8 numbers every small business owner should know

Finance

May 5

Only about 35% of businesses make it to year 10. For those of us building long-term businesses that don't just make money but actually generate personal wealth, that’s a harrowing number.

There are lots of possible explanations as to why most businesses don’t last. But based on the research there’s one possible reason that really jumps out to me: Nearly half of small business owners say they lacked financial literacy when they started, and 48% of people go into entrepreneurship specifically motivated by generating personal wealth.

Wanting to build a profitable business and being ready to build a profitable business are two separate things. The gap between the two can make the difference between a business that is generating enough revenue to support the business (and owner) and the ones that don’t.

I'm a two-time small business owner and, if I'm being honest, a bit of a finance nerd. I was the girl sitting on her dad's lap looking at investment platforms, learning what all those numbers meant. My friends still call me when they want to negotiate a job offer or figure out when to open their Roth IRA. I'm not a financial professional (please don't take any of this as financial advice, consult a professional if you need guidance), but I've used these numbers to run both of my businesses, and I've learned a lot along the way.

Today we're walking through the 8 numbers I think every small business owner should know, broken into three tiers: the basics, the numbers that help you identify where you're stuck, and the numbers that help you decide what to do next.

Prefer to watch? Here's the video!

What metrics should you track to make more money in your small business

The three basics you need before anything else

Most business owners have at least some familiarity with these. We're going through them anyway, because the next two tiers build directly on them.

Revenue is the top-line number — dollars in the door. When you hear "top line," that's a reference to an accounting sheet where revenue is literally the first line. These are the numbers you see in income report videos where business owners share how much they made. Those videos can be genuinely useful for transparency, but they also steer a lot of people into comparison, because revenue is just the starting point. It doesn't tell you what that person is actually making.

Expenses are the costs it takes to deliver and generate that revenue. Employees, marketing spend, a new computer when yours breaks. They get subtracted from revenue because they're dollars going out in order to have dollars coming in.

Profit is what's left after expenses come out of revenue. For any long term business, this is the number that really matters because it refers to the money actually available to pay the owner or re-invest in the business. Which brings me to…

One distinction that trips a lot of people up: business profit is not automatically the dollars in your pocket. A business can show strong profit for a month while the owner pays themselves very little, because that profit might be sitting in a business emergency fund, going back into software or systems, or being reinvested into growth. (Not a subtle plug at all, but reinvesting profit into a consultant who builds systems that save you time? That's one valid option.) Business profit only becomes what’s called “owner profit” when it’s transferred from the business bank account to the owner’s personal bank account, to spend for personal purposes. There are some important technical details in how you do this but I will leave that to the tax and financial experts to advise on.

These three numbers are the bare necessities. To be blunt, if you don’t know these numbers, you don’t have a business yet. So it’s time to open up that Google Sheet and start tracking.

But even if you know these numbers for your business, it’s important to realize they're backward-looking. They're a snapshot of what already happened. To be able to make strategic decisions looking forward, we need to look deeper.

Three numbers that show you where you're stuck

Numbers are just shapes on a page until they give you useful information. That’s when they become insights. One of the main benefits of tracking the numbers of you can start to interpret the data into answers to "why isn't this working." To do that, you should be tracking the following:

Reach or impressions is your running sense of how many people you're getting in front of each month.

What’s the difference? Reach counts unique people while impressions count total instances someone saw your content. So if one person watched three videos, they would count as a reach of one but three impressions. What matters more than the distinction is picking one and staying consistent with it.

You might know your impressions on Instagram or TikTok but what I don't see enough of is business owners aggregating that number across all their channels — social, email, in-person events. Taken together, it tells you how many at bats you're getting each month. How many opportunities are you having to put your business in front of people? That's the first question, before we get into any deeper analysis of whether they're the right people or anything else.

Conversion rate is the percentage of inquiries that turn into paying clients. If you're a coach, consultant, or service provider, start here: of the people who reach out about working with you, how many actually buy? That percentage rate is your conversion rate, and it should informs basically all of your strategy.

Here's why it matters. Once you have a conversion rate, you can model your business. If I get more people into the funnel, I can expect revenue to increase to X. If I improve my conversion rate while keeping volume the same, I can expect revenue to go up by Y.

