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Numbers to Nail in Business: The Metrics That Actually Matter
From profit margin to cash flow, master these key metrics and put yourself in the driver’s seat to business profitability, freedom and sustainable growth.
Estimated reading time: 9 minutes
Your profit and loss statement tells you what happened, not what to do next. The numbers that change decisions are gross profit margin, net profit, leads, your two conversion rates, client retention and team utilisation. Track them monthly from one source of truth, then work backwards from your revenue goal to know exactly which lever to pull.
Why knowing your numbers puts you in control
You’ve built something that works. That’s not luck and it’s not an accident. It’s years of good decisions, and your good instincts have helped you make every one of them.
Instinct is great for business. But instinct + numbers makes you unstoppable. Because instinct tells you when something feels off, but your numbers tell you exactly where, how much, and what to do to fix it.
When the market’s generous, momentum covers a multitude of average decisions. When it’s not, the businesses that keep moving forward are the ones whose owners can see clearly enough to act quickly. Not the ones working the hardest. The ones who know where to aim.
The good news is there are only about five numbers you need, you almost certainly have them already, and none of this requires you to become an accountant.
Here are the numbers you need to understand:
- Gross Profit Margin
- Net profit
- Pricing
- Cash flow
- Total inventory
If you need to brush up on what any of these are, how to calculate them or what to do once you have them, read on.
Potential Profit Calculator
1. How to Calculate Gross Profit Margin
A worked example
Say your consultancy billed $30,000 last month. The direct cost of delivering that work was $12,000 which covered contractor time, practitioner wages and project materials.
Gross profit → $30,000 − $12,000 = $18,000
Gross profit margin → $18,000 ÷ $30,000 = 0.6 × 100 = 60%
Why does Gross Profit Margin matter?
You want your Gross Profit Margin to be both robust and stable. A robust GMP means you’re covering your costs with enough left over to invest in other aspects of your business (and pay yourself well). A stable GPM means your pricing and your delivery costs are in step with each other. A GPM that moves around month to month is telling you something is wrong upstream– usually pricing, sometimes scope creep, occasionally a costing assumption you made three years ago and never revisited.
What we’d do
Compare your GPM to your own numbers from 12 months ago before you compare it to anyone else’s. The ATO publishes small business benchmarks if you want an industry reference point, but your own trend line is more useful (and less of a rabbit hole).
2. How to Calculate Net Profit
What is net profit?
What’s left after everything comes out. Not just what it cost you to deliver the work, but all your operating expenses, tax, subscriptions, rent, your weekly catered lunch, and your internet bill.
How to calculate it
Net Profit = Total Revenue – Total Expenses
Why does net profit matter?
GPM tells you whether the work itself is profitable. Net profit tells you whether the business is. Plenty of businesses have a healthy GPM and almost nothing left at the bottom, because the overheads grew to match the revenue.
What we’d do
Review your overheads every six months, properly. Not a quick glance, a thorough line-by-line look at what you’re paying for and how much value you’re getting from each item. Overheads have a habit of expanding into whatever space you give them, and they’re a particular problem when cash flow gets lumpy.
3. How to Calculate Prices for Your Business
What is the ‘right’ price?
Your pricing is the number that decides whether all your other numbers work or not.
Price too low and you carry the shortfall in your own pay (and that’s not why you started a business.) Price too high without the positioning to support it and your conversion rate will hurt. Most established businesses we see are sitting closer to the first problem than the second.
How to price properly:
Start with what it actually costs you to deliver, including your own time at a rate you’d pay someone else. Then look at the value the work creates for the client. Then look at the market — last, not first, because pricing to match your competitors assumes they’ve done the maths. Many of them haven’t.
A cost-plus starting point
Price = Cost + (Cost× Markup Percentage)
If delivery costs you $50 and you want a 20% margin, your price is $60.
Price = $50 + ($50×0.20) = $60
Remember, this formula should be the floor, not your end answer. That number covers your business expenses and doesn’t reflect what the work is worth.
What we’d do
Put a pricing review in the calendar annually and actually hold the appointment. Pricing isn’t set-and-forget, and the businesses that review deliberately end up in a very different position to the ones that only raise prices when something falls apart. Here’s more on getting your pricing strategy right.
Need help with your Pricing Strategy?
4. How to Manage Business Cash Flow
What is cash flow in business?
Cash flow is exactly what it sounds like: the flow of cash in and out of your bank account. It sounds simple, but managing both the what and the when of your cash flow takes some attention. Profitable businesses run out of money all the time– because they didn’t pay attention to the timing.
