Important Business Metrics - You Need To Know This
In this live‑style session Rob Moore walks listeners through the core financial and operational metrics that every business should monitor. He begins with profit and loss, emphasizing the need for timely management accounts and explaining how deferred income and retained earnings can mask a monthly loss. He then covers the balance sheet, illustrating how assets, liabilities, and depreciation affect profitability, even using a high‑profile example of running a luxury car through an LLP. The discussion moves to gross profit, cost of sales, and net profit, noting that growth‑focused companies may prioritize scale over immediate profit. Moore explains deferred income and retained earnings in subscription models, showing how future revenue can be booked today. He introduces revenue per staff member as a productivity benchmark (2× salary for admin, 5× for sales), followed by cash flow cycle and debtor days as liquidity indicators. Refund rate (target ≤3%) and the cash‑in‑bank versus deferred‑income ratio (typically 65/35) are highlighted as profit‑draining factors. Net promoter score is presented for both clients and staff to gauge satisfaction. Finally, he outlines lifetime client value (LCV) and maximum acquisition cost (MACC, roughly 50% of net profit) as marketing metrics, and stresses the importance of regular forecasting, budgeting, and multi‑year target setting. Throughout, Moore stresses the mantra “you cannot master what you do not measure.”
Chapters
Let's get on with it, shall we? So I think the most important metric to measure is your profit and loss. Now, people of course say, you know, you cannot master what you do not measure, and turnover is vanity and profit is sanity. But you don't always make profit, and that doesn't actually mean that business is bad. So for example, this August we made about a £45,000 loss in August, but we put £350,000 on our deferred income. So actually, net, in total, we've made about a £300,000 profit, but, uh, it didn't all go into August. So people talk about profit, but they don't tell you the full story. And the full story is profit and loss with deferred income and retained earnings, which I'll come to in a minute. So The best way to track your profit and loss is to have a set of management accounts. Now you can get a management accounts template off the internet pretty easily, off, or off your accountant or tax advisor. And then what you do each month is you just refine it by adding the bits that are really important in your business to check. On a profit and loss statement or a set of management accounts, you'll have sections like you'll have, um, cost of sales, you'll have various different sections, um, gross profit, net profit, retained earnings, etc. And over the months you'll get a nice set of management accounts which are very specific to your business. We're an events business, so we have costs of running events. Other design companies would have costs of design. So the management accounts is not the profit and loss. The management accounts is the the pre— they're not official tax return accounts, they're your internal management accounts, hence why they're called management accounts. And you want to get those so that you see them 7 to 21 days after month end. So if you finish the month and then 7 days after the month you have a full set of management accounts for the previous month, then you're doing really well. Sometimes it's 14, 21 days, it depends on your business, it depends on your refund days. So if you have a 14-day refund policy, you probably can't do your management accounts until at least day 15, because otherwise they won't be accurate. Most companies do not have a timely set of management accounts. What are you doing? Are you crazy? You must have this. You cannot master what you do not measure. And then your management accounts will ultimately become your profit and loss when they're accurately submitted to HMRC to tax the fuck out of you. Um, then the next one is the balance sheet. So, you know, the balance sheet is your assets and liabilities because you can spend cash on assets which make your profit look lower, but actually you've got a really healthy high balance sheet. Also, you can be profitable and have a negative balance sheet. So, you know, anything that's a capital asset in the business will go on the asset side of the balance sheet. And that can be depreciated over time to reduce your profit. And then anything that's on the liability side might be, for example, creditors or your debtors. It might also be loans, etc., and that'll be on the liability side of your balance sheet. Now obviously, in an ideal world, you want a positive balance sheet, but actually putting some assets on the balance sheet and then depreciating their value over time can be really good to reduce your tax bill. So one of my companies is an LLP, and I run a Lamborghini Aventador, run a Ferrari, run a Porsche Panamera Turbo S, etc., through it. It's a legitimate business expense. You can run a car through an LLP, you can depreciate it, run it on the profit and loss, hold it on the balance sheet, whereas in a limited company you can't do that. You have to pay massive company car tax. So So I basically get a Lamborghini, and I mean, that's a $350,000 car, but it's on the balance sheet. And if it's reducing in value, it's reducing your— it's essentially reducing your profit. But I'd buy one anyway, but I'd have to pay myself, pay 45% plus in tax, and then buy the Lamborghini. And also then I'd have to pay the maintenance, the depreciation, the tires, the fuel, everything else. But