Once you are tracking things more consistently, you can increase the complexity and track not just that one conversion rate, but the conversion rate at each stage of the customer journey - from social media, on your website, on the checkout and so forth, so that you can watch for any point where people are getting stuck.

In my last business, I ran this analysis from social media views to profile visits, profile to website, website to sales page, sales page to checkout, checkout to purchase. Each of the conversion rates at each stage were multiplied to give me one overall conversion rate of what rate people went from being a social media view to an actual purchase. The number was 0.008%.

That number was quite low, which I knew even at the time. I was analyzing my digital product sales which had been flagging and was curious to know, if I wanted to generate $5,000 a month from digital products at my current conversion rate, how many views would I need to make it work. The answer was 3 million views a month. Now that number may sound huge (it sure sounded that way to me) but it forced me to be honest about whether I was willing to build the model around that volume of views. My only other alternative (which is what I went with) is invest in increasing my conversion rate via market research, talking to customers and reducing the amount of steps I was asking anybody to go through to buy my product.

The good news for anybody selling high-ticket and/or service-based businesses is that you don't need anywhere close to that kind of volume. Conversion rates on higher-ticket offers tend to be meaningfully higher than on low-ticket product businesses. But by having done the conversion rate analysis, I had valuable insights about what I needed to focus on next and many businesses would benefit from similar clarity.

Our final number in this section is effective hourly rate. Effective hourly rate gives you a real value of your time.

This is probably the number that catches most people off guard, especially if you don't charge clients hourly. (To be clear, I don't charge clients hourly and I still calculate this rate.) This number isn’t meant to estimate what you charge a client for an hour of your time either. It’s a much broader number, meant to estimate roughly what the earning potential is for an hour of your work. That includes all the backend work it takes to run your business, plus time serving clients plus marketing time and so on and so forth.

To calculate your effective hourly rate: divide your monthly revenue by the number of hours you worked in a month to generate it. For example, if you worked 60 hours a week every week of the month to hit a $20,000 month, your effective hourly rate is $77. Run the math and see where you land. Most people are surprised!

We may think about our earning potential in terms of what we could charge for an hour of our time, what most people consider their Billable Rate, but that number has to be in context of all the other things it takes for you to actually make that money. If you’re spending 40 hours a week doing behind the scenes work and only 10 hours serving clients, your hourly rate might look amazing but for every 1 hour you’re generating revenue, there’s 4 hours you aren’t.

Effective Hourly Rate reveals how efficiently you’re making money. It also gives you an estimate of, if you’re able to give yourself more time (say, perhaps by hiring a consultant who gives clients 3-8 hours back per week…*wink*), how well you could convert that time into more money. The more efficiently any part of your business runs, the higher your effective hourly rate is. The more you’re able to charge for an hour of your time (either by raising prices, or by delivering your services in less time), the higher your effective hourly rate is.

A low effective hourly rate points to one of two things: either it's time to look at your operations (can you make any part of your business, the client work or the behind the scenes, more efficient?) or it's time to revisit pricing (can you generate more money per unit of time spent?). Both are fixable. But you have to know the number first.

These three numbers are powerful indicators of where there might be weaknesses in your business:

Reach or impressions tells you if you’re not getting in front of enough people
Conversion rate tells you if you’re not giving people what they need to easily buy from you
Effective hourly rate tells you the value of your time (and the efficiency with which you’re delivering your work)

Knowing these three numbers gives you a ton of clarity on where in your business might need attention. But much like the basics, these numbers are primarily backward-facing, looking at how things are. To really take our business to the next level, we need to look at our third category!

Two numbers that help you decide what to do next

This tier takes everything from the first two and puts it to work in making decisions for the future. The most strategic business owners are not simply reacting to what happens in a given month of business and then turning around and saying “I guess we’ll see” when thinking about the future. They’re reflecting on all the numbers we’ve already discussed and making strategic predictions and decisions about what they want to do next and what that will translate to. This brings us to our last two numbers I think every small business owner should track.

First, projected revenue is your best estimate of what you'll bring in next month, and ideally the months beyond that. The practice of projecting revenue is creating a second version of the monthly tracking system you use for things like revenue, expenses and profit and rather than looking backwards, making a set of predictions of what those numbers will look like in your business moving forwards.

I think the reasons many business owners don’t do this is that they have no clarity on the levers that lead to revenue, things like visibility (measured via impressions), conversion rate (as discussed above) and their own ability to create revenue (which effective hourly rate can begin to approximate). Without the earlier numbers in place, this really can feel like guessing. But once you know your typical conversion rate and have a sense of your monthly reach, projection stops being wishful thinking and starts being a calculation.

But as with all things in business, there are many forces beyond our control. What's valuable here isn't putting a number in a spreadsheet and then magically making that happen. It’s as useful if your projections are wrong because it challenges you to figure out what factor didn’t behave like you expected and over time, that will give you more and more insight on how to create predictable results in your business.

If you historically get 10,000 views per month across you marketing efforts and see that convert to about 10 discovery calls (conversion rate of .1%) and again, historically, you convert about 50% of your discovery calls to your $5K product, then you might project that in a typical month when all those things stay the same, that you’d see $25K in revenue (10 discovery calls becomes 5 clients x $5K each becomes $25K).

Then imagine it’s the end of the month and your revenue is only $20K. You check back at the rest of your numbers and your views were closer to 5,000 this month. That converted to about 8 discovery calls, which you converted 4 of, leading to that $20K in revenue. These numbers say some interesting things - views were down, that happens some times just based on unrelated fluctuations or perhaps you were less consistent with content. But with your 5,000 views you converted 8 discovery calls, a conversion rate of .16%, almost 50% higher than your typical .1%. Once you got to a discovery call, things converted as normal, but because you had fewer calls, revenue was lower.

Having these predictions and then evaluating them against the actuals yields all sorts of useful insight, which only grows over time. In the above example, this month would make me feel even more confident in my conversion rate from discovery call to client since it’s been proven out another time. I’d be curious what led to the drop in views and how we can get it back up but I’d also want to know what about our content was different this month that might have led to the higher conversion from content to discovery call because if we can sustain that, then we can get more calls per views, eventually yielding more revenue.

Advanced business owners project not just their revenue but expenses and profits and over time you’re able to make educated guesses about what the future looks like (which helps for planning). You can also build smarter experiments to dial in certain parts of your business. Finally, the value of projecting is that you begin to strengthen your instincts as the business owner of what the key levers are in your business that leads to revenue. The more you test that with projections (and then figuring out what, if anything, you assumed incorrectly), the stronger your understanding will be about your business.

You will absolutely get projections wrong some to most of the time. But the exercise of writing things down and then evaluating why the numbers were off last month is so valuable.

The second number that’s useful for planning for the future and the final number I think every business owner should know is:

ROI stands for return on investment. You’ve probably heard the term - most business owners understand ROI conceptually but rarely actually calculate it for a given decision with real numbers. The framework is simple: what am I putting in, and what do I realistically expect to get back?

The biggest mistake I see when discussing ROI is people only looking at the money portion. ROI can be money, time, lack of stress and so many other things. But many of those things are hard to calculate. In a business context, what’s most important is that you think about both money and time. This is hard for many business owners still if they don’t know their effective hourly rate because if a software gives them 2 hours back per month, they don’t know how to value that compared to the cost.

But once you know your effective hourly rate, you can look at that same software and evaluate, if it gives you at least 2 hours back a month multiplied by your effective hourly rate (let’s use the above example of $77), it has the potential to give you $154 in value back before you even think about whether the software could contribute to any money savings or money making.

ROI can also be useful in comparing two different options. If you are considering whether to manually work on your YouTube thumbnails to try to improve conversion or to invest in a consultant to do the same, the money comparison might be $77 (your eff. hourly) x the 10 hour per month for three months you expect to spend or $10K fee for the consultant + 2 hours per month you’ll spend on calls with them. So to compare the two we’ve got $2,310 of your time vs. $10,140 for consultant fee + small amount of your time. Then you’d estimate return. Say the consultant shows you case studies that say their thumbnail optimization consistently yields such view improvement that channels see 2-3x views and based on your channel metrics this could be up to $30K in new revenue from people finding your business + you’d get 24 of those 30 hours of your time back. Then you’d estimate what impact your manual improving could do. Say you conservatively estimate $5K in new revenue.

Now we’ve got the consultant case: ($30K in new revenue + 1,848 of your time - $10,140 in investment) / $10,140 in investment = 2.14x ROI

And the DIY case: ($10K in new revenue - $2,310 in investment) / $2,310 in investment = 3.32x ROI

So in this case, the DIY case looks much stronger.

In this scenario, I might be curious what a more conservative case is for how my DIY efforts would actually yield return. If doing it myself only yields $3K in new revenue vs. $10K, the ROI s down to .29x and the case for the consultant looks much stronger, even though it requires a cash outlay up front.

Much like project revenue, the goal of this exercise isn’t to get it right all the time, but to go through an exercise to make an informed decision and then to learn from those decisions over time to get better and better at running your business.

The piece most people miss is factoring in the cost of their own time. Because you now know your effective hourly rate, you can run a real number on what it costs you to do something yourself versus hiring it out. A lot of decisions look different when you actually run that.

Why most business owners avoid looking at these

I'll be honest: I think most people don't track these numbers because they don't want to have to confront the reality of their business. It's actually a little more comfortable to stay in the unknown and stay in hustle mode, keep trying things. Once you know the numbers, you can't hide from the deeper, harder work of figuring out what to fix.

But the flip side is that you get very clear, very fast, on where your problem actually lives. Is it reach? Are you not getting in front of enough people? Is it conversion? Are people finding you but not buying? Is it your effective hourly rate? Are you working more hours than your revenue justifies? The numbers point you directly to the lever. And when you know the lever, you can pull it instead of guessing.

If you haven't been tracking any of this, start with the three basics. Get consistent with revenue, expenses, and profit for a month or two. Then add one number from the second tier, probably conversion rate, and run it consistently long enough to have a baseline. You don't need a complicated dashboard to do this. You need a reliable habit with the right numbers.

Frequently asked questions

What are the most important financial numbers for a small business to track?

The three non-negotiables at every stage are revenue (total income), expenses (total costs), and profit (revenue minus expenses). Those are the foundation. Beyond that, the most undertracked number for service-based businesses is conversion rate — the percentage of inquiries that become paying clients. Knowing your conversion rate changes how you plan, what you prioritize, and how you set realistic revenue goals. If you're only tracking one number beyond the basics, start there.

How do I calculate my effective hourly rate?

Divide your total revenue for a period by the total hours you worked to generate it. If you made $20,000 in a month and worked 240 hours to do it, your effective hourly rate is about $83. This number matters whether or not you charge clients hourly — it tells you what your time is actually worth in your business and gives you a basis for evaluating operational changes and pricing decisions. If the number is lower than you expected, that's useful information.

What's the difference between business profit and what I actually take home?

Business profit is the money remaining in the business after expenses are subtracted from revenue. What you personally take home is a separate decision. Money only moves to your personal account when you choose to transfer it. A business can show strong profit and still have an owner paying themselves very little, depending on how that profit is being saved, held in reserve, or reinvested. It's worth being clear on this distinction before comparing your numbers to anyone else's.

How do I start tracking small business metrics if I haven't been?

Start with revenue, expenses, and profit. Even a simple spreadsheet updated once a month will get you further than most business owners go. Once those three are consistent habits, add conversion rate: count how many inquiries you receive each month and how many turn into sales. Run that for two or three months and you'll have a baseline to work from. If you find yourself seeing clear patterns in the numbers but unsure what to do about them, that's often where working with an operational consultant becomes worth it.

Is ROI worth calculating for small business decisions?

For any meaningful investment of time or money, yes. The calculation is simpler than it sounds: estimate what you're putting in (including the value of your time using your effective hourly rate) and estimate what you realistically expect to get back. If the return is greater than the investment, it's worth considering. If you're choosing between two options, run both. The ROI framework is most useful when you're deciding how to spend limited time or money, which is most of the time as a small business owner.