Financial Metrics That Every Business Should Track This Year

Many business owners make the mistake of conflating their ability to perform fundamental accounting with deeper financial literacy. Being able to balance your books is important, but it falls short of the dynamic understanding of your company’s financial health that you should possess. Strong financial acumen is necessary to effectively make critical, well-informed business decisions. Financial metrics are much more than reports of past performance; they serve as telltales of a business’s direction and its long-term solvency. So it is essential to track the numbers correctly and frequently. This is important stuff. The difference between businesses that are able to scale and those that ultimately stumble often boils down to how well they track key financial indicators.

Taking a deep dive into your business financials can feel overwhelming. How do you know what metrics to pay attention to and how often you should generate various reports? Well, we have created a list of the top 10 financial metrics every business owner should track this year, along with what the numbers reflect, why they matter, and what they reveal about the overall financial health of the organization. 

1. Cash Flow 

Poor cash flow is the number one reason that even profitable businesses shutter. You read that right, a profitable company can still lack the cash to sustain operations. This is because profit, as reflected in a P&L Statement, does not take into account the timing of when cash enters or exits the business. Factors like slow paying customers, rapid growth, and high fixed costs can substantially drag on a business and negatively affect cash flow. 

Cash flow is important to track, as it provides insight into whether you can hire on new talent, which is a fixed cost that requires ongoing cash availability. It also factors into how much inventory you can afford and your ability to make strategic investments in technology or other operational improvements.  

A very simple formula for cash flow is:
Business Profits - Business Expenses

Cash flow truly is the lifeblood of your business. So make sure you monitor it frequently.

Click here to read “5 Ways to Boost Your Company's Cash Flow.”

2. Gross Margin

Gross margin is a key financial metric that tells you how much profit the business is making on its main goods and services before factoring in taxes, overhead, or other expenses. The higher your gross margin, the more revenue you keep from each sale after covering costs of production and delivery. Low gross margins suggest your pricing might be too low or your production costs too high. Your gross margin also is a gauge of the business’s fundamental financial stability to potential lenders or investors. 

The formula for gross margin is:
Gross Margin = (Revenue - Cost of Goods Sold)/Revenue

Gross margin should be tracked at least monthly, but ideally weekly. This allows you to spot trends early and make important decisions on pricing adjustments and suppliers more expeditiously. 

3. Net Profit Margin

Your net profit margin is the difference between your gross margin and net margin. This metric tells you what profit remains after all expenses are accounted for.

The formula is: 
Net Profit Margin (%) = Net Profit/Revenue x 100

Sometimes topline growth can exist even when net profit margin is decreasing. This happens when revenue increases, perhaps due to selling more product, raising prices, or market expansion. The net profit margin can still shrink when costs are growing faster than revenue, discounts or incentives are offsetting profits, or investment in growth is eating up revenue. So even if you are selling more, you are keeping less.

Making business decisions based on net profit margin is not only smart, but also shrewd strategic leadership.

4. Revenue Growth Rate

This financial metric measures how fast a business’s sales are increasing or decreasing month-over-month, quarter-over-quarter, or year-over-year. It reflects how quickly a business is growing its topline.

The formula is: 
Revenue Growth Rate (%) = (Current Period Rev – Previous Period Rev)/Previous Period Rev x 100

Revenue growth rate show whether your business is growing, stagnating, or sliding. It also suggests the efficacy and health of sales and marketing initiatives. Investors often look to revenue growth rate to analyze business potential and expected performance.

Failing to quantify your revenue growth rate is risky. Without hard numbers, growth estimates based on merely perception can lead you down a path of poor business decisions.

5. Customer Acquisition Cost (CAC)

You have probably seen this term tossed around a lot on Shark Tank. CAC is the total cost involved in gaining a new customer including marketing, payroll, advertising, and promotions (and any other costs related to acquisition). 

