Originally published in July 2020. Last updated on November 27, 2024.
You put a lot of time and effort into building your business, but if you aren’t tracking the right metrics, it’ll be hard to measure your success.
From monitoring cash flow and operating expenses to referrals and marketing efforts, your numbers can help you identify where to invest your time and money to fuel growth. Plus, it’ll prevent you from wasting resources on ineffective strategies.
Use this guide to learn key business metrics that help you track your company’s health and stay on the path to achieving your goals.
Start tracking these business metrics:
-
Cost of Goods Sold (COGS)
-
Operating margin
-
Average invoice price (AIP)
-
Customer retention
-
Break-even sales revenue
-
Conversion rate
-
New leads per month
-
New online reviews
-
Percent of billable payroll hours
-
Total discounts given
-
Profit
-
Overhead costs
-
Customer acquisition costs
-
Job costing
-
Recurring and one-off revenue
-
Markup
-
Why tracking business metrics matters
What are key business metrics?
Key business metrics, or key performance indicators (KPIs), are the numbers you use to track the health of your small business. They can help you to understand where your money is going, how efficiently you’re working, and how satisfied your customers are.
Key business metrics can vary based on your services and industry but typically include things like cash flow, operating expenses, and marketing campaigns.
You can use them to set goals, get ahead of potential issues, and plan for growth. But it’s important to be consistent in how often you track and review them, otherwise, your data won’t have as much meaning.
Depending on what you’re tracking, you can review your key performance indicators weekly, monthly, every six months, or once a year.
I have a whole spreadsheet of the whole year that shows me per week, how many leads I should be getting each week, how many jobs I should be booking each week, how much value those jobs should be and all these different things. Every week it’s refreshed and renewed.
1. Cost of Goods Sold (COGS)
COGS is made up of the direct costs it takes to get a job done, from materials and supplies to labor, including subcontractors.
So, for example, if you were a house cleaner, your Cost of Goods Sold would include the cleaning supplies and materials used for the job, plus labor costs for the time spent cleaning.
Why it’s important
COGS directly impacts your bottom line. When your costs go up, profit goes down, and vice versa. Since COGS can be impacted by a variety of outside factors like the labor market, supply costs, and seasonal demand, tracking it helps to ensure you maintain a healthy profit margin.
And it can indicate when you need to adjust your pricing strategy to reflect long-term cost increases.
How to calculate it:
COGS = (Labor costs + materials used) + (Other direct costs)
2. Operating margin
Your operating margin is how much money you have left over after you deduct COGS. It tells you how much you have to put towards your overhead costs and operating expenses like rent and utilities and whether the job will turn a profit.
Why it’s important
The operating margin of each job tells you if you’re charging enough markup to cover costs and be profitable. It also helps you to see when your expenses increase so you can make adjustments before they impact your bottom line.
How to calculate it:
Operating margin = (Revenue – COGS) / Revenue x 100%
3. Average invoice price (AIP)
The average invoice price is the average of all your invoices over a specific period, like a month or a year. It shows you how much you’re earning per job or service on average so you can monitor pricing and ensure it aligns with your small business goal(s).
Why it’s important
Your AIP is a strong indication of how well you’re selling your services and whether you’re pricing them effectively.
A higher AIP can demonstrate that you’re successfully upselling or providing premium options to customers, while a lower AIP shows you may need to increase prices, focus on marketing, or consider expanding your services.
READ MORE: A complete guide to service pricing
How to calculate it:
AIP = (total revenue from invoices) / (total number of invoices)
4. Customer retention
Customer retention is measured through the average number of transactions each unique customer makes. In other words, it means how many times a single customer books with you.
It’s the best way to track repeat business, showing you how long your average customer sticks around.
Why it’s important
Tracking customer metrics like customer retention helps you understand the long-term value of your customers. Since retaining existing customers is more cost-effective than bringing on new ones, repeat business is one of the best strategies for fueling long-term revenue growth.
It can also help you to improve your services, build a referral program, and develop a positive reputation through online reviews from satisfied customers.
How to calculate it:
Average number of transactions per customer = Total transactions / Total number of unique customers
5. Break-even sales revenue
The break-even point for a service business is when your costs and your revenue are equal. For example, if your costs were $25,000 and your revenue was $25,000, you would be breaking even.