on, um, in in an LLP, you can run it in your company and depreciate on the balance sheet. So anyway, that's for another time. So must track your management accounts, must be 14, 21 days latest after month end, which become your profit and loss, and track and manage your balance sheet. If your accountant isn't doing that for you, you need to get a new accountant. Okay, next then is gross profit, cost of sales, and net profit. So, you know, they say turnover is vanity, profit is sanity. Well, I don't fully agree with that because if you're going for growth to sell your company to a bigger, um, you know, you're, for example, Clubhouse, and you might end up selling to Facebook, they're not really looking at your profit, they're looking at your user base, they're looking at your scale and your reach. So don't always believe that. But of course, if your purpose of business is profit, so, you know, gross profit is after cost of sales. And then all costs have to come off to get net profit. And gross and net profit are very different in some companies and not so different in others. We, for example, have partners and trainers, so we have quite a high cost of sales because we pay them their 20% or their 50% first, and, and then it comes off. So some people's gross margins are high but net margins are low, and vice versa. Next then is deferred income and retained earnings. These are really important, so Just remember, on my Instagram, my last story, I've listed all these for you so you can screenshot it and have it in your notes. You cannot master what you do not measure. It's really important. If salespeople say always be closing, business owners and marketeers will say always be tracking or always be testing or always be measuring. So deferred income is income that is, uh, cash is in the bank but you haven't put it into this month's profit and loss because you've got a deferred payment, a subscription payment, or a payment plan, or recurring revenue. And I mentioned this earlier, so we made— and, you know, I'm saying this, uh, with a view to being open and honest, um, and people will— people will—
yeah, sorry to interrupt you, you are killing it. I'm laughing and wetting myself here, God, what you're saying, but also Googling how do I set up an NLP so I can fly a Lamborghini. I wonder who else did that. But with that said, do you mind if I just interject? Because we're going to do a reset because it's recorded, and then we'll come back around to you. We love what you're saying, but we want to keep on the 8:10 so the Pool and Place jingle, and we can have it set for our app which people can download and hear this great content. So give me a second, Rob, and then I'll come back to you like a break.
I'll tell you what then, I'll do— I'll put you a little jingle live on Instagram because I'm live on Instagram, so I'll let everyone hear your jingle on Instagram. How's that go?
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Amazing. Now, who am I handing the mic over to? Should I just go straight back to Rob Moore or introduce the new person who's taking over? Amazing. Go for it, Rob. Thank you.
Thanks, Paul. Thanks. Um, I've just played your jingle on my Instagram Live, so hopefully you get some new members. Um, everyone watching my live, I'm actually live in Clubhouse in the Breakfast with Winners, uh, club room. They run every day from 6 AM on Clubhouse. They run a brilliant room, so make sure you join Clubhouse and come and follow, um, you know, the moderators there and jump in their room. So they give great content. Right, anyway, back to my, um, I've covered essential business metrics which are profit and loss, management accounts, balance sheet, gross profit, cost of sales, net profit. Um, deferred income is the income that you've got rolled up. The cash is already in the bank, but you haven't placed that in your profit and loss for this month because you haven't delivered it yet. The higher you build up your deferred income, the higher retained profits you've got in your future months. This is why subscription models, subscription and software businesses have high multipliers and they sell for really high multipliers of turnover or profit because they have a lot of deferred income and a lot of future promised revenue. So like I said, if we'd have done cash accounting, all the money in the bank in August, we'd have made £350,000 in one of our training businesses. But because a lot of that income is on payment plan or subscription revenue, it got deferred. And we made a 40-odd grand loss in August, but we deferred over 300 grand across the rest of the year. So you look at your month and go, holy shit, I've had a loss month. But actually, across the next 6 to 12 months, we've already got retained profits in there, which will obviously increase our profits in those months. So you must track your deferred income, especially if you do software. Payment plans, recurring income. Retained earnings is profits you've got retained in the business. You need to know that because people spend cash they haven't got because they've got cash in the bank and they think they can draw that or spend that, but you can only draw retained earnings. You can't draw cash, just retained earnings or retained profits. Okay, next thing to measure is your revenue per staff member. If your revenue per staff member is going down, then you are becoming less agile, less lean. If your revenue per staff member is going up, you're becoming more lean, probably not necessarily more profitable. I look for a 2x revenue per staff member on admin and a 5x revenue per staff member on sales, roughly speaking. So if it's an admin