Make Smarter Decisions by Tracking the Right KPIs
If you run a manufacturing business, you’ve got a lot to think about like machines, materials, orders, staff, and deadlines.
But one thing that can’t be left behind is your finance data.
Knowing your numbers helps you make better decisions, spot problems early, and grow with confidence.
That’s where financial KPIs come in.
In this blog, we’ll break down 5 simple but powerful financial KPIs (Key Performance Indicators) that every manufacturing business should track.
Accountants For Manufacturing & Engineering Business Owners
Just clear advice that helps.
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Gross Profit Margin
Your gross profit margin shows how much money you make after covering the direct costs of making your products like raw materials and labour.
🧮 How to calculate it:
(Sales – Cost of Goods Sold) ÷ Sales × 100
💡 Why it matters:
A low margin might mean you’re under pricing, overpaying for materials, or struggling with waste and inefficiency.
Tracking this helps you fix problems before they hurt your bottom line.
📊 KPI goal: Aim to keep this healthy and stable as you grow.
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Net Profit Margin
This is the big picture. Your net profit margin shows how much money you actually keep after all expenses including rent, salaries, energy bills, tax, and admin costs.
🧮 How to calculate it:
(Net Profit ÷ Sales) × 100
💡 Why it matters:
Even if sales are strong, you might be losing money overall.
This KPI gives a true view of business performance.
📊 KPI goal: This should grow over time. If it’s dropping, dig into your cost base.
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Cash Flow Forecast
This isn’t a percentage but it’s one of the most important KPIs in manufacturing.
A cash flow forecast shows when money is coming in and going out of your business.
It helps you avoid nasty surprises like not having enough to pay suppliers or staff.
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💡 Why it matters:
Manufacturing often has long lead times and large upfront costs.
Without cash in the bank, you can’t buy materials or take on new work even if you’re profitable on paper.
📊 KPI goal: Stay cash positive and plan 3–6 months ahead.
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Inventory Turnover Ratio
Manufacturers often have lots of stock.
But if it’s sitting too long, that’s money tied up doing nothing.
🧮 How to calculate it:
Cost of Goods Sold ÷ Average Inventory
💡 Why it matters:
This shows how fast you’re moving your stock.
A low turnover means your products aren’t selling quickly or you’re holding too much.
📊 KPI goal: Keep inventory lean but not so low that you can’t fulfil orders.
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Labour Cost as a % of Sales
In manufacturing, labour is a big cost.
This KPI shows how efficient your team is compared to how much you’re selling.
🧮 How to calculate it:
(Total Labour Cost ÷ Sales) × 100
💡 Why it matters:
This helps you spot if your team is overstretched or if you’re spending too much on wages for the amount you’re producing.
📊 KPI goal: This % should be steady or improving. If it’s rising, look at automation or workflow improvements.
Final Thoughts
You don’t need to be an accountant to understand your business. Just track the right numbers, regularly.
By focusing on these 5 financial KPIs:
- Gross profit margin
- Net profit margin
- Cash flow forecast
- Inventory turnover
- Labour cost as a % of sales
…you’ll get better control, make smarter decisions, and grow with confidence.
Ready to Take the Guesswork Out of Your Finances?
We help manufacturing and engineering businesses track their most important KPIs and get clear, simple reports every month with expert advice to help you grow.
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Written by Yesim Tilley Founder of Skynet Accounting
Follow me on LinkedIn: www.linkedin.com/in/skynet-yesim-tilley
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