an Outsourced CFO

How can you cut costs for your startup without hiring a full-time CFO? A fractional CFO is the answer and here’s why. 

4 NetSuite Hacks To Optimize Your Supply Chain

To gain a competitive advantage in today’s fast-paced world, you have to stay on top of supply chain challenges. Utilize these 4 NetSuite hacks to optimize your supply chain and boost your bottom line. 

7 Common Bookkeeping Mistakes That Hurt Profitability From A Fractional CFO

Are you making these seven common bookkeeping mistakes that are hurting your profitability? Follow the tips in this blog post to protect your bottom line. 

6 Budgeting Tips for Business Success from a Fractional CFO

Read these 6 budget tips to help you define a clear financial roadmap for every decision you make as a company, and to drive a culture of financial accountability. 

Top 7 Reasons Mid-Market Leaders Choose NetSuite’s Cloud ERP

If you’re managing complex financial situations on outdated systems, it’s time to upgrade to this customized-to-fit-all solution of NetSuite’s Cloud ERP. 

When Is The Right Time To Hire A Fractional CFO

When is the right time to hire a fractional CFO? When you meet at least one of these five criteria.

The 7 Best Tax Strategies for Scaling Businesses from a Fractional CFO

As a business, you want your money working for you as efficiently as possible. Follow these 7 best tax strategies to reduce tax liability and grow your business. 

10 Ways NetSuite Helps Optimize Cash Flow and Minimize Burn Rate

Are you a founder or CEO struggling with cash flow problems and an out-of-control burn rate? Read the top 10 ways NetSuite can help solve all your biggest financial problems within a single solution.

EBITDA vs. Free Cash Flow: Which Metric Matters More?

EBITDA vs. free cash flow are two financial metrics that often find themselves head-to-head for companies between $2 million and $10 million in revenue. Which is better?

3 Signs Your Business Is In Desperate Need of a Fractional CFO

Do you have leaky cash flow problems, inaccurate forecasting, and a general lack of time or money to manage your organization’s financials? It may be time to hire a fractional CFO to save your business.

Solid financial reporting can help attract debt and equity financing

Financial reporting plays a key role when a business needs funds for continued operations and strategic investment opportunities.

Did your business buy the wrong software?

No one likes to make a mistake. This is especially true in business, where a wrong decision can cost money, time and resources. According to the results of a recent survey, one of the primary ways that many companies are committing costly foibles is buying the wrong software.

Best practices for M&A due diligence

Participating in mergers and acquisitions (M&A) offers growth opportunities for businesses, but also comes with its share of risks. It's crucial for buyers to have a thorough understanding of the strengths and weaknesses of potential partners or acquisition targets before proceeding with any deals.

Perform an operational review to see how well your business is running

In the wide, wide world of mergers and acquisitions (M&A), most business buyers conduct thorough due diligence before closing their deals. This usually involves carefully investigating the target company’s financial, legal and operational positions.

Tax-favored Qualified Small Business Corporation status could help you thrive

Opting to run your small enterprise as a Qualified Small Business Corporation (QSBC) might be a smart tax strategy.

Navigating Year-End Finances: A Real Estate Broker’s Guide to Cost-Effective CPA Solutions

As a real estate broker, you're accustomed to navigating complex deals and managing a multitude of tasks. However, when it comes to managing year-end finances, even the most seasoned brokers can find themselves in murky waters

Unleashing the Power of NetSuite: Why Your Business Needs an Expert CPA Firm

In the realm of business management, NetSuite stands out as a powerful tool designed to streamline operations and enhance financial visibility.

Financial Mastery Without Full-Time Costs: The Strategic Edge of Fractional CFOs for Tech Leaders

In the ever-evolving landscape of the tech industry, where innovation is the currency of success, financial management plays a pivotal role in shaping the trajectory of your tech firm.

New Year, New Numbers: Top 10 Accounting Priorities for a Smoother Tax Season

As the calendar flips to a new year, business owners find themselves at the threshold of a crucial period—tax season

Countdown to Tax Time: Affordable CPA Strategies for E-Commerce Success

As an e-commerce business owner using the powerful NetSuite platform, the countdown to tax time can bring both anticipation and anxiety.

Key 2024 inflation-adjusted tax parameters for small businesses and their owners

The IRS recently announced various inflation-adjusted federal income tax amounts. Here’s a rundown of the amounts that are most likely to affect small businesses and their owners.

Best practices for effective board meeting minutes

If you think the recorded minutes of your nonprofit’s board meetings are just a formality, think again

Businesses: Know who your privileged users are … and aren’t

Given the pervasiveness of technology in the business world today, most companies are sitting on treasure troves of sensitive data that could be abducted, exploited, corrupted or destroyed

Accounting for M&As

Business merger and acquisition (M&A) transactions have significant financial reporting implications. Notably, the company’s balance sheet will look markedly different than it did before the business combination.

Using QuickBooks to prepare 2024 budgets and forecasts

As year end nears, many businesses and nonprofits are planning for 2024. QuickBooks® provides budget and forecast features to help management make financial predictions, as well as assess “what if” scenarios to help make more-informed business decisions.

Tips for QuickBooks users: 5 mistakes to avoid during bank reconciliation

Reconciling bank accounts is critical to ensuring the accuracy of your company’s accounting records. The primary purpose of a bank reconciliation is to confirm that the transactions recorded in your bank statement match those shown in your accounting records.

Shareholder advances: Debt or equity?

From time to time, owners of closely held businesses might need to advance their companies money to bridge a temporary downturn or provide funds for an expansion or another major purchase

Revitalize Sales Strategies for the Digital Marketplace

E-commerce business owners, as the year draws to a close, you and your leadership team are likely fine-tuning your vision for 2024.

Maximizing Cash Flow in Real Estate: The Power of Cost Segregation Studies

Is your real estate business fully capitalizing on the depreciation of your property investments?

Some businesses may have an easier path to financial statements

There’s no getting around the fact that accurate financial statements are imperative for every business. Publicly held companies are required to not only issue them, but also have them audited by an independent CPA

Key Performance Indicators (KPIs) for SaaS Businesses: A Comprehensive Guide

Software as a Service (SaaS) has revolutionized the software industry. The transition from traditional software licensing models to subscription-based, cloud-hosted services offers businesses scalability, flexibility, and significant cost benefits

3 types of internal benchmarking (KPI) reports for businesses

As each year winds to a close, owners of established businesses can count on having plenty of at least one thing: information.

Are you ready for year-end inventory counts?

As year end approaches, it’s time for some calendar-year businesses to perform physical inventory counts. This activity is more than a time-consuming chore; it’s an opportunity to improve your company’s operational efficiency.