10 Business Statistics every BA should know

The Better Business Analysis Institute presence. The Better Business Analysis Podcast with Kenjamin Walsh. Hi everybody, and welcome back to the Better Business Analysis Podcast with Benjamin Walsh. And today we are going to be focusing on some business statistics that every business analyst should know. OK. The key business statistics that you should really be aware of when talking to the leadership team or monitoring as a business as a whole. So we're going to go through the

list. It's not, you know there are quite a lot of statistics that you can know and I'm just going to talk about 10, OK. What I think are the top ten business statistics that will give you an idea around the performance of the organization and provide insights into the your organization's overall health and allow you to kind of track progress or identify areas for improvement. It also helps make informed decisions.

So a lot of these key indicators may be tied up in your objective statements or your strategic plan. So it may, the first one for example is number one is revenue, how much money is your company generating and of course that their revenue is usually could be a factor in terms of increasing revenue by 10% year on year. Sometimes that's actually a pretty, pretty important step.

We'll talk talk about how revenue plays into something called EBITDA later, but revenue is a key underlying step that you should really know. So I will say that depends when I when I say you should know this, it depends on kind of what kind of BA work you're doing. But if you're a business owner or you are dealing with the executive team, revenue should be open and honest there. Sometimes it's locked down to a management team, especially if the figure is sensitive AKA

things aren't going very well. So you may have some trouble finding out what these numbers are in your company. I just want to say that straight away, but you're business should be tracking these. And if you're a startup company, you want to be tracking these from day one. OK. So we got to get straight into the T, the 10 key business statistics every business analyst should know, starting with #1, which is revenue.

Revenue is the total amount of money that a company generates from its core business activities, OK. And it's usually the sale of goods or services. It's generally the main revenue stream that companies generate from, unless you're a financial firm and there might be things, other revenue sources that they can have or you're leasing out buildings, which could be a revenue stream. The primary revenue that you really need to worry about as ABA is the sales of goods and services, OK.

And that's by its core business activities. And of course core business activities are just processes. Revenue is a critical metric. It will talk about it's the company's top line in terms of growth and profitability. And really having strong revenue is the most important factor in terms of growth of your company. So if you don't have strong revenue, then you need to start reducing your costs and you know things that things don't look good.

So number one is revenue. If you don't increase your revenue, then you're going to look at restructuring and lowering costs and things are not going your way. It's usually a key indicator that you either the market itself is experiencing a percentage revenue kind of drop.

So you know consumers aren't spending as much money, but if that revenue drop is not consistent among your competitors, so your competitors aren't experiencing I'd say a 10% drop and you are and they're only experiencing 1% drop and there's something wrong with your core business or your core offer. So red flags, your sales team may just not be performing, they just may not be as good as the competition being straight up there at getting deals. New business is so important here.

Revenue is so important and a lot of people it gets, there are so many statistics and we do about 10 today. So, so you know that even even summarizing in terms of 10 people can get so caught up in other factors that they miss their revenue isn't strong almost and your costs are reasonable. So that's the flip side then you know there's there's nothing else your business is in is in

the poke. So revenue is definitely #1, #2 is gross profit margin or sometimes just referred to as gross margin, The profit margin sometimes and we talk about gross and we talk about net and we'll start with gross. So gross profit margin is the measure of the company's profitability before deducting operating expenses. OK. So I'll what does that mean, Ben? It is calculated by dividing the

gross profit, OK, by revenue. We're going to talk about what gross profit is. So revenue minus the costs of the goods sold. So gross profit is effectively what you earn before your your your costs. Sorry. So your gross profit is your revenue. So how much money you came in and minus your cost is your gross profit. So it's the difference between your revenue and your costs to generate their revenue. OK. The gross profit is your revenue minus your costs.

Now if we take that gross profit figure, so let's just, I'll just give you an example. So it's very, very clear. So let's say you earned $1 million in revenue, so $1 million was paid in invoices to your company for your goods. So you earned $1 million and and it cost you in order to generate the revenue, all the cost of the business although standard cost of a business cost of goods like paying staff let's say and and and all the materials it costs to deliver those services cost

you $800,000. Then your gross profit is $200,000 revenue minus your cost of goods sold, OK, so that's $200,000. So that's your gross profit. And then if you divide the $200,000 by the $1,000,000, which is your revenue, you end up with a gross margin. So in that case, it's 20%. Your gross profit margin equals 20%. A higher gross profit margin indicates the company is effectively converting sales

into profits. So we talked about the flip side between the fact that our revenue is critical in terms of the growth of a company. It can stand still and your revenue could be could be stagnant, but your if your cost of goods remain the same or go down, your costs go down then you can still be earning a profit.

