Most of us today can readily admit we’re suffering from data overload. Information comes at us from all directions, even when we aren’t necessarily looking for it. When you’re trying to run a business, it can feel as though there is an endless tide of data and analytics to wade through, information that sometimes feels tough to make head or tails of.
Though measuring certain things is definitely beneficial to the growth and success of your business, it can be easy for the most important data to be lost amid all the noise. The only way to combat this is to stick to measuring what matters. Don’t just focus on the nitty-gritty, make sure you assess the big picture too.
Metrics That Matter
The metrics that really matter are the KPI’s that impact sales directly. The best metrics to keep an eye on are:
Too Hot, Cold or Just Right?
Knowing the right growth rate for your business can be tricky but not impossible. Everyone's heard the children's story "Goldilocks and the Three Bears," poor old Goldie was always looking for the right this or the right that. First, it was porridge then chair height and finally finding a bed that was just the right firmness. Sounds like a TV commercial. Measuring business' success is a lot like Goldilock's search, finding the right growth level is part planning, art, hard work, and science. Here are five good measures of business growth as a percentage of annual revenue growth:
- Less than 15% annually – Although many may consider this rate rather unspectacular, a firm will double its size in five years while growing at a 15% rate.
- 15 – 25% annually – Rapid growth
- 25 – 50% annually – Very rapid growth
- 50 – 100% annually – Hypergrowth
- Greater than 100% annually – Light-speed growth
Clients that grew at 15- 25% revealed some interesting experiences. During their time of accelerated growth, they admittedly worked harder. They were exhausted at the end of the week. Resources like time, talent, and money were stretched. The quickened growth — and thinning margins — often required an infusion of capital. This seems to be more common with service-based businesses due to the required talent to deliver on value. The notion of capital investment, whether it's through taking on debt via a credit card, loan, or credit line can be a bit unnerving. Yet, sometimes that's the risk of entrepreneurship to provide the resources needed to break through to the next level. Being strategic can help you leverage the risk to reduce your personal stress and get a good return on the risk. Simply put, finding the right growth level that your business can sustain from a marketing budget and workload perspective isn't easy but well within the reach of almost every organization.
The above statistics are based on research from the book "Growing Pains...Transitioning from Entrepreneurship to a Professionally Managed Firm" (Jossey-Bass, 2007).
Your Customer Lifetime Revenue (CLR)
This is a key metric that allows you to estimate how much revenue you will receive from a repeat client. Note that this metric doesn’t tally historic numbers, it estimates future numbers and makes a projection on how much revenue that client will bring in to your business during their lifetime. Your CLR helps to calculate the customer acquisition cost (CAC) optimal for your business. Your CAC should never be higher than your CLR.
Your Trial Conversion Rate
This is another metric that’s important to track. How many of your clients start with you through a trial subscription, and of those, how many converted into paid clients or users? To get a good conversion rate, you’ve got to make sure you’re targeting the right people with your free trial offer.
Your Average Sales Cycle
Your audience enters a cycle with your brand from their very first interaction with you. Your average sales cycle tracks how long it takes them from that first point of contact to convert into an actual customer. Some businesses have a longer sales cycle than others, so this can vary depending on your industry and business model.
Focus on Gross/Net Profit Margin
This metric is vital to the health and success of your business. Your gross profit margin helps you determine how much of your money from sales remains after you deduct the cost of your goods and services sold. It shows how you stack up against your competition in providing the goods and services you offer. So, gross profit = net sales - cost of goods and services. This metric is also sometimes called your gross margin ratio.
Net profit, on the other hand, is how much of your money from sales remains after all your business expenses have been deducted. So, net profit = gross sales - (total operating expenses + taxes + interest). Your net profit margin is usually assessed over the month, or quarterly, or yearly. Whatever your standard reporting period may be. This metric helps to assess just how successful your business really is.
Track Your Customer Retention Rate
This metric tracks how long your business hangs on to its customers. It is typically measured over a specific period of time and helps you determine if you are serving your client base well. The best kind of business is repeat business. When you have a high customer retention rate, you are doing something right! Not only does repeat business allow you to build solid relationships, but it also increases your revenue because people trust you with their business. To figure out your customer retention rate, you follow a simple formula using a few key pieces of intel.
a) How many clients you have at the end of a specified time period
b) How many new clients you obtained during that specified time period
c) How many clients you had at the start of that specified time period
So, to calculate your CRR, it looks like this: customer retention rate = ((a-b)/c)*100.
Remember that it’s a lot more expensive to acquire new customers than it is to hang on to current ones. That’s why customer retention is so important. Tracking this metric, along with the others we’ve mentioned here will help you to grow a successful business, without the headache of information overload. Measure what matters, and skip the rest.
Developing marketing infrastructure (a system) will put you far ahead of your competitors who'll most likely be chasing spikes on a chart and fluffing about with their random acts of marketing. Call us, we can help you build it.