When you run your own business, it’s important to stay aware of the metrics that underpin its success (or failure).
If you’re unaware of your net profit or cash attrition, how can you make good decisions that will positively impact it? How can you successfully grow your business, make sound decisions and make it sustainable without a handle on your metrics?
In today’s article, I will discuss the key performance indicators you need to monitor to run your business successfully.
Financial Metrics
- Monthly Revenue: How much money is your business making each month? How much of that is recurring revenue?
- Net Profit: Once you’ve paid out expenses, how much money does your business make?
- Gross Margin: This is a good KPI to measure profitability in your business.
- Cash flow: A really important metric. How much cash do you have in the business? Understanding the impact of expenditures on cash reserves is important to guarantee its survival.
- Negative cash flow: How quickly you are spending your cash.
Customer Metrics
Customer metrics help you to understand the cost of acquiring new customers.
- Customer Acquisition Cost: How much does it cost you to acquire new customers? This involves examining your marketing costs, the cost of entertaining, and maybe offering discounts and other incentives to encourage sales.
- Customer Lifetime Value: How much profit will you likely generate from each customer?
- Customer Attrition Rate: How often do you lose customers? If you work in a service business, it’s important to understand the cost of acquiring new customers vs how quickly you are likely to lose them.
- Net Promoter Score: a global statistic determining how likely customers are to recommend you to their peers. Understanding your customers’ satisfaction levels when using your products and services is essential. It helps you identify ways to improve customer loyalty and retention.
Engagement Metrics
If you are big on social media or have an easy way for customers to give feedback, understanding how your customers engage with your product or service can help you understand what they truly feel about it. Understanding these unique sentiments can also help you improve your marketing efforts.
- Monthly Users: How many people buy your product or service every month? How many of those actively subscribe to your service?
- Adoption Rate: How quickly do customers start buying and using your product or service after hearing about it for the first time? Understanding this metric offers insight into the user experience. For example, is signing up easy? Or is the experience cumbersome?
Growth metrics
Growth metrics help you understand how quickly your business is growing. It’s important to keep track of these metrics to ensure your company does not grow too quickly that you can’t cope, or too slowly that you lose momentum to your competitors.
- Unearned Revenue: Let’s say you offer a subscription service that requires an annual fee. The customer pays the cost for the subscription upfront. It’s important to recognise the revenue throughout the contract and not assume its value initially.
- Market Share: If your business is just starting, your market share will likely be relatively low. However, your market share will likely increase as your business grows and becomes more visible in the market. Your market share indicates what portion of the market you control and your growth potential.
- The K-Factor: This cool little metric measures the likely virality of your product or service. It also measures your business growth and the number of customers you have acquired from referrals or recommendations.
To succeed in business, you must maintain a good handle and understanding of your key metrics. These allow you to set performance indicators to measure the success or failure of any aspect of your business. So if you’re not taking the time to dive into your business metrics, you could miss out on further opportunities to understand your customers better, interpret the market in which you operate, and make big decisions to help your business survive.
