When it comes to running your small business, knowledge is power. But it’s what you do with that knowledge that really counts.
As your business grows and evolves, it becomes increasingly important to track and analyze key metrics that reveal how your business is performing. But with all the data floating around out there, it can be a daunting task trying to figure out where to focus your time and energy. Luckily, there are several metrics that are relevant to nearly every business across the board.
By monitoring the right metrics, you gain valuable insight into the health of your growing business. Ultimately, a deeper look at this data can help you identify emerging trends, make informed decisions and create a game plan for the future of your small business.
Here are eight key metrics that every growing business should track:
1. Sales Revenue
At the end of the day, sales revenue is one of the most important metrics that should be routinely monitored by a growing business. It is calculated by simply adding up all income earned from customer purchases of your goods and/or services, and then subtracting any costs associated with returned or defective products.
This metric can help you clearly identify which products and/or services are generating the most revenue for your business and, ultimately, where to focus your sales efforts and make improvements in order to maximize your profitability. In addition, sales revenue can be tied to advertising campaigns, price changes, seasonal forces and more.
2. Cash Flow
Cash flow measures the money that flows in and out of your bank accounts. Cash that you pay out is called negative cash flow, while cash that comes into your business is known as positive cash flow.
Without routinely monitoring day-to-day cash flow, your business could end up in hot water financially. A cash-flow budget can help your growing business identify cyclical trends and anticipate when cash flow will peak and trough, making it easier to plan ahead for difficult periods when money will be tight and to capitalize on high cash inflow.
3. Operating Productivity
Another important metric to track is operating productivity. By taking a deeper look at how your employees are performing, you will better understand the inner workings of your small business. Employee discontent can put your company in serious jeopardy, while high productivity will be a huge asset.
Operating productivity ratios can be applied to nearly any aspect of your business – from sales and manufacturing, to marketing and customer support. For example, sales productivity is simply your actual revenue divided by the number of sales personnel.
4. Overhead Costs
In simple terms, overhead costs are fixed expenses associated with operating a business that can’t be linked to any specific business activity, product or service. They are the costs a company incurs to stay in business, regardless of its success level. Examples include rent, utilities, labor and insurance, to name a few.
In any growing business, overhead costs can creep up and out of control if not diligently tracked. Although they will never be eliminated, these expenses can be reduced to help your business remain lean. By regularly monitoring your overhead costs, you will have a clearer picture of where spending occurs in your business – insight that can be used when planning monthly and yearly budgets.
5. Customer Acquisition Cost
Customer acquisition cost (CAC) is a measure of the total cost associated with acquiring a new customer, including your marketing and sales efforts. It is calculated by dividing total acquisition expenses by total number of new customers gained over a given period.
This metric reveals your return on investment when it comes to marketing and advertising expenses. Over time, your CAC should decrease as your business growth and brand image increase. As a rule of thumb, the lower your CAC, the better – but this will ultimately depend on your business model and industry.
6. Customer Retention Rate
As a growing business, you will also want to track your customer retention rate on a regular basis. Simply put, this metric is the percentage of customers that stick with your small business over a given period. It is calculated by subtracting the total number of new customers from your total customers at the end of a given period, divided by the number of customers you had at the start of this period.
The goal is to keep your customer retention rate as high as possible, which can save you money in the long run. This metric also provides insight into how loyal your customer base is and how certain areas of your business are performing.
7. Website Analytics
If you aren’t already monitoring the analytics for your company website, you need to start. By routinely tracking and reviewing your website analytics, you will gain valuable insight that can be used to better serve your audience, assess how your marketing strategy is working and make improvements to your growing business.
For instance, it may be helpful to monitor the most popular content, traffic sources and page views for your business. By keeping tabs on your most popular content, you will get a better understanding of your audience and its content preferences. Your traffic sources can tell you how your social media and email marketing strategies are performing, while your page views reveal how many people are coming to your site.
8. Gross Margin
Another key metric to track is gross margin. After all, your bottom line is everything when it comes to business. The formula for calculating gross margin is sales revenue minus the costs of goods sold, divided by sales revenue, and then multiplied by 100.
Gross margin represents the percentage of every dollar of revenue that your business retains and can potentially invest back into the company to drive growth. As a rule of thumb, the higher your gross margin, the more your spending power will be.