However, if your costs are going up and your revenue staying staying still, then what you see is that your gross profit margin is going down, OK. So it's just one easy figure instead of a number like 200,000 which is your gross profit, gross profit margin is, is a percentage is very helpful because you you can measure that figure and it's probably the number one figure talked about. So revenue and gross profit margin are the two figures that management talk about.

So I go we earned $1,000,000 in terms of revenue and our margin was 20% and and that figure that 20% figure is actually kind of you can benchmark that against other industries and and some industries that figure is higher. And so you know people are making a 30% margin that's how it's discussed. And then maybe in a for example supermarket the margins are actually lower. So it's about the amount of sales and we'll we'll get that

get to that. But in a minute their margin's actually little, it could be like 5% or 2% and that's OK because of their business model. But say you're selling a luxury item like a sports car or a shop, your margin needs to be high, higher than that. And so depending on the industry that's that, that'll indicate a figure and the most important is

the trend of that, right. So when you start up or go through some drama, the if that percentage is going down, then it indicates that something's going. Either your costs are going through the roof or your revenue is starting to, you know, fluctuate and and maybe not go in the right direction. So gross is stilled. So gross profit, profit margin is really important. Also when you think about the like if you're investing in a company or you put your money in the bank, you get interest.

This figure is very similar to that figure when discussing whether or not it's worth investing in the company, OK, depending on how much margin it makes. So we're going to quickly. So that's your gross profit margin and then we're going to move to #3, which is your net profit margin. So net profit margin is the measure of the company's profitability after deducting all operating expenses including taxes, OK.

So when we talked about the gross profit margin, there were things we could control that was the how much cost we spent to generate the revenue, whereas the net is generally there are other kind of expenses that a company has to run like maybe depreciation on assets and all all these accounting figures. But the biggest one is probably tax, right? So if you paid your tax, how much you got left? So net profit margin is calculated by dividing the net

income. So that's revenue minus all expenses by revenue, OK. So as opposed to a gross profit margin which is revenue minus the cost of goods sold. So them the bits you can control, you know people costs and costs that go into delivering the actual end product or service. Net profit management is revenue

mining all the expenses. So every single expense you have the car expense, the the tax expense, you know it's all the costs of doing business, not just generating the service that you provide the revenue minus all of your costs, just like you might do at home with your budget. So you know your income for the year minus all the things you have to pay everything and you divide that by revenue. So again the net profit margin is really clear and we talk

about this a lot too. So it indicates more than just the, when we talk about the gross profit margin, that's kind of just looking at delivering services net profit margin. Higher net profit margin indicates that the company or organization is effectively in man managing its expenses, all expenses and generating profit. So you can look at the difference between your gross profit margin and your net

profit margin. And one really good example here is that if you were a company that generated money through people, like a recruitment company for example, or a consultancy company where you're charging your client a right to

do business. If there was a massive difference between gross profit margin and net profit margin, it would mean that your back office staff, not the cost of goods sold, which are the people going out and doing the work, but that the the people cost and the location cost of your organization. The ones that don't generate profit just are what we call a sunk cost or just a cost that you need to do back in business. Your back in function may be too

big, always inefficient. So that's why gross profit and net profit are interesting and then of course revenue. So that's how we and and and these are really important because you can't, you really want to be able to monitor these figures on a dashboard and those three figures are so important.

So revenue, gross profit margin and net profit margin and then of course you can look at all the costs and once you that costs the divide into different categories like your expenses, it becomes a little bit harder then you have to do some more analysis. So it's a bit like your own home. You could say when you pay all your bills with your income, when you pay all your bills, what's left? You know when you, when you pay the mortgage, that's probably your biggest expense and food

cost. And then you could say that all the other expenses are a little bit more optional, like if you go on a holiday or you buy nice cheese this week or you, I don't know, buy pay off a nice car, that's probably more like your net profit margin. So. So you have a bit of a choice between your gross profit, what you have to have and then your net profit margin.

