The 5 Most Important KPIs for Emerging CPG Brands
I’ve spent years helping emerging CPG brands grow, and one truth always shines through: You can’t scale efficiently if you don’t monitor the right metrics. That’s why I’m sharing the CPG brand KPIs I’ve seen make the biggest difference.
When founders can interpret these emerging CPG metrics, they gain the power to manage growth, stay profitable, and make savvy decisions based on real data instead of guesswork. Let's get straight into it.
1. Gross Margin
Gross margin represents the percentage of revenue left after covering the cost of goods sold. In simpler terms, it answers whether your pricing structure produces enough profit to fuel business growth.
How to Calculate Gross Margin
(Gross Margin %) = [(Revenue – Cost of Goods Sold) / Revenue] x 100
For instance, if you bring in $300,000 in revenue and your COGS total $180,000, your gross margin is 40%. That percentage is what remains to cover all other expenses with leftover profit to reinvest in your brand’s future.
Why Gross Margin Matters
Consider the following reasons why gross margin is critical to your brand:
Sustainability check: A healthy gross margin signals your pricing, supplier agreements, shipping logistics, packaging design, and production are on track. If margins are sliding, investigate whether raw materials, labor costs, packaging supplies, shipping fees, warehouse costs, and freight surcharges are creeping up without a corresponding price adjustment.
Reinvestment ability: A robust gross margin gives you flexibility to allocate resources toward innovation, product launches, marketing initiatives, customer outreach, and improved supply chain systems.
Cost control: Monitoring gross margin closely reveals areas of overspending. A tight margin might require renegotiating supplier contracts, consolidating shipping methods, optimizing packaging, or refining your formulation.
Strategies to Improve Your Gross Margin
Below are several ways to enhance your gross margin:
Renegotiate supplier terms. Lowering COGS is a direct pathway to boosting margin. Bulk purchasing or longer-term contracts can help.
Audit your pricing. Consider modest price adjustments if market conditions support them. Even a small bump can recover lost margin.
Examine production efficiencies. Look for ways to optimize manufacturing. Automated systems can cut labor costs, minimize human error, streamline workflows, and help reduce waste.
Streamline labor allocation. Evaluate staffing to make sure you’re not overspending on labor-intensive tasks that automation could handle more efficiently.
For more guidance on managing costs and protecting your bottom line, explore our finance services page.
2. Velocity
Velocity measures how quickly your product sells at retail, typically in units sold per store over a specific time period. A high velocity tells you and your retail partners that consumers can’t get enough of your brand.
How to Calculate Velocity
Velocity = (Units Sold) / (Number of Stores)
If you sold 4,000 units through 100 retail locations in the past month, your velocity is 40 units per store per month.
Why You Should Measure Velocity
These points illustrate the importance of velocity in retail:
Retailer confidence: A strong velocity proves you’re producing items customers actually want to buy. Retailers rely on velocity data when deciding on shelf space or expansion into new locations.
Forecasting accuracy: Monitoring velocity trends helps predict how much product you need in the near future, preventing overstock, spoilage, misallocated resources, staffing inefficiencies, lost revenue opportunities, and stockouts.
SKU prioritization: Some SKUs have higher velocity than others. By pinpointing your fastest movers, you know where to focus your marketing, digital ad campaigns, influencer marketing, channel partnerships, distribution strategy, and inventory investments.
Turning Velocity Data Into Action
Use the following tactics to transform velocity insights into growth strategies:
Support slow movers. If an SKU underperforms, consider a targeted promotion, an influencer collaboration, a revised label design, a packaging refresh, or a recipe tweak.
Invest in your winners. High-velocity products have proven demand. Additional marketing can amplify that momentum.
Plan smarter inventory. Lean into velocity data to avoid tying up cash in excess inventory.
Evaluate shelf placement. Work with retailers to secure prime locations or end caps to increase product visibility.
For more on budget planning in CPG, check out budget tips from CPG finance pros.
3. Inventory Days on Hand (DOH)
Inventory days on hand measures how many days your inventory sits before being sold. Cash is the lifeblood of any emerging brand, so if you’re tying up too much of it in unsold products, you’re stifling growth. Running too lean on inventory also risks losing sales when demand spikes. Finding the balance is key.
How to Calculate DOH
DOH = (Average Inventory / Cost of Goods Sold) x 365
If your average inventory is $90,000 and your annual COGS totals $600,000, your DOH is about 54.75 days.
Why DOH Is a Game Changer
Consider these benefits of tracking and optimizing DOH:
Protects cash flow: Holding stock too long means your money is locked up in unsold products. That prevents you from investing in marketing, brand awareness, website enhancements, or product development.
Prevents stockouts: You need enough inventory to handle demand surges. DOH helps you find that sweet spot.
