It is difficult to overestimate the importance of business metrics. While following your instincts might have help you successfully launch a business, promoting growth and capitalizing on production, marketing and sales efforts requires detailed analysis. There are a wide variety of business metrics of key performance indicators (KPIs) that can be tracked depending on your goals and your industry. However, there are some fundamental metrics that every business should be keeping a close eye on.
Essential Business Metrics For Growing Businesses
The following 15 business metrics should be a part of your regular tracking efforts. They will help you stay on track and avoid getting distracted by other KPIs that may not be as relevant to your operations.
1. Sales Revenue
Why it’s Important
How much you are earning from sales is one of the most obvious and easiest to measure KPIs. An increase in sales revenue can be an indication that customers are interested in purchasing your products and that your marketing efforts have been effective.
How to Measure
To calculate your sales revenue, simply add up all the income earned from client purchases and subtract any costs associated with returned or defective products.
Ways to Improve
Increasing your sales revenue is sometimes easier said than done. Simply put, you will need to make more sales. This may come down to offering discounts, increasing marketing efforts and/or hiring additional salespeople in order to bump up sales efforts.
2. Gross Margin
Why it’s Important
The gross margin is a percentage that represents how much of every dollar of revenue that company is able to retain and potentially invest back into the company to further enhance growth. The higher the percentage, the more money the company has to spend.
How to Measure
The formula for calculating growth margin is as follows: Revenue – Costs of Goods Sold/Revenue. A 25% growth margin means that you retain $.0.25 of every dollar of revenue.
Ways to Improve
There are two ways to increase your gross margin:
- Decrease operation and productions costs. This approach may include streamlining processes in order to reduce the amount of labor needed or partnering with more affordable suppliers.
- Increase prices for additional revenue.
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3. Net Profit Margin
Why it’s Important
This business metric tells you how much revenue you have after all expenses have been deducted from your sales. Essentially, it reveals exactly how much pure profit you have made.
How to Measure
Add up all the revenue you have earned and subtract all of your expenses from that total. The resulting number reflects your net profit margin.
Ways to Improve
Improving your net profit margin comes down to increasing revenue. That means decreasing production costs and/or raising the price of your goods or services.
4. Cost of Customer Acquisition
Why it’s Important
The cost of customer acquisition tells you how much money you spend on acquiring new customers This is an important number to be aware of because it is a good indicator of how your marketing efforts are performing. If you are spending $500 to acquire a new customer who is projected to spend $150 at your company, then it may be time to rethink your strategies.
How to Measure
Add up all the money you have spent on marketing efforts over a specific period of time. Next, divide that total by the number of new customers you acquired over that same time period. For example, if your marketing budget for the last month was $2,000 and you brought 20 customers on board during that same time, then the cost of customer acquisition is $100.
Ways to Improve
If your cost of customer acquisition far exceeds the amount of money a customer is likely to spend over then you may want to refocus your marketing efforts and/or concentrate on converting sales through existing customers rather than investing so much time and money into acquiring new customers.
5. Sales Growth Year- to-Date
Why it’s Important
Practically every company has the common goal of driving growth. Tracking your sales on a weekly, monthly and yearly basis will allow you to see exactly how you are performing and whether you are hitting your growth goals. This metric can also reveal insights into seasonal trends and other variables that may affect your sales throughout the year.
How to Measure
Track how much you have made in sales and the number of new customer you have added and compare this to previous years.
Ways to Improve
If your growth has slowed or come to a complete stop, you may want to reignite your marketing efforts or considering launching a new product or special offer. Keep in mind that the more media coverage and website traffic you can earn, the better chance you have of earning quality leads that can be converted into sales.
6. Net Promoter Score
Why it’s Important
A satisfied customer who will recommend your company is one of your most powerful sales tools. It is important to keep track of whether you are cultivating happy customers who will help drive sales simply through word of mouth.
How to Measure
There are three categories of customers to be aware of:
- Promoters (Score 9-10): These are brand ambassadors who will actively sing your praises and increase sales.
- Passive (Score 7-8): While these customers generally pleased with your company, they aren’t boosting your visibility and they are likely to switch to a different company if a better opportunity arises.
- Detractors (Score 0-6): Not only are these customers unhappy, they are sharing their negative experience and doing damage to your brand.
To measure the net promoter score, you will need to figure out how many customers fall into each category. From there, subtract the percentage of detractors from the percentage of promoters.
Ways to Improve
Make sure that you are going above and beyond to provide excellent customer service that exceeds expectations.
7. Customer Loyalty and Retention
Why it’s Important
Having loyal customers means repeat business and less money invested in acquisition. High retention rates can also mean that you have plenty of promoters that will help market your business through favorable reviews and recommendations.
How to Measure
While the formula for calculating customer retention may look intimidating, it just requires some simple math:
Retention Rate = ((CE-CN/CS)) X100
CE = number of customers at end of period
CN = number of new customers acquired during period
CS = number of customers at start of period
Ways to Improve
The best way to increase customer loyalty and improve retention is to provide high quality goods and services and an excellent customer experience.