Once you hit your break-even point, any additional revenue is considered profit.
Your break-even sales revenue tells you how much you need to make to get to your break-even point.
Why it’s important
Your break-even sales revenue is the amount you need to make to stop operating at a loss and start turning a profit. You can use it to determine how many jobs you need to book to become profitable, informing your marketing campaigns, pricing strategies, and business goal(s).
How to calculate it:
Break-even sales revenue = (fixed overhead expenses + payroll) / Gross profit margin %
6. Conversion rate
Your conversion rate tells you how many of your quotes turn into jobs. It’s a direct measurement of how well you close sales.
Why it’s important
Your conversion rate can give you important and actionable insights, like:
- Whether your prices are too high or too low
- How successful your marketing efforts are in attracting customers
- If you need to put more time into lead generation
- If you could benefit from improving your customer service
How to calculate it:
Conversion rate = (total quotes converted / total quotes sent) x 100%
You can also use an AI tool like Jobber Copilot to track your conversion rate and give you suggestions and advice tailored to your small business. That way, you can let your key metrics run on autopilot, saving you time and giving you the data you need to grow.
7. New leads per month
A lead is someone who has reached out to your business via phone, email, text, or direct message to ask about your services. How many leads you generate each month is a key business metric in understanding how effective your marketing strategies are and when you need to adjust them or try something completely new.
Why it’s important
The more leads you generate, the more potential you have to turn them into paying customers. Tracking how many leads you bring in each month tells you how healthy your sales funnel is and where you could stand to make adjustments or invest in marketing.
Without leads, you won’t have any new customers, potentially stalling cash flow and causing revenue issues.
If I go in and it says I should have gotten 30 leads, I only got 10, whoa, that’s a problem. The numbers don’t really lie very often.
How to calculate it:
New leads per month = Total number of new leads / Number of days in the month
8. New online reviews
Online reviews, like the ones customers leave on Yelp, Google, Facebook, and other platforms, play a major role in developing a positive reputation for your service business. Tracking your reviews helps you manage your reputation, showing how many positive and negative reviews you receive each month.
Why it’s important
Tracking online reviews comes with valuable insight, such as:
- Helping to gauge overall customer satisfaction
- Identifying customer service gaps and areas
- Growing and managing your reputation
- Generating new leads
- Developing your online presence
If you aren’t getting enough reviews, or you’re only getting bad ones, it’s time to adjust your strategy. Reach out to customers for feedback, remove irrelevant or spam reviews from Facebook and Google, and respond to negative feedback to stay on top of your online reputation.
And don’t forget to ask happy customers for reviews or automate them with review management software like Jobber.
How to calculate it:
New online reviews per month = Total new reviews / Total days in the month
9. Percent of billable payroll hours
This measures the labor hours employees and subcontractors spend working directly for clients.
For example, billable work like mowing a lawn, repairing an appliance, or pressure washing a deck versus nonbillable work like driving to a job, filing paperwork, or picking up materials.
Why it’s important
Percent of billable payroll hours is a key metric you can use to evaluate job efficiency, employee work ethic, and the processes and tools you have in place.
For example, it can help you develop more effective standard operating procedures, automate tasks with field service management software like Jobber, and engage employees.
How to calculate it:
Percent of billable payroll hours = (Billable hours / Total paid hours worked) x 100%
10. Total discounts given
This business metric tells you how many discounts you gave over a specific period, and how much they totaled.
Why it’s important
The more discounts you give to customers, the more you eat at your profit. While discounts can work well for large contracts, referrals, or marketing campaigns, you shouldn’t be handing them out to every lead.
Keeping an eye on how often you’re discounting your services and by how much shows you when you go overboard so you can pull back. Otherwise, you risk lowering your profit margin, average invoice price, and operating margin.
How to calculate it:
Total discounts given = Sum of all discounts applied
11. Profit
Your gross profit tells you how much you have left after you subtract job costs. Net profit tells you how much you have left after all expenses are deducted.
Why it’s important
Gross and net profit indicate whether your small business is running at a loss or not. If you’re in the red, it means your expenses are higher than your revenue, meaning you need to either adjust spending, increase pricing, or bring in more customers.
On the other hand, if you’re operating in the black, it means your service business is turning a profit, giving you room to grow and expand.