role, I'm looking for them to generate 2x their salary, and if it's a sales role, I'm looking for them to generate 5x their salary or more. Next then is cash flow or debtor days or the cash flow cycle, which is, um, from date of invoice or delivery of product or service to money in the bank. So, um, for some people that's 30, 60, 90, 120 days. The longer it is, the harder your cash flow management is in your business. So if you can reduce your cash flow cycle, your cash flow and debtor days then obviously you're more liquid, you have less risk of suppliers and clients going bust on you, etc. Next then is refund rate or percentage. You need to track your refunds because you can do the sales thinking that you're doing X amount of sales, but if you have 10 or 20% refund rate or more, then obviously that could be all your profit gone. We target a 3%, i.e., we'd— I'd like to be no more than 3% refund rate. It does depend on pandemics and lockdowns and where, you know, just the point of sale, etc., whether it's done online or face-to-face. Next then is cash in bank versus deferred income. So cash in bank is money you put in the bank today. Deferred income is a sale, but the cash actually isn't in the bank and you need to track as a percentage. So we're normally at 65% cash in bank, 35% deferred income. On the sales of our products and services. You need to track that. You cannot master what you do not measure. And cash in bank is good obviously for cash flow, but deferred income is good for ongoing recurring income. Some people set their business up that they like more deferred income. Some people set their business up that they like, like, they like more cash in bank. So very important to track that. Next then is net promoter score. Internal and external. So net promoter score is essentially how happy your clients are and how happy your staff are. So if you do net promoter score to your clients, you basically ask them on a 0 to 10, how happy are you with our products and services that we offer? And then with your staff internally, on a scale 0 to 10, 0 being here's my resignation letter and you can roll it up and put it in your pipe and fucking smoke it, and 10 being, I wanna live here, sleep here, get married in the office, what score are they? And what you do every quarter is you do a net promoter score for your staff and a net promoter score out to your client base, and then obviously you can track that and average it if it's going up or down. Next two are marketing as well as business metrics, but they're really important. Lifetime client value and maximum acquisition cost. So LCV is the lifetime value of your client. Now, if you're only— if you've only got one product, you can sell them again and again and again. If you've got multiple products, you can upsell, cross-sell, downsell. How do you extend the purchasing of your clients from months to years to decades? Because as you extend the lifetime client value, you obviously, you generate more sales, but you probably generate more profit. Because I'm told it's 11 times harder to get someone to buy than it is to get someone who's already bought to buy. So Jeff Walker, who's big in product launch, says he's done some testing, and if someone's bought something from you, they're 11 times more likely to buy again than someone who buys for the first time. So selling to your existing clients and tracking and extending that lifetime client value, uh, is a really important metric. Maximum acquisition cost, or MACC, that's the maximum you're prepared to pay to acquire a client. The way I work it out is 50% of my net profit I will pay to acquire a client. So it means I, I'm going to get on average half my net profit of if I didn't have to pay to acquire the client. So if you sell something for £1,000 or dollars and your net profit is 30% margin, so that's £300 or dollars, you can afford to pay £150 or dollars to acquire the client. Now if your client buys on average 5 times and the first product is £1,000 at 30% margin, In theory, you could pay the whole 30% or the whole £300 because they're going to buy another 4 times. So when you know your lifetime client value and your maximum acquisition cost, you can actually pay more to acquire the client. Therefore, you beat your competitors on all your ad campaigns. And then finally, forecast budgets and targets. So every month, quarter, and year, you need to make a forecast of what your revenue will be and then a budget of your spend to hit that revenue, and then of course your targets for turnover and profit every year, 3 years, or 5 years. So quick summary, then I hand over the mic. Thanks for letting me share. On my Instagram stories, I've actually put my last story, I've put a list of all these that I've covered. You can just go and screenshot that. So essential business metrics: profit and loss, management accounts, and balance sheet. Gross profit, cost of sale, and net profit. Deferred income and retained earnings. Revenue per staff member. Staff turnover and average tenure. Actually didn't cover that, cover that another time. Cash flow and debtor days, how long it takes from agreeing the sale to getting the money in. Refund rate as a percentage, is it going up or down? Cash in bank versus deferred income and which ones you want to focus on. Net promoter score, the satisfaction as a score of your clients and of your staff. Internally and externally, lifetime client value and maximum acquisition cost per client, and then forecasts, budgets, and targets. So hope that was useful, um, in the clubhouse room, and thanks for tuning in on the Instagram Live.
Oh my good heavens, can we please