OK. So the top three revenue, gross profit margin and net profit margin and people sometimes just say words like what's your margin, petrol companies do that. I worked at a large petrol company here in New Zealand. I mean it's now an energy company doesn't just do petrol, but it was revenue and they have to have margin. They talked about volume, so the amount of sales they got and those figures.

In a petrol business, generally your margin is low, sometimes regulated, so you can't earn a certain amount. But of course, if your petrol prices go up, so does the amount of money you make. Yes. OK, cool. So if we now move over to the number 4 stat and this is, look, I have chosen stats that are more customer specific because we're living in a customer

focused world. So these are not necessarily the figures or the stats that when you started doing business in the 80s you might have come up with, but these are actually really critical in 2023. So the next one I think is customer acquisition costs, sometimes an acronym of CAC. So customer acquisition cost is the average amount of money a company spends to acquire a new customer. So to acquire a new customer to buy a new customer.

And it might sound a bit weird that we buy customers, but we do, we buy a customer through the spend on sales and marketing. So all the expenses for sales, all the marketing plans, campaigns, how much do you spend on that for that is what you do, that's the activities that you do in order to sell your product, you know knocking on doors, doing campaigns. That is all your acquisition costs and we need to take that total cost.

So let's say that's 100,000 a year, that's very, very light of course and say for $100,000 a year we acquired we we spent on sales and marketing and we acquired 1000 customers, OK. So you would take the 1000 customers and you would divide that by your cost and then that would give you how much it cost to acquire a new customer. So in this case it would be $100. So we've worked out that as 100.

We we pay $100 in order to we spend $100 in sales and marketing in order to acquire one new customer and that's so important because that figure depending on what you're selling if it cost us $100 to buy a new customer and we're just selling them a one off product which is costs $100 then you're not you might be making money but your costs you're just covering your costs right and and and and we're only throughout sales and marketing there's all the other expenses in your company.

So it's a really important figure to work out but also people under the in saying that it's not always bad. Sometimes people don't do enough in sales and marketing they're making when they sell their product and they've got a a highly sought after product or a great product that people want and they've got a good price point and they're making good margin on it. Like we talked about before, they might not be spending enough on sales and marketing.

So you really need to know how much does it cost for us to acquire a new customer, which is your CAC, your customer acquisition cost, how much does it cost, how much do we spend sales and marketing to acquire one new customer? Really critical. And that figure plus the figure you make on your individual product sale is really important. And that leads us on to the next figure because it's you'll see this with subscription type

businesses, right. You sometimes look at subscription type businesses, and I'm going to use an example. I'm going to use an example of a pet online pet store that sells, say, cat food. You know, those large bags of cat food that you might purchase every three months. So let's say you purchase it every three months, It's 4 * a year, right? And and maybe you keep buying it from the same company for at least a year, OK. And each bag of cat food you spend, you buy them for say, I

don't know, they cost $100. OK. So you're spending $100 and in the third month six, another six months later you've spent $200.00. And then 3/4 of the way through the year you've spent another $100 bringing up to $300.00. By the end of the year you would have spent $400.00 in cat food with this one company. OK, and that figure, the if sale. And you may have, you may have stayed with that company for a long time, but let's just say you on average you stay with

this company for a year. We have a figure #5, it's called customer lifetime value CLV. Customer lifetime value is the total amount of revenue a company expects to generate from a customer over their lifetime. So that we've worked out that the average customer in this case will do 4 purchases of cat food. So we just look at our, you just look at our our revenue and right we can, we can, we can, we

can easily work that out. It is calculated by multiplying the average purchase value, so looking at all your line items in terms of purchases and working out the average and then we divide it by the average customer lifespan. So you should know how long your customer is with you, has been doing business with you and a higher CLV indicates that customer is building strong relationships with its

customers, right. So when you are selling a commodity good, commodity good is something that you can get pretty much anywhere and there isn't much of a difference between products and you don't have much loyalty to the company you're buying it from. Then sometimes customers CLV, their lifetime value is quite low and so they'll do lots of marketing and try and keep you on board with that company.

And the reason I give the pit example where I've just said I've worked out the average customer spends let's say $400.00. You know that's through 4 transactions over the year they've worked out the customer stays with them on average for a year and by 4 transactions with $400.00. The reason why that's important with the Catfit example is that now you find that they offer you a cheaper price if you sign up for reoccurring.

