Financial management is one of the most important internal processes for any business. In fact, meticulous financial management ensures stability, tax compliance, and good record keeping, and ultimately facilitates business growth.
But that's just the tip of the iceberg. Careful management of your business finances and the use of the right budgeting tools play a vital role in driving growth across the entire organization.
To manage your finances effectively and achieve better results over time, you need to put Key Performance Indicator (KPI) finance into your financial processes.
These financial KPIs help ensure you’re hitting your targets and give you granular access to monitoring, resource allocation, and forecasting. In other words, setting and tracking the right KPIs will prevent financial waste and the old enemy of profits: discretionary spending.
In short, financial KPIs help create ROI (return on investment) positive for your investments.
Top 7 Financial KPIs for Growth
Here are the financial KPIs you need to include in your financial strategy to drive growth in 2025.
1. Revenue concentration
Do you know where your revenue comes from and how it is distributed among different customer segments? Do you know which customers pay the most or which customers actually cost more than they bring in to your business?
These are the types of questions you can answer by following along. revenue concentrationIn short, revenue concentration allows you to identify which customers, projects, and processes generate the most revenue over a given period of time, displayed as a percentage of your total revenue.
This is very important to intelligent and predictive resource allocation, but it also helps you reduce business costs by focusing on the most valuable revenue streams while eliminating underperforming ones.
You also need to pay attention to the Revenue Cycle Management KPI in this context. This is the best way to gain meaningful insights into the ebb and flow of your cash flow over time, so you can make informed decisions about how your different revenue streams are contributing to your company's success.
Use this formula to calculate your revenue concentration, or how much one revenue source contributes to your total revenue as a percentage:
(Revenue from one source / Total revenue) x 100 = Revenue concentration
Tracking revenue concentration helps you identify which customers and projects are really driving your business forward.
2. Sales growth rate
One of the most important financial KPIs that every sales team and every business owner should track is growth rate. This metric shows how quickly you are closing more sales within a predetermined time frame. This in turn highlights which areas of your sales strategy are working best, as well as those you need to tweak and optimize.
It is important to note that you need to track this and other growth metrics over time to generate relevant data and draw reliable insights. Use this formula To calculate your sales growth rate:
(Current net sales – Previous period net sales) / Previous period net sales) x 100 = Sales growth rate
Your sales growth rate must be a positive percentage. If your current net sales are £5,000 and last quarter's net sales were £8,000, then you would have a negative sales growth rate of -37.5%.
Apply this formula to your sales figures to determine whether you are making or losing money, and by how much. A consistently positive growth rate shows that your sales strategy is working.
3. Financial costs by department
Every department in your company can be making a profit or losing money. It is often the responsibility of senior management to make smart investments and stop financial leaks as best they can. However, financial leaks can often go unnoticed, especially if you don’t track each department’s spending.
For example, you need to know how much revenue your marketing department is generating through all of their campaigns and efforts, versus how much they are spending on those campaigns and tools. The best digital marketers will focus on minimizing costs and investments while meeting their own marketing KPIs and goals.
The same goes for any other department in your organization. But remember that not all departments will produce clear financial insights. Sales, marketing, and support departments will have clear reports on costs versus profits, while other departments like HR and operations will need long-term tracking to produce reliable ROI reports.
Track your department's investments and compare them with the results it generates over a specific period of time to see if it is making a profit or a loss.
Analysis financial costs by department Enable targeted improvement across your entire organization.
4. Net profit margin
Net profit margin is an essential indicator of your company's total profit over a given period of time. This is the profit your company makes after deducting operating and non-operating expenses.
Operating expenses include rent and utilities, for example, while non-operating expenses include taxes and debt payments. Net profit margin is an important part of budget control, and tracking this KPI tells you how profitable your business is and shows you the potential money you can bring in.
Use this formula to calculate your net profit margin:
(Net Profit / Revenue) x 100 = Net Profit Margin
Gross profit margin
Unlike net profit margin, Gross profit margin (also known simply as “profit margin”) only considers cost of goods sold and overhead, excluding all operating expenses. By calculating gross profit margin, businesses can determine how much profit they are making on each unit of sales revenue, expressed as a percentage.
The higher the profit margin, the more efficient a business is at controlling operating costs and generating profits. Tracking gross profit margin can help businesses identify areas where they can improve profitability and make informed decisions to optimize their operations.
Use this formula for gross profit margin:
(Gross Profit / Revenue) x 100 = Gross Profit Margin
Tracking both net profit margin and gross profit margin will give you a comprehensive picture of your company's profitability.
5. Debt to equity ratio
Get acquainted with debt to equity ratio yours, because this is another important financial KPI that you need to track to determine your company's debt level compared to the initial amount invested by the owners.
The debt-to-equity ratio can help your finance department better understand where and how to invest back into your business to maximize your profits.
Use this formula to calculate your debt-to-equity ratio:
Total Liabilities / Equity = Debt to Equity Ratio
Needless to say, it is important to have a low debt-to-equity ratio when applying for loan extensions or new business loans, as this is one of the main factors that potential lenders will evaluate before approving a loan for you.
Monitoring the debt-to-equity ratio helps maintain a healthy balance between debt and equity.
6. Receivables turnover
Do your customers pay on time? Receivables Turnover is a financial KPI that tells you whether your customers are paying their bills regularly and on time, and it can tell you which customers are falling behind and hindering your cash flow.
The typical invoice payment period is 30 days. And it’s important that every customer pays their invoice before the due date. That’s money you can count on each month, resulting in a steady cash flow that you can use to ensure operational efficiency and invest back into your company.
Tracking this KPI allows you to eliminate late payers and optimize your invoicing process so you maintain control of your cash flow and maximize your business spending without jeopardizing your working capital.
Use these formulas to calculate your receivables turnover:
Annual Net Credit Sales ÷ Average Accounts Receivable = Accounts Receivable Turnover
To calculate credit sales:
Outstanding Amount – Advance Fees or Completed Payments
To calculate average receivables:
(Beginning receivables + Ending receivables) / 2
Improving your receivables turnover will directly improve the stability of your cash flow.
7. Working capital
Final, working capital Your cash flow is the amount of money you spend on your day-to-day processes and operations. This financial KPI determines the overall health and status of your balance sheet, telling you whether you are operating in a deficit over a period of time, which can have negative consequences for your company in the long run.
If you are operating at a deficit, you may need to take on debt to maintain operating efficiency until you improve your sales growth rate.
Use this formula to calculate your working capital:
Current Assets – Current Liabilities = Working Capital
Tracking this KPI will help you make better decisions to improve your cash flow. This could include encouraging your customers to pay a portion of their bills upfront, scaling back inventory to only keep products in demand, or identifying and cutting unnecessary expenses.
Maintaining positive working capital ensures your business can meet short-term obligations and continue operating smoothly.
Track the right financial KPIs
Setting and tracking the right financial KPIs can make a huge difference for your business in a competitive industry. Now more than ever, it’s important to stay on top of your finances and make smart data-driven decisions to keep your business on track.
With these essential financial KPIs, you'll be able to forecast safe and scalable finances, eliminate unnecessary spending, and achieve your financial goals in 2025 and beyond.
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