10 Key Financial Metrics Every Small Business Should Track

By Greg Grzesiak Greg Grzesiak has been verified by Muck Rack's editorial team
Published on December 15, 2023

To uncover the key financial metrics pivotal for small business success, we’ve gathered insights from ten industry leaders, including COOs and a content writer. From the importance of monitoring Net Revenue Retention to focusing on profit margins for success, these executives shed light on the numbers that truly matter.

  • Monitor Net Revenue Retention
  • Gain Cash Conversion Cycle Insights
  • Choose Metrics That Fit Your Goals
  • Keep a Close Eye on Cash Flow
  • Assess Your Quick Ratio Regularly
  • Optimize Customer Acquisition Costs
  • Track Spending for Smart Pricing
  • Manage Accounts Receivable Turnover
  • Ensure Monthly Liquidity Checks
  • Focus on Profit Margins for Success

Monitor Net Revenue Retention

Most business owners pay attention to the basics—revenue, growth rate, ARR, etc. But one of the most overlooked, yet essential, financial metrics to pay attention to, especially for SaaS, is net revenue retention (NRR).

NRR, calculated by factoring in upsells and discounts while excluding churn-related losses, gauges a company’s ability to retain and expand revenue from existing customers, offering insight into the health and sustainability of a business’s customer base. A high NRR signifies not just retention; it also showcases a strong customer relationship and an understanding of their needs.

On the other hand, a low NRR can indicate inadequate customer support, failure to meet evolving customer needs, or an inability to showcase the value of additional products and services. Ultimately, NRR tracks long-term customer loyalty, reflecting enduring relationships built on trust, satisfaction, and ongoing value delivery, which can be a predictor of long-term success for your startup.

Keith Harrington
Co-Founder and COO, Novel Capital

Gain Cash Conversion Cycle Insights

The Cash Conversion Cycle (CCC) is an important financial measure that small business owners should monitor regularly. The CCC is a metric that quantifies how long it takes a business to generate cash flow from sales after investing in resources, such as inventories.

Monitoring the CCC gives business owners important information about how to run their operations more efficiently, which helps them improve liquidity and streamline procedures. A shorter cash conversion cycle indicates easier access to capital, which lowers the requirement for outside funding and enhances general financial stability. This special emphasis on the CCC enables small business owners to improve cash flow management, maximize working capital, and react quickly to market needs.

By comprehending the mechanics of cash conversion, businesses may preserve flexibility and resilience in a competitive environment, which will eventually contribute to long-term growth and success.

Eli Cohen
Co-Founder, The ADU Guide

Choose Metrics That Fit Your Goals

This depends on several factors. How are you funded? If you are bootstrapped, it is hard-pressed to think of a more important metric than your net profit and run rate. If you are VC-backed, then looking at your LTV to CAC ratio (should be higher than 3) is advisable. Another thing to keep in mind has to do with what your goals are.

Are you willing to burn through some money and sacrifice net profit to gain more clients? Are you in a slowdown but want to retain your talented team? Those scenarios can come up, and as a business owner, you will need to make decisions based on what type of company you want to run.

All the financial metrics that build off your P&L are important. Which one is the most important has to do with you.

Rocky Pedden
President, RevenueZen

Keep a Close Eye on Cash Flow

Cash flow is a crucial financial indicator that small business owners need to keep a close eye on. It shows the net amount of cash and cash equivalents coming into and going out of an organization; this metric is very important. It gives an accurate view of the company’s liquidity and capacity to pay for investments and expenses.

While negative cash flow can suggest the need for quick attention to manage debts and operating costs, positive cash flow indicates a company’s solid financial health, allowing for development and expansion.

Katy Dubinsky
Doctor of Pharmacy, Vitalize

Assess Your Quick Ratio Regularly

The quick ratio is a good thing to do on a weekly or even daily basis. The ratio is current assets minus inventory, divided by current liabilities. Most businesses will want to have a quick ratio greater than one.

More importantly, find out what the natural quick ratio is for your business. Asset-heavy businesses may require much higher quick ratios due to unexpected CapEx. Asset-light businesses with long vendor terms can operate with much lower quick ratios. In every case, there is a natural, healthy state; falling too far below that spells trouble.

Trevor Ewen
COO, QBench

Optimize Customer Acquisition Costs

Customer Acquisition Cost (CAC) helps assess the efficiency of your marketing and sales efforts. To lower CAC, focus on targeting the right audience and refining your marketing channels for better ROI. Conduct A/B testing and analyze customer data to fine-tune your acquisition strategies continuously.

Shawn Plummer
CEO, The Annuity Expert

Track Spending for Smart Pricing

One metric you should never lose sight of is the dollars spent. You need to know where your money’s going so you don’t end up overspending. Plus, knowing exactly what you’re spending helps you price your services right. It’s all about balance—spend wisely, price smartly, and everything will work out!

Loren Howard
Founder, Prime Plus Mortgages

Manage Accounts Receivable Turnover

Small businesses must manage their accounts efficiently to maintain a healthy and stable cash flow. With accounts receivable turnover, you’ll be able to collect outstanding and unpaid invoices. When the turnover ratio is high, it indicates quick collection of pending payments, efficient credit management, and healthy cash flow.

On the other hand, a low turnover ratio means poor collection. This metric can help small businesses set optimal credit policies, improve collection strategies, and build lasting customer relationships.

Logan Nguyen
Co-Founder, NCHC.org

Ensure Monthly Liquidity Checks

Small businesses always need to ensure they have enough cash on hand to cover costs and any potential liabilities. We should assess and track this metric monthly in accounting software. Also of note is the need to have an emergency fund in case liquidity is lost.

Jarir Mallah
Human Resources Manager, Ling App

Focus on Profit Margins for Success

This one comes from my father. He has run multiple successful businesses throughout his life, and he always used to talk about “margin.”

As a 10-year-old hearing this, I never understood what he meant—obviously. But as I grew up and started companies myself, I realized exactly what he meant. From here on, I’ve always focused on margin.

Margin is the amount of profit you gain per sale of a product or service. To break it down as a calculation, it would look like this:

Sale price – Cost associated with the product = Margin

There are other factors you need to keep in mind, in the sense that you need to deliver quality products/services, which often results in higher associated costs. However, if you can keep your margins high yet still deliver quality, you’ll be well on your way to a successful business.

Jake Perry
Content Writer, Jake Perry Writes

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By Greg Grzesiak Greg Grzesiak has been verified by Muck Rack's editorial team

Greg Grzesiak is an Entrepreneur-In-Residence and Columnist at Grit Daily. As CEO of Grzesiak Growth LLC, Greg dedicates his time to helping CEOs influencers and entrepreneurs make the appearances that will grow their following in their reach globally. Over the years he has built strong partnerships with high profile educators and influencers in Youtube and traditional finance space. Greg is a University of Florida graduate with years of experience in marketing and journalism.

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