5 Business Metrics that Every Employee Should Understand | Paradigm Learning

5 Business Metrics that Every Employee Should Understand

Posted by Robb Gomez on January 11, 2018

I love getting out with our sales directors to visit prospects and customers - especially if it’s a need around business acumen. I’m kind of a nerd about this and get pretty animated when talking to other people about their business and the metrics they use to measure success.  

 

I wanted to share some of business acumen themes and trends that I heard throughout 2017. As well as the metrics, ratios, and focus points that we’re most commonly asked to concentrate on while building a business acumen solution.

 

1.Gross margins (GPM) 

I know this may sound like a “no brainer” and perhaps it is… AND this metric still seems to be a focus everywhere. It’s the one metric that year in and year out we are asked to create laser focused activities around. If you can’t improve the gap between what you sell your product/service for and what it costs you to produce/provide it then mission control, we have a problem.

A ratio (gross profit divided by net sales) showing profitability of the production cycle. Sometimes called “gross margin” or “gross profit,” and calculated as net sales minus cost of goods sold

 

2.Return on invested capital (ROIC)

As HIPOs and supervisors complete their leadership development programs, and are put in roles where they are expected to evaluate capital investments against hurdle rates, this metric for a more senior audience is essential. As such (and every company has a bit of a nuance to ROIC), this critical metric has shown up even more in recent years and 2017 was a biggie for this little ditty.

 

3.Working Capital Management (WC)

Every company needs working capital.  It tells you if you have enough cash to operate your business day to day… and every company on this planet is looking for ways to expand this liquidity indicator. We recently received a letter from one of our customers that read “we are writing to inform you that our payables policy has now changed from 45 days to 60 days.” Clearly designed to extend their working capital while adversely effecting ours. Getting employees inside organizations to better understand their influence on the components of working capital hits our rockin’ top 5 list for 2017.

The current assets of a company, less current liabilities. Sometimes called “operating capital.”

 

4.Cash conversion cycle (CCC)

So many elements in the cash conversion cycle can be affected by a wide swath of associates in an organization -making this jewel show up a lot in our work.  And if I had a quarter for every different graphic that we have developed to help our customers understand their CCC I’d be a pretty satisfied juke box.

 

5.Return on Assets (ROA or RONA)

How well we’re using what we own to make money with. Because of the need to manage inventory to the right levels, this efficiency metric always creates a lot of lively conversation in sessions we conduct for our customers.  

A financial ratio (operating profit divided by total assets) designed to measure how well a company is using its assets in the generation of operating profit. Return on net assets (RONA) is calculated using average net assets.

 

Obviously, there are a plethora of other business acumen concepts and metrics that are important to the success of our great customer base, yet these five showed up in 2017 more than most. How about you? What metrics, ratios, and/or focus points does your business focus on to help your employees understand the impact of their day to day decisions?

 

Read our Business Acumen Accountabilites to see how financial literacy makes an impact.

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