Office, right. Instead of doing a one off purchase for four for you know every three months, they actually offered you a discount. So they've worked out that they can, they can, you can, they can offer you a discount of say 20% if you stay with them or sign up for for longer than a year for example. You know cancel any time but it's cheaper and if you don't remember then you're going to be spending it. So that provides them with that company with two great advantages.

One you might forget, so you're honest, you know all the advantages of subscription based is that you know people forget that they've got a subscription so they'll send you the good and so they've got guaranteed income and you've also yeah you've signed up so your customer lifetime value is higher.

And also then the reason why this is really important is we, when you think about the mark sales and marketing that they can spend to acquire you, your customer acquisition cost, if it cost them to say $100 to get you basically to market it to you as an individual as that's their customer acquisition cost, then I want you to stay for at least a couple of the sales, right.

So I can afford to drop the price because I know I'm going to keep you for a longer period of time and it and then I can and if I've worked out that that's a good amount of money, then I can spend more marketing, getting more customers. And so these figures are really important, especially in the marketing space. So customer lifetime value is how much are the total revenue a customer expects to generate from you, basically you as a customer over your lifetime.

And that's that's important too, because like I said, if that is low, then it will indicate that there are people that don't have loyalty with you and they don't have a strong connection with you as your company or your brand or your differentiator. OK, number six. So number six is the customer churn rate. So the churn rate is the percentage of customers who stop doing business with the company in a given period. OK. Again, so this this is really important.

So their lifetime value is around the total amount of money we make for a customer, right. But also you can work out the number of customers you lost by the right, by the total number of customers that you had at the beginning of a period. So if you had 100 customers within a three month period, but you lost, I don't know 50 of them, then your churn rate is high and that's about retaining your customers.

So when we talked about South, customer lifetime value and customer churn rate are LinkedIn some ways, but you wanna keep customers and so it's around not just acquiring new customers but keeping your existing customers happy. Now with an subscription type business and cat food, it's a bit more of a commodity transaction.

But if you're talking about maybe doing business, say you're AI, don't know a company that's supplying an international airline, If you lost a customer, a couple of customers over the year, that could be critical to your revenue and and that would shock you. So your customer churn rate should always, always be measured as well. That's number six. And then we'll move on to quickly to #7, which is the conversion rate.

OK. So this conversion rate is around people knowing about you, so landing on your website, your landing page. So they, you want to know that if your marketing is being effective or not by saying, well, when we market to these people, so we're spending money, that's a cost that's going out no matter what to send an e-mail or to update our website or to generate some ads. And then you need to know how many people are actually going to make a sale. So a conversion rate indicates

that you're converting. If it's higher, then it indicates that your website traffic is turning into sales or leads, OK. And it might could be either of those depending on what type of conversion you're looking at.

So in the sales process you definitely want to lead, you want people to know about you, so you're measuring awareness, but then you want to convert those into sales, but they might be your sales team effectiveness, Convision for your sales team and then your conversion in terms of your lead management. So if your conversion rate is low then that shows you that your marketing is not effective.

Hope that makes that clear. OK, so these are all very web focused, but they they're applicable no matter what your type of business is. So those last four customer acquisition costs, customer life type, lifetime value, customer churn rate and conversion rate are really, really critical and very much more Monday business focused. But we're going to finish off with three figures that are more kind of standard business. One is #8, which is return on investment. So you hear our ROI all the

time. What is the ROI and what that's about and this is very relevant to business cases we talked about last week, is return on investment is the measure of profitability of a certain investment, OK. It is calculated by dividing the net profit from an investment. So how much money the investment made for that particular change or investment or project by the cost of the investment. A higher return on investment indicates an investment is

generating a good return. And when we talk about investors, they are looking for a return on investment. OK, so if I am buying shares for your company, if I buy 1000 shares for a dollar each, I've got 1000 shares worth a worth $1000. I would expect most companies would expect a 1010 to 12% return on investment. That's a standard return on investment.

So that the share price didn't go up to $1.10 over a certain period, usually a year or so then, and the company isn't generating a 10% increase in a year, it's usually not worth my time. Now it can go up and down. Companies fluctuate, but over a long two year periods the average return on investment you would hope would be $10. Sorry, 10% at least 10 to 12% / a period. So some years it might be 20, some it might be 5.

