Financial vs. Non-Financial KPIs: What to Track and Why

 

Financial vs. Non-Financial KPIs: What to Track and Why

1. Introduction

In today’s business world, measuring performance is very important. Companies need to know if they are doing well or not, and how they can improve. To do this, they use something called Key Performance Indicators (KPIs). These are tools or signs that help businesses check their progress.

There are two main types of KPIs: financial KPIs and non-financial KPIs. Financial KPIs focus on money-related results like profit, revenue, or return on investment. Non-financial KPIs look at other important things, such as customer satisfaction, employee performance, and product quality.

Both types are useful in different ways. In this article, we will explore what financial and non-financial KPIs are, the key examples of each, and why businesses should track both for long-term success.

2. Elaborating with Key Points of Financial KPIs

Financial KPIs are used to track how well a company is doing with its money. These are usually shown in numbers and are often found in balance sheets, income statements, and cash flow reports. They are very important for investors, managers, and stakeholders who want to see if a company is profitable and financially healthy.

Here are some major financial KPIs:

a) Revenue (Sales)

Revenue is the total income a company earns from selling its products or services. It is one of the most basic KPIs. If a company’s revenue is increasing, it usually means the business is growing.

b) Net Profit Margin

This shows how much profit a company makes after all costs are removed from the total revenue. It is written as a percentage. A higher net profit margin means the company is more efficient in controlling its costs and making profits.

Formula:
Net Profit Margin = (Net Profit / Revenue) × 100

 

c) Gross Profit Margin

Gross profit margin tells us how much profit a company makes just from selling products, without including operating expenses like rent or salaries.

Formula:
Gross Profit Margin = (Revenue – Cost of Goods Sold) / Revenue × 100

d) Return on Investment (ROI)

ROI is used to measure how well a company is using its money to generate more money. It shows the return earned from an investment.

Formula:
ROI = (Net Profit / Investment Cost) × 100

e) Current Ratio

This ratio checks if a company can pay its short-term debts with its short-term assets. It helps measure the liquidity or financial strength of a business.

Formula:
Current Ratio = Current Assets / Current Liabilities

Why Track Financial KPIs?

• To measure the company’s financial health
• To plan budgets and manage expenses
• To attract investors and secure funding
• To identify areas where profits can improve
• To make smarter financial decisions

Financial KPIs help leaders make sure the company is running efficiently and staying profitable.

3. Elaborating with Non-Financial KPIs

While financial KPIs are very important, non-financial KPIs are equally necessary. These indicators don’t directly deal with money but help show how well different areas of the business are working. Often, they give early signs of future financial success or trouble.

Here are some common non-financial KPIs:

 

 

 

a) Customer Satisfaction

This shows how happy customers are with your product or service. Businesses often use customer surveys, reviews, or Net Promoter Score (NPS) to track this.

Why it matters:
Happy customers are more likely to return and recommend the company to others, which helps increase sales.

b) Employee Turnover Rate

This tracks how many employees leave the company in a certain time period. A high turnover rate may mean that employees are unhappy or not satisfied with their job.

Why it matters:
High employee turnover can lead to higher costs in training and hiring. It can also affect work quality and customer service.

c) Product Quality

This checks how well a product performs and how often it fails or needs repair. It can be measured through product returns, defect rates, or customer complaints.

Why it matters:
Good product quality builds trust and reduces costs linked to repairs or returns.

d) Customer Retention Rate

This shows how many customers keep buying from the company over time. Keeping old customers is often cheaper than finding new ones.

Formula:
Customer Retention Rate = [(Customers at end – New customers) / Customers at start] × 100

e) Website Traffic or Social Media Engagement

These KPIs are especially important for online businesses. They show how many people are visiting your website or interacting with your content on social media.

Why it matters:
More engagement means more visibility, which can lead to more sales in the future.

 

 

 

Why Track Non-Financial KPIs?

• To improve customer experience
• To monitor employee satisfaction and performance
• To find issues before they hurt the business financially
• To strengthen the brand and company culture
• To support long-term growth and innovation

Non-financial KPIs give a full view of how the company works beyond money. They help leaders take care of the people, processes, and products that affect financial results later on.

4. Conclusion

To grow and succeed, a business must track both financial and non-financial KPIs. Financial KPIs show where the company stands in terms of profit and money, which is important for survival and growth. But they often tell you what has already happened.

Non-financial KPIs, on the other hand, offer a deeper look into what might happen next. They focus on things like customers, employees, and internal processes. These can warn a company early about possible problems or opportunities before they affect money.

In short, financial KPIs are like the final exam results, while non-financial KPIs are like the homework and daily studies. Both are needed to succeed.

Smart companies don’t choose one over the other. They use both types of KPIs to make better decisions, keep customers and employees happy, and stay ahead in the competition.