Running a successful business requires a thorough analysis of the entire company. This means the work, sales, and financial results. All of this is done, by closely tracking the business metrics. When it comes to business, you can not value your success on your intuition, or the sales of your products or services. To ensure your business is healthy and growing, factors and data need to come together to be considered, as you can not take the progress of one department as the progress of the entire business.
Business metrics are also called KPIs (key performance indicators), I am sure you have seen or heard about this before. KPIs are tracked. They show measurable values that guide the progress or failure of the business goals that a company set for itself. This tracking is done on a KPI Dashboard.
Before we try and understand the different business metrics, every company should know. Let us get the definition.
What are business metrics?
A business metric is a quantifiable measure used to track business processes and assess an organization’s level of performance. There are hundreds of these indicators because there are so many different types of businesses with many different processes.
Generally, an individual department or division within a company such as manufacturing, marketing, and sales are responsible for monitoring metrics that track the performance of their business units. Leaders track broader metrics. For example, CFOs track interest, taxes, and earnings before depreciation and amortization (EBITDA), a universal measure of profitability, and metrics included in net sales, operating expenses, operating income, and more.
Here are 8 business metrics that reflect on your company’s performance and indicate growth or decline:
1. Sales Revenue
We selected to place this metric first as it could inform lots of factors approximately your company. Month-over-month income effects display whether or not human beings are interested in shopping for your product/service, are your advertising efforts paying off, are you continue to withinside the competition, and lots more. When comparing your income sales and putting goals, it’s far crucial to recall that income effects are laid low with more than one different factor.
The man or woman monitoring the income KPIs has to additionally be conscious of new modifications within the market, preceding advertising campaigns, aggressive actions, etc. How to measure: Sales are calculated with the aid of using summing up all of the profits from consumer purchases, minus the value related to again or undeliverable products.
How to measure: The maximum apparent manner to develop your income sales is to boom the variety of income. This may be executed with the aid of increasing your advertising endeavors, hiring new salespeople, or making bargain offers that can be difficult to resist. Growing your income and sales has to be a long-term approach as opposed to a quick (and temporary) raise in income.
2. Net Profit Margin
This commercial enterprise metric shows how efficient your business enterprise is at producing income in comparison to its sales. Basically, this quantity tells you how large a sum of every greenback earned interprets into profits. The net profit margin is a great way to expect long-term commercial enterprise growth and spot whether or not your profits exceed the costs of operating the enterprise.
How to measure: Calculate your month-to-month sales and decrease all of the income expenses. How to enhance You can enhance your business’s net profit margin with the aid of growing sales. The simplest manner to do that is with the aid of using elevating the rate of your products/offerings and promoting more. Another technique is to decrease your income and manufacturing prices while maintaining parity with the competition.
Both of those approaches require thorough marketplace studies and long-term commercial enterprise strategies and cannot be completed overnight.
3. Gross Margin
The better your gross margin, the more your organization earns by using every income dollar. You’ll be capable of making investments in different operations. This metric is particularly critical for beginning agencies because it displays advanced approaches and manufacturing. It’s just like the inverse of your organization’s productivity, translated into numbers.
How to measure: The gross margin equals your organization’s general income sales minus the price of products sold, divided by the entire income sales. Alright, let’s place it into an equation. Gross Margin = (general income sales – the price of products sold) / general income sales
How to improve: Gross margin may be advanced with the aid of making your income and manufacturing approaches more efficient.
Read: What are the Most Important Metrics to Track for a Startup?
4. Sales Growth Year-to-date
Who wouldn’t want to see their business grow month after month? Year-to-date sales growth shows how fast the company’s sales are increasing or decreasing. Monitor sales growth over various time periods. Monthly, yearly, and long-term metrics give you a better understanding of where your business is today. Aim to accelerate your monthly sales growth, or at least maintain the same percentage each month.
Measuring method: See how many monthly sales and new deals you have. If your sales team works with multiple teams, you can also track this business’s metrics by the team. This gives you a better overview of the performance of individual sales divisions.
How to improve: Like the revenue metric, this KPI can be improved by investing more resources in marketing and sales activities. Aggressive media coverage and new product launches can also help drive sales growth.
5. Cost of Customer Acquisition
Have you ever wondered how many little things go into customer acquisition? Customer acquisition cost (CAC) is calculated by dividing the total cost of acquiring a new customer (marketing expense) by the number of new customers acquired in a given time period. If he spent $8,000 on marketing in September and acquired 40 customers during that period, his CAC is $200. The cost of customer acquisition should always be measured along with the customer’s lifetime value. At an average value of $1400 per new customer, a $200 acquisition is a reasonable deal.
Method of calculation: The simplest way to calculate the average customer lifetime value is to multiply the average sales by the number of repeat transactions and the average number of months a typical customer stays. The calculation of CLV depends on product specifications. Is it a monthly sale, a one-off big deal, or a repeat customer purchase? Here is a great infographic from Kissmetrics that explains CLV in detail.
How to improve: Evaluating the customer lifetime value of different customer segments can help you understand which segments bring you more profit. Ditch your profit-eating, hard-to-convert customers and focus on your most rewarding audiences.
6. Customer loyalty and retention
Having loyal customers is beneficial in many ways. It helps increase your sales and spread the word about your product. Customer retention shows how many customers use your product over a period of time and make repeat purchases.
Measuring method: A simple formula for calculating the retention rate is:
(CE-CN)/CS) 100 = Retention rate
CE = number of customers at the end of a certain period (e.g., 1 year)
CN = number of new customers acquired in the same period.
CS = number of customers at the beginning of the period.
How to improve: By providing excellent customer care and providing quality products, you can build customer loyalty over time.
7. Net Promoter Score
The Net Promoter Score reflects product quality and customer satisfaction. Shows how many people are likely to recommend your product or service to a friend.
According to the Net Promoter Network, he has three levels of customer representation.
- Promoters (score 9–10) are loyal enthusiasts who promote your business to others and increase sales.
- Passive customers (scores 7-8) are satisfied but unenthusiastic customers who will leave when they find a better deal.
- Detractors (score 0-6) are disappointing customers who spread negative information about the business and can damage the brand’s image.
Measuring method: This marketing metric can be measured on a scale of 10 by conducting customer surveys and interviews. The easiest way is to ask this question in your product order or new subscription follow-up email. Collecting data and evaluating results takes time, but it provides a lot of insight into how to improve your product or service. To calculate your Net Promoter Score, subtract the percentage of detractors from the percentage of promoters.
How to improve: We will provide the best customer service and quality service. Make the user experience the best it can be by giving your customers benefits and information they didn’t expect.
8. Lead-to-Client Conversion Rate
A prospect does not become a customer by itself. They need to be contacted by your sales team to be converted into paying customers. Business metrics, from leads to conversions, reflect the performance of your sales team. In addition, it can also indicate the quality of the product. If your leads don’t convert, they may not be impressed with your offer.
Measuring method: To calculate your lead-to-conversion KPI, divide monthly new leads by monthly new customers.
How to improve: To improve this metric, you first need to find the cause of your low conversion rate. The sales team may be inadequately functioning, but the product and market fit may also be poor.
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