There’s a test we’d invite every business owner to try. Without looking anything up, can you answer the following?

• What percentage of your revenue is left after you’ve paid your direct costs?
• How much do you need to sell each month just to break even?
• How many days does it take, on average, for your customers to pay you?
• If no new money came in tomorrow, how long could your business keep running?

If you found yourself hesitating, you’re not alone, and it doesn’t make you a bad business owner, but it is worth addressing. The business owners who grow with confidence, make good decisions under pressure, and avoid nasty financial surprises tend to have one thing in common: they know their numbers.

Here are the six metrics that matter most.

The six numbers worth knowing

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Gross profit margin

Your gross profit margin tells you what percentage of your revenue is left after you’ve paid the direct costs of delivering your product or service — things like materials, manufacturing, or the staff directly involved in delivery.

To work it out: subtract your direct costs from your revenue, divide that figure by your revenue, and multiply by 100. So if you bring in £100,000 and your direct costs are £60,000, your gross margin is 40%.

Why it matters: your gross margin is the engine of your business. If it’s too low, increasing sales volume alone will not resolve the problem. Knowing your margin helps you price correctly, negotiate with suppliers, and spot where costs are creeping up.

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Net profit margin

Where gross margin removes your direct costs, net profit margin takes everything into account — your overheads, salaries, rent, software, marketing, and so on. It tells you what percentage of your revenue actually ends up as profit once all the bills are paid.

A healthy net margin varies significantly by industry, so rather than chasing a magic number, focus on understanding what yours is right now and whether it’s moving in the right direction over time.

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Breakeven point

Your breakeven point is the amount of revenue you need to generate each month just to cover your costs, before you make a single penny of profit.

To calculate it, add up all your fixed costs for the month (rent, salaries, subscriptions, loan repayments) and divide by your gross margin percentage. The result tells you how much you need to sell before you’re in the black.

Knowing your breakeven point is particularly valuable when you’re making decisions about new costs — a new hire, a bigger premises, a piece of equipment. It tells you exactly how much extra revenue you’d need to justify that spend.

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Debtor days

Debtor days measures how long it takes, on average, for your customers to pay their invoices. It’s calculated by dividing your outstanding receivables by your average daily revenue.

For growing businesses in particular, slow-paying customers can cause serious cash flow stress even when the business is profitable on paper. Keeping an eye on this number  and chasing late invoices promptly makes a real difference.

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Cash runway

Cash runway is probably the most visceral number on this list. It tells you how long your business could survive if no new revenue came in, based on your current cash balance and your monthly outgoings.

Divide your cash balance by your average monthly costs and you’ll get a figure in months. Most advisors suggest having at least two to three months of runway at any given time; more if your revenue is seasonal or unpredictable.

Knowing your runway means you’re never caught off guard. It also gives you the confidence to make bolder decisions when the number is healthy.

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Revenue per head

Revenue per head is simply your total revenue divided by the number of people in your business. It’s a useful measure of productivity and efficiency, and it’s particularly helpful when you’re thinking about whether to hire.

If your revenue per head is rising over time, it generally means your team is becoming more productive or that your pricing is improving. If it’s falling as you take on more people, it’s worth asking why.

 

What to do if you’re not sure of your numbers

The first step is simply to find out. Pull up your accounts, have a conversation with your bookkeeper, or ask your accountant to walk you through them. Most of these figures can be calculated from information you already have; it’s often just a case of knowing where to look and what to do with them.

The second step is to review them regularly. A snapshot is useful and a trend is invaluable. Looking at these metrics monthly will tell you far more about the health of your business than an annual review ever could.

And the third step is to act on what you find. Numbers are only valuable if they inform decisions. If your debtor days are creeping up, tighten your credit control. If your gross margin is falling, look at your pricing or your supplier costs. If your runway is shorter than you’d like, start building it back up now rather than when it becomes urgent. 

Where a good accountant makes a real difference

There’s a version of accountancy that’s purely backward-looking. On the other hand, there’s a version that’s more useful: helping you understand your numbers in real time, spot trends before they become problems, and make decisions with clarity and confidence. 

That’s the kind of relationship we aim to have with every client at Sawford Bullard. Not just processing your figures, but helping you understand what they mean and what to do about them.

If you’d like to get a clearer picture of your own numbers, or if you’re not sure your current accountant is giving you the insight you need, we’d love to have that conversation.

Get in touch with the team at Sawford Bullard →