8. Qualified Leads Per Month
Why it’s Important
Not all leads are created equal. Even if you are bringing in hundreds of leads each month, only a certain percentage of those leads are interested in your business and have the potential to be converted into sales. For this reason, it is more important to measure qualified leads than simply looking at the total number of leads.
How to Measure
First, you have to be able to categorize your leads There are three groups to consider:
- Marketing qualified leads (MQL): These are leads that have been verified by your marketing team as falling within your target audience.
- Sales-accepted leads (SAL): These leads have been sent to the sales department and are ready to enter the sales funnel.
- Sales qualified leads (SQL): This last category represents the highest quality lead that is the most likely to become a customer.
Ways to Improve
Avoid casting too wide of a net with your marketing efforts. It doesn’t matter how many people you reach if none of them are interested in your goods or services. Instead, focus on your target audience and work to cultivate relationships with those most likely to becomes a customer.
9. Lead-to-Client Conversion Rate
Why it’s Important
This metric reflects how successful your sales team has been in converting promising leads into actual sales.
How to Measure
Divide the number of new leads by the number of new customers over a certain time period.
Ways to Improve
If you have low conversion rates, there are two main causes: poor performance from the sales team and poor products. Your sales team can only do so much. Converting sales is dependent on having a good product in the first place.
10. Website Traffic
Why it’s Important
It is impossible to survive in today’s business world without an attractive and functional website that helps to build your brand and increase online visibility. The more people you have coming to your site, the more leads and sales you will enjoy.
How to Measure
Google Analytics is the standard to tracking website performance and best of all, it is free. The program will provide you will all sorts of valuable insights into your visitors including: their location, which pages they visited, how long they spend on the site and much more.
Ways to Improve
First and foremost, make sure that you are providing engaging content that is worth reading. You can also promote the site through social media platforms and invest additional funds in targeted advertising.
11. Met and Overdue Milestones
Why it’s Important
Setting goals with specific milestones will help you establish a strategic timeline for success. Without milestones, it can be easy for projects to get off track and progress to slow.
How to Measure
Make sure that you have a system for keeping track of milestones. Take a regular look at how many milestones you are meeting and be prepared to take a new approach if you find that milestones are passing by unmet.
Ways to Improve
Missed deadlines can be the result of a variety of factors. You may have started with unreasonable expectations and not enough funds to meet the demands of the project. In addition, it could be a matter of being short-staffed. Identify the source of the problem and make some changes.
12. Employee Satisfaction
Why it’s Important
It should go without saying that employees who feel appreciated and challenged at their job will perform better be more productive.
How to Measure
Conduct regular surveys and work with HR to develop other tools that can collect data on employee satisfaction.
Ways to Improve
Even little perks like free coffee or catered lunches once a week can do wonders for employee satisfaction, however, lasting happiness depends on employees feeling like a respected and valuable asset to the company.
13. Accounts Payable
Why it’s Important
One business metric that can be easy to ignore as you add up revenue and sales is the amount you have in accounts payable. This is the money that you owe for various bills and it represents short-term debt that needs to be considered when evaluating the state of your business.
How to Measure
Simply add up the amount of unpaid bills and accounts you owe money.
Ways to Improve
Avoid accumulating too much debt and be sure to pay bills as soon as possible. You may also consider different ways to cut expenses such as shopping around for more affordable suppliers.
14. Direct Costs
Why it’s Important
Direct costs represent the amount of money it takes to offer a product or service. This number does not take into account marketing and sales costs. Instead, it deals directly with the hard costs of materials that go into a product.
How to Measure
Add up the amount spent on materials while leaving out man-hours, marketing efforts and other “indirect costs.”
Ways to Improve
If you notice that your direct costs are on the rise, then supplier costs could be eating into your profits. Continue to negotiate prices with suppliers, look for opportunities to buy in bulk and don’t be afraid to move to a new vendor if needed.
15. Cash Burn Rate
Why it’s Important
The cash burn rate shows how quickly you are using up your cash reserves. Ideally, you will be experiencing a positive cash flow so that you can continue to add to your balance. However, if you are dipping into your reserves, it is important to know your burn rate so that you can calculate just how long your cash will last before you are in real trouble.
How to Measure
Subtract how much money you have at the end of the month from how much you had in reserve at the beginning of the month.
Ways to Improve
Reducing your burn rate comes down to earning more and spending less. You can begin to slow your burn rate by:
- Lowering direct costs
- Selling off inventory
- Pursing payments on overdue accounts
- Being strategic about when you pay bills
- Delaying purchasing or expansion efforts
- And much more
Takeaways
If you aren’t regularly tracking the 15 business metrics listed above, then you are leaving your business up to chance. Instead of hoping for the best, use the power of data to make informed decisions and actively look for ways to increase revenue, reduce costs, cultivate customer loyalty and promote growth. Investing time in tracking business metrics can result in substantial and lasting benefits.
