Having an analytics program to understand business profits is important in this volatile market. It helps update business model, strategy, and goals as per the industry directions faster. In this article at Continuum.net, Ray Vrabel discusses 6 smart KPIs to know if you are gaining business profits.
Analyzing Business Profits
Analyzing business profits differ by industry parameters. Following are the KPIs that MSPs and IT solution providers can utilize to understand profitability:
Recurring Revenue Rate (R3): The revenue you are earning from subscription services, renewals, and service contracts can be measured with this metric. Gather data to understand your business gains on a weekly, monthly or yearly basis.
Average Revenue Per User (ARPU): To understand profits coming from every user, divide total revenue by a total number of subscribers.
ARPU = (Total revenue) / (Total number of paid subscribers)
Cost of Goods and Services Sold (COGS): This calculates the overall cost of manufacturing and distributing products and services. It considers labor, material, service and delivery expenditure.
COGS = Labors costs + Material costs + Service & delivery costs
Gross Profitability: The KPI indicates how you are accumulating business profits by countering production and labor costs with pricing and service delivery.
Gross Profitability = Total revenue – Cost of goods sold
Client Contribution (CC): Determine the value of your customers and how it improves your business profits with this KPI. You can also find out the customers that are bringing you no revenues.
CC = Revenue per customer – Cost of goods and services sold to X customer
EBITDA: The term is short for earnings before interests, taxes, depreciation, and amortization. You can subtract the overall expenses from the revenue to compare your business gains with the competitors.
EBITDA: Revenue – Expenses (excluding interest, taxes, depreciation, and amortization)
To view the original article in full, click on the following link: https://www.continuum.net/blog/profitability-kpis-you-should-be-tracking