Every entrepreneur should be familiar with key business metrics – the quantified parameters of business efficiency and success. Knowing their values is crucial for managing business processes, tackling challenges, addressing problems, and handling regular tasks. Basically, they are a tool for monitoring the health of your business and need to be tracked regularly and accurately. Two types of metrics that every entrepreneur should know. Sales and finance metrics, and your customer metrics
Sales and finance metrics
Sales growth is a key metrics for businesses of any size – and one of the easiest ones to track. However, there are specifics related to the nature of your activities. For example, while it sounds intuitive to measure and compare monthly sales growth, sometimes it can be misleading. In some fields, sales are seasonal, so the most reliable approach is to calculate sales growth year-to-date.
Net profit margin
This metric shows how efficiently profit is generated in a company compared to the revenue. It is calculated by measuring revenue for a specific period (normally monthly values are taken) and deducting all sales expenses from it. Of course, it also may vary over time, so comparing yearly values would be helpful to understand general dynamics.
If your company produces several different products or offers several services, product performance is an important business metric. It helps you understand and compare profitability of specific products and services, and provides a basis for further analysis of performance of offered products or services, and their viability.
Customer lifetime value
Customer lifetime value (CLV) is a metric that shows the average amount of money you get from your customers during their lifespan with you. Basically, it gives you an idea of the value you receive from each customer on average, and allows you to evaluate whether the amount spent on customer acquisition is worth it. This metric is calculated by multiplying average amount spent yearly by a customer by average customer lifetime.
Customer retention rate
Keeping existing customers is always less expensive than acquiring new ones, so it’s important to know how many of your existing customers keep working with you and using your products and services. This is what a customer retention rate helps understand. It is calculated as a relation of the number of existing (not new) customers at the end of a period to the number of customers at the start of that same period.
Customer churn rate
This metric, being the opposite to the previous one, shows the percentage of customers lost during a specific period. It is calculated in relation to the number of customers that have left during a period to the number of customers at the start of that period. This metric is important for any business and vital for businesses that provide services on a recurring basis (e.g. subscription services).Understanding that it is a necessary to know these two types of metrics will save you a lot of time and headache in the future when you need to know when there's a need to pivot or stay the course. Tired of doing $10.00 - $100.00 an hour activities in your business? Learn how to move toward performing activities in your business that yield $1,000 - $10,000 an hour activities. Register now