Guides production schedules: Accurate DOH data allows you to align manufacturing runs with actual demand, minimizing warehousing, labor, raw material overhead, excess packaging, delayed deliveries, and production costs.
Optimizing Your DOH
Here are practical steps to keep your DOH in check:
Improve forecasting. Use past sales data, seasonal patterns, and store feedback to anticipate demand accurately.
Collaborate with suppliers. Negotiate smaller order quantities or shorter lead times to avoid stockpiling excess materials.
Adopt lean manufacturing. Shortening production cycles lets you hold less finished inventory overall.
Leverage real-time inventory tracking. Technology can automate reordering and pinpoint when you’re running low or high on specific SKUs.
If you’re curious about balancing costs for retail success, read more about how much to spend on trade spend?
4. Contribution Margin
Contribution margin zooms in on an individual product to show how much profit remains after subtracting variable costs.
How to Calculate Contribution Margin
Contribution Margin = (Revenue) – (Variable Costs)
If a product generates $120,000 in revenue and the variable costs add up to $72,000, your contribution margin is $48,000.
Why Contribution Margin Is Essential
Below are some reasons why contribution margin matters for each SKU:
SKU performance: You can see which SKUs are truly contributing to profits. Some items might sell in high volume but barely break even once you factor in raw materials, packaging, shipping, fulfillment fees, distribution center charges, and other variable costs.
Pricing and cost decisions. If a product’s contribution margin is too low, you can adjust the price, improve manufacturing efficiency, revisit packaging strategies, or seek cheaper raw materials without compromising quality.
Taking Action on Contribution Margin Data
Consider these steps when interpreting contribution margin figures:
Identify low performers. Some SKUs should be discontinued, repositioned, repackaged, rebranded, or reformulated to reduce costs.
Explore breakeven points. Contribution margin reveals how many units you need to sell before you turn a profit. Consider digging deeper through our article How to Calculate Breakeven for a CPG Company.
Incentivize high-margin SKUs. Consider promotions or marketing campaigns that direct consumers toward your most profitable products.
Monitor promotional effects. Watch for margin erosion when offering discounts or bundles, and recalibrate prices if necessary.
5. Cash Conversion Cycle (CCC)
The cash conversion cycle is a comprehensive CPG financial KPI that reveals how quickly you convert inventory investments into cash from sales. It factors in how long you hold inventory, the speed at which customers pay you, the discounts you offer for early payment, the credit terms you negotiate with buyers, and the time you take to pay your suppliers.
How to Calculate CCC
CCC = (Inventory Days) + (Receivables Days) – (Payables Days)
For example, if you hold inventory for 45 days, collect receivables in 30 days, and pay suppliers in 60 days, your CCC is 45 + 30 – 60 = 15 days. A lower CCC means you’re converting investments into cash faster.
Why CCC Deserves Your Attention
Here are key reasons why CCC is a vital key performance indicator for CPG brands:
Holistic view of cash flow: CCC combines production, sales, and payments into one figure. If any part of this chain is inefficient, you can feel the squeeze on your cash reserves.
Vital for scaling: When you’re growing quickly, you can’t afford a lengthy CCC. You’ll be ordering more raw materials and ramping up production, so a shorter cycle is vital.
Negotiation and payment terms: Tracking CPG growth metrics like CCC motivates you to explore better supplier terms and find ways to get paid sooner.
Strategies to Improve CCC
Implement these methods to optimize your cash conversion cycle:
Invoice promptly and offer early-payment incentives. Faster receivables shorten your cycle.
Negotiate longer payment windows. Ask suppliers for net-45 or net-60 terms if you have a solid relationship.
Shorten production cycles. Delays in manufacturing tack on more days to your CCC, so efficient runs can yield immediate cash-flow benefits.
For more details on optimizing each component of the cycle, check out Cash Conversion Cycle 101: A Guide for Owners and Founders.
Align Your KPIs With Your Business Goals
At Balanced Business Group, I’ve personally witnessed how empowering it is for founders to have an organized, data-driven approach. If you’re looking for expert guidance in setting up or analyzing these CPG brand KPIs, I’m here to help.
Contact Balanced Business Group today to create a custom KPI roadmap and take full control of your brand’s potential.
Author: Maggie Ojeda
With 9 years of experience in finance, specializing in Financial Planning & Analysis (FP&A) and cost management, Maggie Ojeda is a trusted expert in delivering actionable financial insights. She spent 4 years at Grupo Peñaflor, one of Argentina’s top wine producers, where she developed a deep understanding of the wine industry’s financial complexities. Currently, as the FP&A Team Lead at BBG, she leads financial strategy for Napa Valley boutique wineries and emerging CPG brands. Her expertise in financial modeling, variance analysis, and cost management enables her clients to make informed, strategic decisions for business growth.
