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The 3 Most Important Financial Metrics for Service Businesses Making Over $1M

...and how to track them

Author

Doyin Ogunbajo
February 04, 2025

Hi there,

Hitting $1M+ in revenue is a big milestone, but are you actually keeping more of what you earn? Too many service-based businesses focus only on top-line revenue and ignore the key financial metrics that determine long-term success.

If you want to grow profitably, avoid cash flow headaches, and make smarter financial decisions, these are the three numbers you need to track—every single month.

1. Gross Profit Margin (How Efficiently You Make Money)

  • Shows how much money you keep after covering the direct costs of delivering your service.

  • A higher margin = better efficiency and a good pricing strategy.

  • Formula: 

  • Goal: 40-60% (higher is better). If it’s too low, you may be underpricing or overspending on labor and materials.

2. Net Profit Margin (How Much You Actually Keep)

  • Tells you how much profit is left after ALL expenses (rent, payroll, marketing, taxes, etc.).

  • Helps you see if your business is truly profitable or just making money without keeping any.

  • Formula: 

  • Goal: 10-20% (higher is better). If it's too low, you may need to cut unnecessary costs or adjust pricing to improve profitability.

3. Cash Flow (How Much Cash You Actually Have on Hand)

  • Revenue and profit don’t mean much if cash isn’t flowing.

  • Measures how much actual money is coming in versus going out—a business can look profitable on paper but still run out of cash.

  • Formula: 

  • Goal: Keep cash flow positive—this means your business is generating enough cash to cover expenses, invest in growth, and avoid financial stress.

Bonus: Revenue Per Employee (Are You Running a Lean, Profitable Team?)

  • If you have a team, this number tells you how much revenue each employee is generating.

  • Formula: 

  • If this number is too low, you may need to adjust your team size or improve efficiency to boost productivity and profitability.

Final Takeaway

For service businesses making $1M+ in revenue, tracking these numbers helps you stay profitable, efficient, and financially healthy. Keeping a close eye on them allows you to make smarter decisions on pricing, hiring, and spending—which means more growth and success in 2025.

Need help tracking or improving these metrics? Let’s chat! 🚀