Running a business means facing questions like "Will this investment be profitable?", "Is my margin healthy?", and "How long until I break even?" every day. The ability to answer these with hard numbers is the foundation of smart business decisions.
This guide covers 8 essential financial metrics every business owner should know, with practical examples and CalKit calculators.
1. ROI (Return on Investment)
ROI measures how much profit you earned relative to your investment. It is the most fundamental metric for evaluating any business decision.
Formula
ROI = (Net Profit / Investment Cost) x 100%
Example: Invest 80M KRW in a cafe, earn 30M KRW annual net profit. ROI = 30M / 80M = 37.5%. Generally, 20%+ is considered good for small businesses.
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ROI Calculator
Calculate your return on investment
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2. Profit Margin
Profit margin shows what percentage of revenue is actual profit. Gross margin uses revenue minus COGS; net margin accounts for all expenses.
Gross Margin = (Revenue - COGS) / Revenue x 100%
Net Margin = Net Profit / Revenue x 100%
Example: Online clothing shop with 20M KRW monthly revenue, 8M COGS, 7M operating expenses. Gross margin = 60%, Net margin = 25%.
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Margin Calculator
Calculate your profit margins
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3. Margin vs Markup
These are often confused but have different denominators: Margin is based on selling price, while Markup is based on cost.
| Metric |
Margin |
Markup |
| Base |
Selling price |
Cost |
| Example (cost 10K, price 15K) |
33.3% |
50% |
| Used for |
Financial reporting |
Pricing decisions |
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Markup Calculator
Calculate markup and selling price
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4. Payback Period
Payback period is how long it takes to recover your initial investment from net cash flows.
Payback Period = Initial Investment / Annual Net Cash Flow
Example: A convenience store (150M investment, 3M/month profit) has a ~4.2-year payback, while a self-service ice cream shop (30M investment, 2M/month profit) pays back in ~1.3 years. But shorter payback does not always mean better — also check long-term profitability with NPV/IRR.
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Payback Period Calculator
Calculate investment recovery time
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5. CAGR (Compound Annual Growth Rate)
CAGR smooths out year-to-year fluctuations to show the average annual rate of growth over a period.
CAGR = (End Value / Start Value)^(1/Years) - 1
Example: A startup grows revenue from 500M to 1.5B KRW over 3 years. CAGR = (1.5B/500M)^(1/3) - 1 = 44.2%. This is useful for presenting growth trends to investors.
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CAGR Calculator
Calculate compound annual growth rate
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6. NPV & IRR
NPV (Net Present Value) converts future cash flows to today's value. If NPV > 0, the investment creates value. IRR (Internal Rate of Return) is the discount rate that makes NPV = 0 — essentially the investment's true yield.
Example: Comparing a second restaurant location (200M investment, NPV +52M, IRR 22%) vs. a delivery-only kitchen (50M investment, NPV +28M, IRR 32%). The second location has higher absolute value (NPV), but the delivery kitchen has better capital efficiency (IRR). Use both metrics together.
7. Employee Cost
The true cost of an employee goes far beyond their salary. In Korea, employers must pay social insurance contributions, severance reserves, and benefits, typically adding 20-50% on top of the base salary.
Example: For a 3M KRW/month employee: base salary (3M) + National Pension 4.5% (135K) + Health Insurance 3.545% (106K) + Employment Insurance 0.9% (27K) + Workers' Comp ~0.7% (21K) + Severance reserve 1/12 (250K) = ~3.55M/month total, approximately 1.18x the salary.
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Employee Cost Calculator
Calculate true per-employee cost
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8. Summary
Understanding these financial metrics empowers you to make data-driven business decisions instead of relying on gut feelings. Use CalKit's business calculators below to apply these metrics to your own business.