The formula for the CAC metric is once again a simple one: 
Customer Acquisition Cost = Total Sales & Marketing Expenses/Number of New Customers

When the cost of acquiring a customer nears or surpasses the value that customer brings to your business, you have some important work ahead of you to get those numbers better aligned. Which brings us to the related metric of customer lifetime value.

6. Customer Lifetime Value (CLV)

CLV is the total revenue you can expect to earn from a single customer from their first purchase to their last. You want CLV to be substantially more than the cost it took to acquire that customer. A high CLV suggests a number of positive dynamics including strong customer engagement, loyalty, and perceived value. 

Calculating CLV:
CLV = (Average Purchase Value x Annual Purchase Frequency) x Customer Lifespan in Years x Profit Margin

Yes, this is digging deep into customer and purchasing data, but the information is invaluable. As you can see in the formula, customer retention can drastically increase CLV.

7. Burn Rate

The term burn rate sounds scary even before diving into what it actually means. It is a key metric that measures how fast a business is spending cash. It is often most relevant for startups or businesses working within very tight, finite budgets. Your burn rate tells you how fast you are “burning” through your cash reserves and really how long you can continue spending at the current rate without requiring access to more funding. 

There are two ways to consider this metric:
Gross Burn Rate = Total Monthly Expenses
Net Burn Rate = Monthly Expenses – Monthly Revenue

The distinction matters, as you are obviously in a much better position if your monthly revenue substantially offsets your monthly expenses.

Burn reflects a sometimes dramatic measure of “how long can we keep on going at this rate?” The good news is that high burn rates usually have many operational and financial options for mitigation.

8. Break-Even Point

As the term suggest, break-even represents the point in which your business revenue and costs are the same, meaning no profit and no loss. This metric is particularly useful for newer businesses and startups worried about survival, but also for more mature businesses to leverage during planning, price testing, or market expansion and contraction. 

The formula for the break-even point is:
Break-Even Revenue = Fixed Costs/Contribution Margin Ration
(where Contribution Margin Ratio = (Selling Price – Variable Cost)/Selling Price

Essentially your break-even point reflects how much you have to sell in order for the business to reach the threshold between losing money and generating profit.

9. Operating Expense Ratio

Your operating expense ratio reflects how efficiently your business is run by determining how much revenue is consumed by daily operating costs like salaries and benefits, lease and utilities, sales and marketing, administrative expenses, software cost, etc. It does not include cost of goods sold, interest, or taxes.

This metric is calculated as follows:
Operating Expense Ratio = Operating Expenses/Revenue

These numbers are important to monitor, as high operating expenses, particularly during growth phases, can quietly erode profit margins. There will naturally be times when operating costs skew higher than normal, so remember that trends matter more than a single data point. 

10. Forecast vs Actual Variance

Forecast vs Actual Variance is a metric that measures the difference between expected outcomes and actual results. It reflects how accurate your planning and forecasting are, as well as a way to rate business execution.

The formula for variance in dollars is:
Forecast vs Actual Variance = Actual Amount – Forecasted Amount

This can help analyze outcomes in areas like sales, costs, cash flow, or really any number of financial dynamics. Forecast vs variance is a very straightforward and revealing metric that reflects operational strengths, weaknesses, and how well forecast models perform. In a lot of ways, this information can act as a strategic conversation starter on how and why forecasting models were either on or off the mark. 

Are There More Financial Metrics You Should Track?

We have presented 10 important financial metrics here, but there are many others you may want to consider and that might be relevant to you like EBITDA, Return on Investment Capital (ROIC), Revenue per Employee, Inventory Turnover, Operating Expense Ratio, Debt-to Equity Ratio, and more. 

Remember, financial metrics aren’t scorecards and they don’t judge you. What financial visibility does do is empower you, the business owner, to make better, more informed decisions and build stronger, data-driven strategies.

Success shouldn’t be a guessing game. You need to know your numbers and be willing to dig deep to understand what they’re really telling you.