Table of Contents
The following links provide suggestions for monitoring ideas and indicators.
Cross-cutting guidance and resources
The following resources may be useful for identifying business performance indicators.
- The Business Owners Toolkit's Guidance on Business Ratios
- Business Development Canada Ratio Calculator
- Standard financial ratios are covered in any finance textbook. A useful textbook is: Financial Intelligence: A Manager's Guide to Knowing What the Numbers Really Mean. Karen Berman and Joe Knight. Boston: Harvard Business School Press, 2006.
Gross margin = gross profit ÷ sales x 100
(*Gross profit = sales - cost of sales)
Gross margin is a good indication of how profitable an enterprise is at the most fundamental level.
Net margin = net profit ÷ Sales x 100
(Net profit = sales - total expenses)
The net margin (before other income such as grants) shows how well you are doing as a business enterprise, taking into account the level of overheads against sales.
% of Revenue from Sales
This can show you at a glance the degree to which you rely on revenue that is not generated by product sales. You may also want to specifically track the % of revenue from grants, and in particular non-reoccurring grants.
Business Cost Recovery
business cost recovery = total business costs ÷ sales revenue
(Total business costs are total costs net of ‘social costs'. Social costs can be determined using the Social Costs Worksheet.) This metric shows the degree to which business revenues are covering business costs. The ratio has been developed by the Toronto Enterprise Fund.
Return on Assets
Return on assets = net profit ÷ total assets
This shows your earnings from the assets you control. Generally you want to see a high return on assets to know that your assets are being used productively (though if its above the industry norm it can mean you aren't renewing your asset base for the future).
Current Assets ÷ Current Liabilities
This shows whether you can pay back your short-term liabilities (debt and payables) with your short-term assets (cash, inventory, receivables). So basically, it is an indicator of your business' ability to pay its bills, though it doesn't reflect the timing of cash received and paid out.
Quick Ratio (Acid Test Ratio)
(current assets - stock) ÷ current liabilities
This ratio is the same as the current ratio without including inventory. It indicates the extent to which you could pay current liabilities without relying on the sale of inventory - how quickly you can pay your bills.
You could track indicators that show change in income and/or change in profit, to understand if it is occurring at a rate that is sustainable for the social enterprise.
Revenue (and/or profit) generated for the Non-Profit Parent Organization
If an objective of the enterprise is to generate revenue for a nonprofit parent organization, it would be useful to track this indicator annually and/or cumulatively.
Note: there are many other financial ratios that you can calculate from information in your financial statements. These commonly fall under, liquidity ratios, efficiency ratios, profitability ratios and solvency ratios. For more information refer to the resource links listed in the sidebar.
Sales are a key results indicator for any business. It is very useful to look at sales trends (monthly, weekly, etc.). Are sales increasing? Decreasing? Flat? It is especially important to compare the trends of sales growth of the enterprise with the general current trends of the industry. For example, if the market is growing at a rate of 20% annually, and the enterprise is growing by 5% annually, it can be interpreted that the enterprise is under-performing and an analysis as to why this is the case should be undertaken.
The # of customers is another key results indicator for many businesses. This can be differentiated into customer segments (different times of days, different markets). As with sales, examining trends can also be insightful. You may also want to focus on certain elements. For instance, what is your rate and cost of customer acquisition, and what is your customer retention rate, particularly for ‘valuable' customers (those who have purchased recently, who have purchased frequently, and who have spent the most money).
While customer tracking can indicate whether you are successful in developing new customers and retaining your current ones, a customer satisfaction survey can uncover much more detailed information about how you can improve your product and services.
You may want to track how long it takes to do something, such as how long it takes to produce a product, or to specifically deliver a good or service.
Materials and Energy Efficiency
You may be interested in tracking how well materials and energy are used in producing a good or service. This can also be expressed in terms of wastage, for instance in materials or energy use.
You may be interested in tracking a specific production cost that important to your product (or keeping costs within a certain share of total production costs).
You could measure the actual use of equipment or other capital (e.g. building space) in the enterprise, relative to potential use. Potential use could be a measure of ‘engineering or maximum yield' (output if operating 24 hours a day, 7 days a week), or a ‘maximum practical capacity' which takes into account practical limitations (e.g. schedules).
You may want to monitor safety incidences, and compliance with regulatory standards.
Inventory / Assets indicators
You may want to track indicators that relate to how quickly your inventory turns over, how quickly you pay bills and collect on those that owe you.
You may want to track incidences where products went out, that didn't meet a standard that you had set (quality ‘escapes'). This could be tracked through customer complaints, or through quality checks at a later stage, but prior to delivery. Another indicator that could be tracked is orders lost due to lack of availability (service or stock availability).