Fred Oliveira, @f on twitter, asked:  have a company? what do you track to know you’re heading in the right direction? what metrics matter to you?

It is an interesting question and one that I have been pondering as well. With a few years of time tracking and spending data, we try to do our own public annual report for others to see. My response in 140 characters wasn’t long enough to get all my ideas and experience out. So here are the 3 most important metrics we feel you need to be measuring.

1. Customers: You need to know if you can even generate revenue. This could be hourly rate, project bids or income from products. First an foremost you need to figure out if you have a viable product and there will be some sort of cash flow.
2. Expenses: Once you have a way to make money, you need to figure out where your money is being spent. Understanding your burn/profit rate is important for many reasons. It allows you to be able to bring on more staff and make sure you can continue to pay them. It also tells you how much it costs to get your next client. For instance, if you are spending $5,000 in travel and expense, but the average contract only brings in $4,000 you are losing money trying to win clients.
3. Time Tracking: After you know you can make money and understand where that money is being spent, you finally need to understand how productive your team can be. If you get an average of 30 billable hours out of each team member a week, then you’ll adjust your rates accordingly. If your average project is running over by 10%, you can adjust. Without metrics on how your time is being spent you can’t adequately correct your expenses or customer expectations.

This is a gross over simplification, but it is atleast a starting place for deriving some business metrics. If you are serious about this, then you should read-up on Edward Deming. His 14 points are worth keeping in mind. Any numeric metric can be gamed. If you are paying a commission on widgets or lines of code quality will suffer. It is important to track the right metrics for the right reasons.