Business Economics: Metrics that Matter for Your Business

Business Economics: Know the Health of Your Business

You cannot go off how you feel about your business to know if your business is doing well. The reality is real, and if you fail to know the economic realities of your business, the economic realities will confront you when abject failure slaps you in the face.

It’s okay, though. Even if the metrics are bad or trending in the wrong direction, have a true, clear picture helps you identify problems and where you need to put your energy and effort to turn things around.

If your waist goes up month after month, you’re getting unhealthier, whether you’re measuring it or not.

These metrics give you an objective measuring standard to assess your business’ health.

Business Economics: Macroeconomic Metrics that Matter

The first and easiest metric to calculate is top line revenue. This is the money that is coming in over a period of time, typically calculated monthly (and eventually quarterly and annually – though quarterly and annual numbers matter more for larger businesses).

Whether you’re looking at Stripe, ACH, the business bank account, this is simply calculating all the incoming money in a month.

The cost of goods is the cost to produce the good itself. So, for producing a product, this is the cost of materials you purchase that go into the item and costs such as shipping. For a service business such as Barbell Logic, this looks like the pay to the 1099 contractor coaches per client.

You calculate gross margin or gross profit by subtracting the cost of goods from top line revenue.

Next, you need to identify operating expenses. These are things that are required for the business but not directly related to producing the individual service or good. This might be payroll for full-time employees, printer ink, paying for a new computer, squat racks, or taking a client to lunch.

The last critical business-level metric to determine is your net profit. You calculate this by subtracting your operating expenses from your gross profit. This is truly how much money the business is making each month.

If you’re a one-man team, then you get paid from this. If you lose money, you don’t get paid. As the owner or CEO, though, while you get paid last you also get fired last.