When it comes to solving business problems, you cannot rely on your intuition.
The only way to measure the performance and growth of your company is by tracking the data. In fact, there are several essential business metrics that all small business owners should be familiar with.
Business metrics help you understand the sales, marketing, and financial aspects of your business. Without a clear view of your overall performance in each area, setting objectives and making decisions is difficult.
So what types of metrics should you be tracking? Keep reading to find out.
What Is a Business Metric?
If you run a business, then you no doubt have goals and objectives that you want to reach. Tracking business metrics is essential for gauging the success of your company.
A business metric is also called a performance indicator. It is a quantifiable measure that allows you to assess and track the performance of some aspect of your business.
Almost every aspect of a business can be evaluated using business metrics including sales, marketing, and employee performance.
When tracking different metrics, it’s important to have a target to compare it to. If values aren’t put into context, it’s difficult to know if performance is up or down. For example, $10M in sales for the year sounds incredible, but if you did $15M last year, then there’s a big problem.
Why Should You Track Business Metrics?
One of the reasons why you should track business metrics is because they give you important data about your business. And the more data you have, the better decisions you can make.
Decisions made based on data are more likely to help promote the health and growth of your business.
Business metrics also give you the ability to objectively assess your progress. Tracking the data will tell you whether or not you’re on target to hit your goals. If not, you can make the necessary adjustments to boost performance.
Tracking business metrics allows you to spot trends and mitigate issues before they arise. For example, if you notice the number of new leads is slowly declining, you can analyze your marketing strategy and fix the problem before it impacts your business’s profits.
Now you know why you should track business metrics, here are 10 you need to track.
1. Total Revenue
Total revenue refers to the amount of money your business generates. This might be from selling products or services or landing contracts. It’s a simple metric but one of the most important to track.
You can compare your total revenue to previous months/years to gauge the growth of your business. It may also reflect recent changes to the market, your marketing effectiveness, and competitor actions.
Total revenue is calculated by adding up all of the money you have received as a result of business activities. Growing your sales revenue should be a long-term objective.
2. Net Profit
Your net profit is the amount of money your business brings in after accounting for costs. Your business’s net profit is one of the best indicators of performance.
Maintaining a healthy profit margin is important for stable and long-term growth. If your profit is dropping, it may be because your costs are too high. In this case, you should look into the issue and make appropriate changes.
Improving your net profit is a matter of generating more sales while reducing your production costs. To do this, you must conduct in-depth market research to keep up with your competitors and look for areas of your business where you can improve efficiency.
3. Customer Lifetime Value
By tracking customer lifetime value (CLV), you can evaluate the worth and importance of each customer. CLV tells you how much money, on average, you get from each customer during their time with your company.
This metric also allows you to evaluate whether the money you spend on customer acquisition is worth it. If you’re spending more to acquire customers than what you’re making from them, something is wrong.
CLV also gives you the ability to understand how much money you can expect to gain from customers during their lifespan with your business. By understanding who your most important customers are, you can invest more time and effort into growing that part of your company.
To calculate CLV, multiply the average amount spent yearly by a customer by the average customer lifespan.
4. Number of Sales vs. Target
This is an important metric to gauge the performance of your sales team. The sales target for a given period of time (month, quarter, year, etc) serves as a guide for how much revenue you expect to generate.
Monitoring the progress towards hitting that objective is essential. Depending on the size of your company, you can track this metric per sales rep or for the whole business.
If you’re not meeting your targets, then either your goals are too unrealistic or there are issues with your sales process that need to be resolved.
You can calculate this metric by dividing your sales by your target sales and multiplying by 100 to get a percentage.
5. Ambitions vs. Reality
This metric is a measure of productivity and helps you understand whether your ambitions are aligned with reality.
First, you should estimate the amount of time it will take to complete each task. Then, use time tracking software like actiTIME to see how long it takes you in reality.
Comparing these two values will help you measure productivity. If you’re always behind on deadlines, this indicates that your workflow procedures need to be optimized.
actiTIME makes time-tracking super simple. You can also generate helpful charts and reports, making it easy to analyze the data.
By tracking the time it takes to complete projects, you can set more realistic deadlines in the future, boost productivity, and please your customers.
6. Lead Acquisition
The success of any business relies on acquiring new customers. Marketing campaigns drive brand awareness and help you generate new leads. To evaluate the effectiveness of your marketing, you need to track lead acquisition.
Analyzing marketing data should allow you to assess the number of new leads generated during a given timeframe. For example, if your business uses a subscription model, you should track the number of new sign-ups.
Tracking lead acquisition helps you optimize your marketing strategy.
7. Customer Retention Rate
Keeping existing customers is vital for the long-term growth of your business. So it’s important to measure how many of your customers continue to work with you and use your products or services.
You can calculate your customer retention rate by dividing the number of existing customers (not including new customers) at the end of a period by the number of customers at the beginning of that same period.
You should always be looking to improve your customer retention by improving your customer service and delivering a top-quality product.
8. Cost of Acquisition
Your cost of acquiring new customers is probably higher than you think. There are lots of small costs that go into generating leads and these are often forgotten about.
Calculating your cost of acquisition tells you how much money you spend on acquiring new customers for your business.
You can calculate this by adding up all the costs you spend on marketing and dividing the total by the number of new customers you have acquired over a certain timeframe.
You should consider the cost of acquisition together with the customer lifetime value. If a new customer is worth $1,000 on average and you spend $100 to acquire them, then you’re doing well.
9. Lead Conversion Rate
There’s a big difference between a lead and a client. A lead still needs to be contacted by your sales team to be converted into a paying customer.
Your lead conversion rate is a measure of your sales team’s performance. It may also indicate the quality of your product or business offering.
To calculate this metric, divide the number of new customers by the number of new leads over a certain timeframe.
10. Website Traffic
Website traffic is one of the simplest small business metrics and is often overlooked. If traffic to your site is low, it can indicate a problem with your website planning and marketing strategy.
For most companies, sales are processed through their website. Therefore, low website traffic means fewer sales. Measuring your website traffic can be done easily using free tools like Google Analytics.
The best way to improve your website traffic is to optimize your marketing campaigns and improve your on-site SEO. This will help to improve your search engine rankings.
Grow Your Startup by Tracking Essential Business Metrics
Tracking essential business metrics is crucial to the long-term growth of your business. By analyzing the data you can make informed decisions that will boost performance and increase profits.
Not tracking business metrics is like driving a car at night without the lights on. How are you supposed to know where you’re going?
If you want to boost profit and gross margins, increase website traffic, and improve customer retention, gathering the right data is important.
actiTIME is a time-tracking platform that can help you gather data, measure performance, and boost your team’s productivity. Start your 30-day free trial today.
