Financial Metrics Important for Making Marketing Decisions
The main aim of every business venture is to make profit. In most cases the efforts made in making a business successful are creation of perfect products, sales generation and good customer relations. However good you are at these factors you must have a perfect understanding of key financial metrics that determine the progress of your business.
The question here is how good are you at making profit? Because after all your business depends on that. Once you are clear with this then establish your potential in managing your marketing resources. This begs you to understand that in as much as you have created an amazing work in serving your customers, your business exists to make money.
Therefore what you need is an informed financial decisions that will strengthen and grow your firm. The following are financial metrics for marketing that will help maximize your profits.
Financial Metrics for Marketing Examples
Adjusted gross income
Every firm needs to understand gross billing. By doing so you will know if your business is making profit or if it’s on the path to financial ruin. Most companies make the mistake of focusing on gross billing. The financial billing has no significance on the financial health of your firm. In this case you basically don’t need to bill clients for media buys, large costs, or printing costs.
Profit made during marketing
Most companies consider average profit made during marketing to be in the range of 12% to 15%. However hard some firms may attempt to achieve a 20% profit, it is wise to consider calculating your profit pre-tax. Higher margins or more profitability is better for a company. It is good for a company to consider benchmarking its applications to accounting firms. By so doing your firm will know how effective it is with expenses. Once you have ascertained this you will know how to decrease certain expenses to avoid eating up your revenues.
Current ratio and quick ratio
The two metrics aid in considering fundamentally liquid ratios and those ratios that give ideas on how good you are at meeting your obligations. When a business does not have good liquidity, then one un-expected expense could severely hurt it. Liquidity ratio is expressed in cash and accounts receivable over current liabilities. This ratio may not be great for gauging liquidity, but it is a useful metric in pairing with current ratio.
Every firm depends on clients for its financial stability. Client concentration metric is very important for large and small firms that takes huge risks in business. Most financial advisors and marketing experts agree that a single client must not account for more than 25% of revenue. The best marketing strategies recommend two or less clients should comprise more than 12.5% Adjusted Gross Income (AGI). While less than four clients should have more than 6.25% of AGI.
Accounts payable and accounts receivable days
It is important for a firm to determine whether it is paying its marketing agencies too quickly. This is because this money could be invested instead of distributing immediately. By knowing how this metric compares to other companies, you can identify business areas that require attention.
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