How to track it
Let your accounting software do it. Keep your cash flow statement current, watch the pattern across a few months rather than reacting to a single bad week, and know your monthly revenue, expenses and profit off the top of your head.
Why does cash flow matter?
There’s a reason cash flow is called the lifeblood of business. It determines what you can actually do. Whether you can hire. Whether you can invest in the thing that would take pressure off. Whether a slow month is an inconvenience or a genuine problem.
What we’d do
Set up automated bank feeds and reconcile regularly so you’re looking at real numbers rather than a three-week-old guess. Then build a forecast that looks forward at least 90 days. Reacting to your cash position is stressful. Anticipating it is smart admin.
5. How to Manage Inventory
What is total inventory in business?
If you run a product based business, inventory is how much stock you have on hand at any given time. Managing your inventory is a balancing act– too much stock ties up your cash and storage, while too little can see you lose out on sales opportunities.
How to manage it
Regularly review your inventory levels and compare them to your sales data.
Why does managing your total inventory matter?
Managing your inventory means you have the right amount of the right products available at the right time– without overcommitting your resources. Finding the balance is key to maintaining a healthy cash flow and customer satisfaction.
What we’d do
The ideal amount of inventory to keep on hand probably varies over time. Look at your inventory and sales data and take note of any times you were left short or holding too much. What patterns do you notice? Are there any seasonal considerations? The numbers are crucial, but remember that the numbers are part of a bigger picture.
Non-Financial Numbers in Your Business You Should Know
Understanding your financial numbers is crucial, but there’s more to business than just the figures on your balance sheet. Your financial numbers are determined by other numbers within your business. Here are the most important metrics to keep an eye on.
Lead Generation
How many people are actually looking at your business, and where did they come from? Tracking this is how you know your marketing is attracting the right audience and your sales process is doing its job.
Conversion Rates
Most people track one conversion rate. There are two, and they tell you different things. The first is enquiry to booked call. Someone fills in your form. Do they turn up in your calendar? If this number is low, the problem is in your follow-up, your booking process or the gap between what they expected and what happened next.
The second is booked call to signed client. They turned up. Did they say yes? If this number is low, the problem is in the conversation, the offer or the pricing — or you’re attracting people who were never going to be a fit.
Client Retention
Most businesses spend heavily on finding new clients and almost nothing on keeping the ones they’ve got. It’s a strange allocation, because selling to an existing client is significantly easier than winning a new one. Ask yourself:
How many clients are still with you 12 months after they started, and what happened to the ones who left?
What are your current clients not buying from you? There’s often a service they don’t know you offer, or one they assumed was for someone else. That’s revenue sitting in a list you already have.
Job Turnaround Time and Team Utilisation
How long does a job take to get in and out of your business? When this stretches, capacity drops and client experience drops with it, usually before anyone complains. What proportion of your team’s paid hours are producing billable work? Low utilisation is expensive. Very high utilisation is a burnout risk and a quality risk. You’re looking for a sustainable middle, not a maximum.
Is business revenue important?
Revenue is the number everyone quotes and the one that tells you least.
And it is important, but revenue alone does not paint an accurate picture of your business’s financial health because it ignores what it cost you to earn it. A business turning over $2M with the wrong cost structure can pay its owner less than one turning over $800,000. (We see it all too often.)
It also says nothing about quality. A spike driven by discounting, or one big client, or a one-off project looks identical on a chart to genuine sustainable growth. Right up until it doesn’t repeat.
It’s not about how much comes in. It’s about how much stays, and whether it’s going to happen again next quarter.
That being said, revenue is a great tool to use to reverse engineer your business decisions. Say you want to bring in an extra $100,000 this year.
Your average client is worth $10,000. So that’s 10 new clients.
You convert half the people you speak to. That’s 20 discovery calls.
Half the people who fill in your form actually book a call. That’s 40 enquiries.
So the goal isn’t “get more clients.” The goal is 40 enquiries, and now you can look at your marketing and ask a specific question — is what I’m doing capable of producing 40 enquiries this year?
Sometimes the answer is yes and you need to fix your conversion rate instead. Sometimes it’s obviously no, and you’ve just saved yourself a year of wondering why it isn’t working.
Ready to write your own bottom line?
You don’t need to love spreadsheets to run a profitable business. You do need to know which numbers are telling you something important and what to do when they change.
That’s the difference between a business you’re managing and one you’re actually designing. And in a tight market, it’s the difference between reacting to what happens to you and deciding what happens next.
We’ve been on both sides of the books – building, scaling and selling businesses, and reviewing hundreds of others. If you want someone to look at your numbers and tell you which lever to pull, that’s what we do.