Now that figure there is exactly the same figure as we talked about before that you're looking at when you're like deciding whether or not you want to put your money in the bank or you want to put it in the company. And some companies have really, some countries have really low interest rates. I think the states does and like it's usually linked to your mortgage rates, whereas in New Zealand we usually have a little

bit higher interest rates. At the moment, I think the average interest rate for example is around for mortgage, it's around 8%, which is pretty damn high and it's because inflation's high and that will probably drop soon hopefully. And if you put money in the bank, the bank will, you know, make their margin and probably give you 6%. So if you put your money in the bank, then you hope to get 6% back a years later, which is the benefit of having high interest

rates. Now if you're investing a company, you're taking a higher risk than you are in the bank most of the time that that would be the case unless there was a global recession, for example, but that would affect the company too. And if the company was a large company and you knew all about it and they were consistent for say, 50 years, generating a 12% return year on year, then of course it would be a good investment. But it was company that you didn't know anything about.

You wouldn't just put your money in there, You would do something called diversification and you invest in, say, maybe a portfolio. But this is the figure that this is what people were talking about. And if I own a company so I'm the only shareholder or I'm the director, for example, I would hope to get 12% back on my return or otherwise I might pull all my money out and put it in the bank. Does that make sense? So the return on investment is very, very critical.

And again, that might be very hard for you to figure out in terms of the return on investment of your actual company. But you can use return on investment when you do your business cases. So is this project worth doing? OK, then we're gonna look at 9, which is the average order value. So this is the average, the average order value. The aov #9 is the average amount of money spent per order. OK, so it is calculated by dividing the total revenue by

the total number of orders. So this is just indicating the size of purchase. So if you would like for example, let's use an example of a supermarket again, it probably isn't really that helpful to just have someone come in and buy one item. You kind of want them to come in and buy lots of items. And so because you've got a low margin and you really want people to come in and buy a lot of stuff at once and especially if it costs you money to get them in the store in the 1st place.

So you really want people to buy more stuff. So this is shows if your cross sell and up sell strategies are working and so you want a high average order value that indicates that customers are making larger purchases. So that might be relevant to you. It is relevant to some industries. I think that's really important and you know by the more volume for example, that's really important. Have you went to a petrol station? Everyone was in the queue buying $5 worth of petrol.

You're clogging out the lines. You kind of really want to sell them a pie and you want them to fill their tanks up. So you know that could be something that affects your business. So that that's just something to keep in mind, that's more of a traditional value and sorry statistic. And #10, #10 should not be looked at lightly. And you can actually, this is actually really, really, really important statistics and the

statistic is your MPs. So we call that your Net Promoter Score. OK, Net Promoter Score is a measure of customer loyalty. It's really, really important. It's a a calculation that's done in a certain way to really figure out who is advocating for you. OK. You calculate it by asking basically through surveys and our large marketing companies help with us. But you can do it just through it through a Google form if you want to.

It is calculated by asking customers how likely they are to recommend your company to others. OK, so we talk about this because we talk about the fact that if people are promoting you, they love you. They might like your product and service, They might like the fact that they can buy their cat food from you. But if they say they are bloody awesome, and I'm telling my friends, that's showing you how your viral marketing is working.

So a higher MPs indicates that customers are satisfied with you and they're all also likely to promote. So they're going to tell their friends and that means your marketing is great, but it also means that they're really loyal to you, right? They've got more than just the superfiction official connection with you.

So usually sometimes when people go over and above with with their service or you know, they make a mistake that they create it really well, people go onto social media and they'll say, hey look, I dropped my car off at the panel beaters and it was a wreck and I was really worried about it and they did such a good job. And then when I went back, they, you know, they told me what they did and they made it easy and they gave me a car that I could borrow for free while my car was

in the shop getting fixed. You may advocate for them and that's you can have have you then got asked about, you know, Mark's panel beating store and I said how likely would you be to recommend this company to your friends and family? And you were like very likely then that's a really good thing And if they had lots of customers who were like that, then their Net Promoter score would be really high and that's that's that's a really important measure.

So they are 10 statistics that I think every business owner and definitely BA should know about. These stats provide valuable insights in terms of the performance of the company. It can help you make more informed decisions around your operations indicator, around profitability and how you can

reach the strategic goals. So hope you enjoyed the show, It could be dry for some of you, but these are stats you should really know if you've heard something, an acronym or you've heard that, that you don't know about. Give it a bit of a Google, understand that there's some great material online and yeah, I'll see you next time.