In this article:
- 1. Gross margin: the profitability of what you sell.
- 2. Break-even point: how much you need to sell to cover costs.
- 3. Customer acquisition cost (CAC): what a customer costs you.
- 4. Customer lifetime value (LTV): an estimate of what a customer is worth.
- 5. Operating cash flow: the cash that keeps the business running.
Running a business without data is like sailing in fog. You make decisions, but you cannot tell whether they take you toward your destination or toward the rocks. The good news is that you do not need a complex Business Intelligence system to gain clarity. You only need to understand and track a handful of key performance indicators (KPIs).
This guide explains the 5 KPIs, gives you three interactive calculators for three of them, and shows how to use each figure to support your decisions. Results are indicative and depend on the data you enter.
1. Gross margin
What is it?
A basic measure of the profitability of your product or service. It shows how much money is left from each sale after subtracting the direct costs of producing or delivering it.
What is it useful for?
- Setting prices: If your margin is too low, your prices may not be covering your costs as they should.
- Spotting inefficiencies: A falling margin can signal that material or production costs are rising unchecked.
- Deciding which products to prioritize: It lets you compare profitability and focus your sales effort on what earns the most.
2. Break-even point
What is it?
The sales volume you need to reach to cover all your costs. Beyond this point, each sale starts to generate profit.
Interactive calculator
Break-even calculator
3. Customer acquisition cost (CAC)
What is it?
The total marketing and sales investment needed to win one new customer. It helps you judge whether your campaigns pay off.
Interactive CAC calculator
CAC calculator
4. Customer lifetime value (LTV)
What is it?
LTV (lifetime value) estimates the total revenue you expect from a customer over the whole relationship. It is usually compared with CAC: the higher LTV is relative to CAC, the more room you have, but it depends on margins and payback time. This calculator uses revenue, not margin.
Interactive LTV calculator
LTV calculator
5. Operating cash flow
What is it?
It measures the cash coming in and going out of your business through its main operations.
"A company can be profitable on paper and still fail for lack of liquidity. This KPI keeps you grounded."
What is it useful for?
- Anticipating liquidity problems: It helps you anticipate possible difficulty paying payroll or suppliers next month.
- Planning investments: It helps you judge whether you have the real financial room to buy new machinery or hire someone.
- Talking to banks: Positive, predictable cash flow usually helps when you ask for financing.
Key takeaways
- You do not need to measure everything: Start with these 5 KPIs to get an 80/20 view of your business.
- Compare LTV vs. CAC: A useful reference for checking whether your marketing and sales are sustainable, alongside margin and cash.
- Do not forget cash flow: Profitability matters, but liquidity is what keeps your business alive day to day.