Benchmarking Your Business Metrics: The 7 Key Indicators of Health
You know your revenue. But do you know if you're actually profitable? Most handmade makers operate blind, tracking only what's easy (sales) while ignoring what matters (margins, efficiency, unit economics). This guide teaches you to measure 7 critical metrics that reveal your true business health. Track these monthly and you'll make smarter decisions than 95% of makers.
Why Metrics Matter
You can have $100,000 in annual revenue and be losing money. Or $30,000 in revenue and be extremely profitable. Revenue means nothing without context. Metrics provide that context. They tell you which products are winners, which platforms are efficient, and whether your business is actually sustainable.
The seven metrics in this guide are not arbitrary. They're the same metrics that professional CFOs track. If you measure these seven monthly, your business will outperform 95% of competitors who only track revenue.
The 7 Essential Metrics
Metric 1: Gross Margin (%)
Gross Margin = (Revenue - COGS) ÷ Revenue × 100
What it means: How much of each dollar of sales is actual profit before operating expenses. Shows your pricing power and material efficiency.
Example: $1,000 revenue - $400 COGS = $600 gross profit. Gross margin = 60%.
Healthy target: 50-70% for most handmade businesses. Below 50% means you're either underpricing or your costs are too high.
Metric 2: Net Profit Margin (%)
Net Margin = (Gross Profit - Operating Expenses) ÷ Revenue × 100
What it means: What percentage of revenue actually hits your pocket after ALL expenses (materials, labor, overhead, admin, marketing). This is true profitability.
Example: $1,000 revenue - $600 COGS - $200 operating = $200 net profit. Net margin = 20%.
Healthy target: 20-40% for handmade businesses. Below 10% means you're barely surviving.
Metric 3: Inventory Turnover (times/year)
Inventory Turnover = COGS ÷ Average Inventory Value
What it means: How many times per year you sell through your inventory. High turnover = efficient, low inventory. Low turnover = money tied up in stock.
Example: If COGS is $4,800/year and average inventory is $1,200, turnover = 4 times/year (quarterly replenishment).
Healthy target: 3+ times per year. Below 2 means inventory is tying up cash. Above 6 might mean stockouts.
Metric 4: Profit Per Item ($)
Profit Per Item = Sale Price - Total COGS (including labor + overhead allocation)
What it means: How much actual profit each product generates after all costs. Identifies winners and losers in your catalog.
Example: Ceramic mug: $45 price - $18 total cost = $27 profit per mug. Custom earrings: $35 price - $42 cost = -$7 loss per item.
Healthy target: Every product should have positive profit. If not, raise price or reduce costs. Losing products drag down overall profitability.
Metric 5: Operating Expense Ratio (%)
OpEx Ratio = Total Operating Expenses ÷ Revenue × 100
What it means: What percentage of revenue goes to running the business (admin, marketing, utilities, etc). Shows operational efficiency.
Example: $1,000 revenue, $200 operating expenses (marketing, studio, software). OpEx ratio = 20%.
Healthy target: Below 30%. If above 40%, you're spending too much to generate sales. Consider outsourcing or automation.
Metric 6: Customer Acquisition Cost (CAC) ($)
CAC = Total Marketing Spend ÷ New Customers Acquired
What it means: How much you spend in marketing to acquire each new customer. Reveals if your marketing is efficient. Compare to customer lifetime value.
Example: Spent $400 on Facebook ads, acquired 8 customers. CAC = $50 per customer.
Healthy target: CAC should be less than 3x the average order value. If you spend $50 to acquire a customer and they buy $30 once, you lose money.
Metric 7: Effective Hourly Rate ($)
Hourly Rate = Net Profit ÷ Total Hours Worked
What it means: Your actual hourly earnings after ALL costs and time invested. The most honest metric of business viability.
Example: $1,200 net profit ÷ 40 hours = $30/hour effective rate.
Healthy target: Should exceed your target hourly wage (usually $30-50+). If below $20/hour, you're underpricing or inefficient.
How to Benchmark: Industry Standards by Category
| Business Type | Gross Margin | Net Margin | Turnover |
|---|---|---|---|
| Jewelry | 65-75% | 30-45% | 2-3x |
| Textiles/Apparel | 55-70% | 20-35% | 4-6x |
| Pottery/Ceramics | 60-70% | 25-40% | 3-4x |
| Soap/Cosmetics | 70-80% | 35-50% | 6-8x |
| Custom/Made-to-Order | 55-65% | 20-30% | 1-2x |
Compare your metrics to your category. Below benchmarks? You're either underpricing, overspending, or need operational efficiency improvements. Above benchmarks? You've found competitive advantage—scale carefully without sacrificing quality.
Creating Your Metrics Dashboard (30 Minutes)
Step 1: Gather Data
Pull last month's: Revenue, COGS (materials + labor + overhead), Operating expenses, Number of items sold, Marketing spend, Total hours worked.
Step 2: Calculate the 7 Metrics
Use the formulas above. A simple spreadsheet is fine for starting. Input data, formulas calculate metrics automatically.
Step 3: Track Monthly
Update dashboard every month on the same date. Look for trends. Is gross margin declining? Is hourly rate improving? These trends matter more than individual months.
Step 4: Act on Insights
If gross margin is low: raise prices or reduce material costs. If OpEx ratio is high: reduce marketing or automate admin. If hourly rate is below target: eliminate unprofitable products or scale volume.
Red Flags: Metrics That Signal Trouble
Gross margin declining month-over-month? Your costs are rising (material price increases, inefficiency) or prices are falling. Address immediately.
Low inventory turnover (below 2x)? Too much cash tied up in inventory. Risk of obsolescence. Reduce reorder quantities.
CAC greater than 3x average order value? Your marketing is unprofitable. Either raise prices, reduce ad spend, or find cheaper customer acquisition channels.
Hourly rate below $20? Your business is not viable at current scale. Raise prices, reduce hours, or discontinue low-margin products.
OpEx ratio above 40%? Spending too much to generate sales. Audit marketing spend and admin overhead. Consider automation.
Automate Your Metrics Tracking
TrueCraft calculates all 7 metrics automatically. Input your sales and expenses once, dashboard updates monthly. See trends, identify opportunities, make smarter decisions.
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