There’s no single universal metric that applies to all businesses, because the “most important number” depends heavily on your industry, stage of growth, and strategic goals.
However, there is one number I recommend.
I’ll come back to this in a moment, once I’ve acknowledged some additional thinking.
The number for your focus may depend on:
- What aligns with your stage and strategy: Early stage businesses may be focused on traction metrics whereas a growth business may look at sustainability and profitability. A mature business may be looking at EBITDA or “free cash”
- Industry specific crucial measure: For example, production, profit, cash burn rate, customer satisfaction, customer aquisition cost, customer lifetime value
- Measures that reflect your core value proposition: For example, reoccuring revenue, production efficiency, optimisation via time utilisation rates,
Some companies identify a single “north star” metric, one that best encapsulates the value they deliver to customers and how that correlates with revenue.
The one number I always reference as THE most important number is GROSS PROFIT.
Why?
Anything below your Gross Profit number and is (or should be) Fixed by their nature. Firstly, your ‘Fixed Costs’ that are your ongoing costs associated to the business whether you make no sales or multiple. Ok, these may change slightly but generally are fixed for the period ahead (eg rent, rates, insurance, admin staff, software licence fees….). These fixed costs contribute to your breakeven number, as these have to be paid from your Revenue (less margin) to at least stand still. The other number below Gross Profit, that I also suggest should be fixed in your mindset, is your bottom line ‘Net Profit’.
Gross Profit – Fixed Costs = Net Profit
This is the bottom line net profit you want to make for your return on investment for all your hard work and to provide you the income for the lifestyle you desire. This should be fixed and not negotiable.
Therefore, I’d argue that the Gross Profit number you need to hit is your focus. If you hit that number, then you will pay your overheads and receive the profit return you desire for yourself.
There is another reason that I suggest this is your “most important” number. It is because you can now pull levers above this to make you business work. For example, increasing the number of customers, improving the average order value and reducing the cost of sales will all improve your margin return. I’d also suggest you look at your numbers and see that if you improve your Gross Profit Margin with such levers, then you won’t need as much revenue than you thought.
Many businesses will chase Revenue (sometimes with good reason) but often without any consideration on what makes the business easier to run. You may chase the golden £1m revenue that too many people reference as a “successful” business, but without managing margins and costs then I know from experience it still won’t deliver what you really want!