How to calculate it:
Gross profit = Revenue – COGS
12. Overhead costs
Overhead costs are made up of the expenses you pay to keep your small business running but that aren’t directly tied to jobs. Think office rent, payroll software, and insurance.
Why it’s important
Tracking overhead costs shows you whether they increase, decrease, or remain stable. When they go up, they eat into your profit, meaning you need to find ways to either cut them down or increase pricing.
Staying on top of overhead costs helps you make adjustments before small issues become major problems.
How to calculate it:
Overhead costs = All indirect business costs
13. Customer acquisition costs
Tracking your customer acquisition costs (CAC) tells you how much money you spend to turn leads into clients. It directly impacts how much profit you make from each one.
For example, it means monitoring things like:
- Email key metrics, such as open rates or click-through rates
- Referrals
- Lead generation campaigns
- Advertising and promotions
Why it’s important
Staying up-to-date with customer acquisition costs enables you to see how much you make on each job compared to how much you spend to get it. If you spend too much acquiring clients through lead generation and other marketing efforts, it will negatively affect your profit.
How to calculate it:
CAC = (Total sales + Marketing expenses) / Number of new customers
14. Job costing
Job costing measures the total costs associated with a specific job, service, or project. Monitoring it allows you to inform your pricing strategy to ensure you always cover job expenses and turn a profit.
Why it’s important
Tracking job costing shows you if you’re spending too much on certain tasks and when you have opportunities to boost profitability.
For example, let’s say your job costs for fertilizing a lawn are low, but it’s one of your most popular services. This could be an opportunity to increase the price tag or bundle it with other services as part of a good, better, best pricing strategy.
How to calculate it:
Job cost = Direct labor + Direct materials + Allocated overhead
If you offer a lot of different services or work in an industry where each job is unique, job costing can be hard to track. Use expense tracking software like Jobber to track costs for individual jobs so you always know how much you spent (and made) on each one.
15. Recurring and one-off revenue
Recurring revenue is made up of reliable, stable income that comes from continual weekly, biweekly, monthly, or seasonal services. Like customers who book weekly house cleanings or monthly weed control.
One-off revenue is attributed to single jobs, like installing a new dishwasher or painting a garage door.
Tracking these metrics tells you how much of your total revenue comes from recurring customers versus one-time jobs.
Based on your services and industry, which you get the most revenue from varies.
Why it’s important
Some industries are better suited for recurring services, like snow removal, while others are more suited to one-off jobs, like appliance repairs.
Tracking how much you make from each one indicates what type of customers you’re attracting and whether it aligns with your marketing effort and service business goal(s).
It can also inform your promotional strategies by showing you when you need to market more to one group of customers or another.
For example, if you want to increase the number of recurring clients you have, you can try things like referral programs. And if you want to bring in more one-off jobs, you can run limited-time discounts.
How to calculate it:
Recurring revenue = Number of recurring customers x Recurring fee
One-off revenue = Total revenue from one-off jobs / Bookings
16. Markup
Markup is how much you charge for a job after you cover costs. For example, if your job costs are $150, and you charge $200, your markup would be $50, or 33%.
It works with your profit margin to ensure you make money on each job.
Why it’s important
Markup is what keeps you from paying for job costs out of pocket. It’s what helps to enforce your desired profit margin so you have room to not only cover costs but also grow.
By tracking it, you can stay on top of fluctuating expenses and adjust markup before job costs start eating up your profit.
How to calculate it:
Markup = (Price charged – Job costs) / Job cost x 100%
Why tracking business metrics matters
Tracking your KPIs is essential in knowing how well you’re service business is doing. If you don’t stay on top of your numbers, it will be hard to tell whether you’re in a position to grow or operating at a loss.
Take it from Tom Reber from The Contractor Fight. He shares, “When I started my painting business many years ago, I would ask what other people were charging and I would charge somewhere similar because you think you have to be competitive with those people at some point. I get that when you start, but a couple weeks into that, you need to start doing your own math, your own homework around what things really cost. The sad thing is about 90% of the contractors we’ve worked with in the last decade or so, about 90% of them don’t know their numbers.”
So even if you only have a few key metrics to track, consistently reviewing them can be time-consuming and challenging. Especially if you’re generating reports manually.
Instead, use software like Jobber to track your data, analyze it, create reports, and offer advice for how you can grow based on your business and customers.