Entrepreneurs and small business owners are usually great at creating products and services and coming up with new, innovative ideas. Some are even great at developing an initial customer base.
You may not be at the point in your business that you have enough data to track. But understanding what is important to know as you grow may prepare you for future opportunities.
By tracking the following 7 metrics you will have a much better understanding of how to make your business successful.
1. CUSTOMER ACQUISITION COST
How much does it cost for you to acquire a new customer? If you watch the popular TV show “Shark Tank” you’ve probably heard Mark Cubin ask this question a lot. This is an important business metric to know and it can include a lot of factors.
- Your Personal Time
- Web Development Investment
- Marketing
- Business Insurance
- Rent & Utilities
- Payroll
- Advertising Campaigns
There may be other expenses that come into play here. Your customer acquisition cost should be expressed as how much money you spend to bring in new business divided by the number of customers you acquire over a certain period of time.
Time Expenses ÷ # Customers = Customer Acquisition Cost
Example:
30 Days $5,000 spent 150 customers = $34 to acquire one customer.
2. LIFETIME CUSTOMER VALUE
How much revenue does every new customer generate for you over their lifetime?
Business owners often concern themselves with the amount of profit in a single sale. That is a vital metric to track, but lifetime customer value is even more important.
Coupled with knowledge of your customer acquisition cost, knowing your lifetime customer value reveals how much money you can spend on lead generation, advertising, marketing, and other forms of pursuing new prospects.
3. SALES REVENUE
This is the fun one. Everyone likes seeing a full cash register at the end of the day. Your sales revenue is simply the amount of income you receive for the products and services you provide, minus any returns and merchandise you have yet to deliver.
Look at this number very closely to ensure you aren’t sugar-coating the figures.
4. LEVEL OF CUSTOMER LOYALTY
How loyal are your customers? Do they buy once and then go away? Do they talk to their friends about your company, positively or negatively?
When you give someone what they want, and add value, you have a chance of creating a very loyal customer. Use surveys, point-of-purchase feedback, and exit polls to discover what you need to do to earn your customer’s loyalty.
5. PRODUCT OR SERVICES COST
This is also referred to as cost of goods sold (COGS). If you don’t know your true cost of producing a product or delivery service, how do you know if you are profitable or not?
6. GROSS MARGIN
Gross margin is defined as the difference between sales revenue and the cost of goods or services sold.
When you know your sales revenue (#3) and cost of goods sold (#5), you understand how much money you are making or losing when a transaction takes place.
7. SALES CYCLE LENGTH
How long does it take for you to turn a prospect into a lead, and then into a purchasing customer?
Knowing your sales cycle is extremely important, because you will understand exactly how many times, and in which way, you need to communicate with a prospect to result in a sale.
In Summary
The extent to which you go to analyze your business is different for everyone. If you are just getting started online or you’re trying to grow and monetize, this might not be the time. This list is intended to give you food for thought.
Sometimes in business we have to take care of the good, the bad and the boring. Most of us feel that way about statistics and let’s face it, they’re not as much fun as the creative aspects of business. They are necessary however in order to determine if your business is on the right road to success.
I encourage you to create a spreadsheet for ever year you’re in business. I copy mine from year to year and total up my efforts for that year. It’s a great visual and helps you see the cracks and where you need to put your efforts in the new year.