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Lesson 14

Business Metrics & KPIs

Apply percentages to profit margins, conversion rates, and market share.

  • expert

Formula

Profit Margin = ((Revenue - Cost) / Revenue) × 100

📚 Business Metrics & KPIs

Key Performance Indicators (KPIs) use percentages to measure business success. Understanding these metrics is essential for entrepreneurs, managers, and investors.

1. Profit Margin:

Profit Margin = ((Revenue - Cost) / Revenue) × 100

Example:

A company has $500,000 in revenue and $350,000 in costs.

1
Profit = $500,000 - $350,000 = $150,000
2
Profit Margin = ($150,000 / $500,000) × 100 = 30%

2. Conversion Rate:

Conversion Rate = (Conversions / Total Visitors) × 100

Example:

An e-commerce site has 50,000 visitors and 1,500 purchases.

1
Conversion Rate = (1,500 / 50,000) × 100
2
Conversion Rate = 3%

Industry average is 2-3%, so this is good!

3. Market Share:

Market Share = (Company Sales / Total Market Sales) × 100

Market share shows what percentage of an industry's sales your company captures. Higher market share often means stronger brand recognition and competitive advantage.

Other Important KPIs:

  • Customer Retention Rate: (Customers at end - New customers) / Customers at start × 100
  • Gross Margin: (Revenue - COGS) / Revenue × 100
  • Operating Margin: Operating Income / Revenue × 100
  • Churn Rate: Customers Lost / Total Customers × 100

Frequently Asked Questions

How do I calculate a conversion rate?

Divide the number of people who took the action by the number who could have, and multiply by 100: 40 purchases from 2,000 visitors is a 2% conversion rate.

What is market share?

A company's sales as a percentage of the whole market's sales: $5 million of sales in a $50 million market is a 10% share.

Practice

Work each one out, then check yourself.

  1. A company has revenue of $500,000 and costs of $350,000. What's the profit margin?

    Hint: Profit = $500,000 - $350,000 = $150,000. Then divide by revenue and multiply by 100

    Show answer

    30

  2. A website has 50,000 visitors and 1,500 purchases. What's the conversion rate?

    Hint: Conversion Rate = (1,500 / 50,000) × 100

    Show answer

    3

Final Quiz

0/3

Test what you learned. Pick the correct answer for each question.

  1. Profit margin = profit ÷ revenue. With $40 profit on $200 revenue, margin is:

    Profit margin = profit ÷ revenue. With $40 profit on $200 revenue, margin is:

  2. 100 visitors, 5 buy. Conversion rate?

    100 visitors, 5 buy. Conversion rate?

  3. Markup is profit divided by cost. $60 cost sold for $100 — markup is:

    Markup is profit divided by cost. $60 cost sold for $100 — markup is: