As a solopreneur, understanding your financial metrics is crucial to running a successful business. You may not have a finance team, but by tracking a few key numbers, you can make smarter decisions that will keep your business profitable and growing.
Here are 3 essential financial metrics every solopreneur should be tracking to stay on top of their business finances.
1. Cash Flow
Why it Works:
Cash flow is the lifeblood of any business. It tracks the money coming in and going out of your business. Positive cash flow means you’re earning more than you’re spending, while negative cash flow indicates that more money is leaving your business than coming in. Monitoring your cash flow helps you understand whether you have enough money to cover expenses and invest in growth.
How to Do It:
Use an accounting tool or a simple spreadsheet to track your income and expenses. Review your cash flow monthly to see how much money is entering and leaving your business. This will help you avoid surprises and plan for potential cash flow issues before they hit.
Real Example:
A personal trainer running his own fitness business wasn’t tracking cash flow closely enough. He had several clients, but during a slow period, he didn’t realize he was spending more on gym space rental and equipment than he was earning. After setting up a weekly cash flow review, he started planning for slower months by saving more during busy periods, allowing him to invest in online training programs that brought in more consistent income.
2. Profit Margin
Why it Works:
Your profit margin shows how much profit you’re keeping from each sale after covering all expenses. Tracking this metric ensures your business isn’t just bringing in revenue, but actually generating profit. A strong profit margin indicates you can cover expenses, reinvest in your business, and grow.
How to Do It:
To calculate your profit margin, subtract your expenses from your total revenue, then divide that number by your revenue and multiply by 100 to get a percentage. This will help you understand how much of every dollar you’re keeping after covering costs.
For example:
Profit Margin = [(Revenue – Expenses) / Revenue] x 100
Real Example (Incorporating Men):
A freelance videographer realized that while his project fees were high, he wasn’t making much profit due to expensive travel, editing software, and gear. After calculating his profit margin, he adjusted his pricing to cover these costs and started negotiating for clients to cover some travel expenses. As a result, his profit margin increased, and he could invest in better equipment, improving his overall service.
3. Customer Acquisition Cost (CAC)
Why it Works:
Customer Acquisition Cost (CAC) measures how much it costs to acquire a new customer. Tracking this is essential for ensuring you’re spending efficiently on marketing and sales. A high CAC can drain your budget, while a low CAC means you’re acquiring customers cost-effectively.
How to Do It:
To calculate CAC, divide your total marketing and sales costs by the number of new customers you’ve gained in a given period. This helps you see if you’re getting a good return on your marketing investments.
For example:
CAC = Total Marketing Costs / Number of New Customers
Real Example (Incorporating Men):
A solopreneur running an online coaching business noticed she was spending heavily on Facebook ads, but her CAC was high, meaning she wasn’t making enough profit from each new customer. After narrowing down her ad targeting and focusing on word-of-mouth referrals, her CAC dropped from $100 to $40 per customer. This made her business more sustainable, allowing her to scale without overspending on ads.
Putting These Metrics to Work
Tracking Cash Flow, Profit Margin, and Customer Acquisition Cost will give you a clearer picture of your business’s financial health. These metrics help you make smarter decisions about pricing, spending, and where to focus your efforts.
By understanding and managing these numbers, you’ll be able to grow your business with confidence and ensure long-term sustainability.
Want to Make Smarter Money Moves?
If you’re ready to start making money but aren’t sure where to begin, my Build 2 Thrive service can help. I provide personalized money-making strategy reports that guide you toward the best opportunities based on your skills, interests, and available time.
These reports break down the steps you need to take, so you can focus on making smart, profitable moves without wasting time on guesswork.