Lately I have been truing my client’s thinking to focus on one Key Performance Indicator as the grandaddy of them all…
True, it is not a leading indicator, it is a results driven indicator. Once we calculate it, it is too late to change. It is done.
It is an indicator that I see as the great equalizer. It can apply to all businesses and used to compare results across varied industries.
The one KPI that rules them all is…. (drum roll, please) …
Net Profit Before Tax (NPBT)
Not revenue. Not gross margin. Not EBITDA.
Net Profit Before Tax is the ultimate scorecard for your business.
Why NPBT is King
Net Profit Before Tax is brutally honest.
It shows what is really left after you have paid everyone else — your staff, your suppliers, your landlord, your bank, and even yourself.
In the calculation I include interest, amortization, and owner’s market-based salary (even if only accrued as a reversing journal entry).
In other words, it includes all expenses up to taxes. Taxes is a distribution of profits, so we exclude that.
To be clear –
We’re talking net profit after paying the owner a fair market salary, covering interest, and recording amortization. It is your true business performance before the taxman takes his cut.
The New Reality – 5% is Break-Even
Today, 5% net profit before tax is the new break-even.
Why?
Because if you are only producing a 5% return, any bump in the road that is beyond your control (tariffs as an example) means you have no leverage to react.
It is doubtful, if you have been doing only 5% NPBT that you have much, if any, savings to meet a crisis, correct?
For the owner, as a person separate from working in the business, 5% is not enough to mitigate the financial risk of being in business.
10% = Solid. Sustainable. Smart.
At 10%, you have a bona fide business.
You have enough margin to:
- Invest in your team.
- Ride out a rough quarter.
- Sleep well at night.
Now you are not just surviving — you are building.
15% = Elite Territory
When you consistently achieve 15% net profit before tax, you have enough left over to:
- Pay your taxes when due.
- Save money.
- Pay down debt.
- Pay dividends to the shareholders.
15% NPBT is a benchmark of an extraordinary business. You have a business that has many things right:
- Correct, value-based pricing.
- Lean operations
- Strong leadership
- Loyal customers who value what you do
Why This KPI Works for All Businesses
Whether you are selling software, growing flowers, managing buildings, or doing construction work — NPBT works as a comparative KPI across every business.
It cuts through all the differences in industries, and gives you a simple question to answer:
“How much profit does this business really make after everyone gets paid?”
In Conclusion
Track your Net Profit Before Tax. Make sure to deduct interest expense, amortization, and a market-based wage for the owner.
To determine the market-based wage, calculate what it would realistically cost to replace yourself.
Hit 10%, and you are doing well.
Push to 15%, and you are building a business with swagger.
If you are sitting below 5% — it is time for a serious tune-up.
Look at your pricing first, then margins, fixed costs, and whether you are providing awesome service!
By the way, I am indebted to the Greg Crabtree a brilliant CPA who wrote the book, “Simple Numbers, Straight Talk, Big Profits!” for many ofg the ideas shared above.
Thanks for reading…