Posted by Shivali Anand
March 8, 2022 | 3-minute read (586 words)
Are you ready to take your business to the next level? First you’ll need to be on top of its key metrics so you can make informed decisions. Business metrics, also referred to as performance indicators, enable you to monitor the business's progress toward its goals as well as identify and address potential problems.
Monitoring your business’s performance metrics brings three important benefits:
1. Improves decision-making – When it comes to making decisions, entrepreneurs sometimes decide to simply trust their instincts rather than logic. Checking on business metrics before making a decision can keep them from going down the wrong path.
2. Helps you track progress – To increase sales, business owners need to be able to evaluate how far they've come and assess whether they need to make adjustments to fulfill their objectives. Tracking metrics is the best way to do this.
3. Helps identify difficulties – By assessing certain metrics, business owners may spot issues that could hurt the company and intervene accordingly.
Metrics every business must monitor
Take a look at the six key metrics that small businesses should monitor.
1. Client acquisition costs – Without an understanding of how much it costs to gain a new customer or client, entrepreneurs can't gauge the effectiveness of their sales and marketing efforts or even their company's profitability. Divide all sales and marketing expenditures by the number of new users created to assess the cost to acquire new clients.
2. Monthly burn rate – Even the most elegant business concept will fail if it does not have enough funds to survive. Measuring the company's monthly burn rate provides a snapshot of how quickly it is going through cash and how long the organization can continue — or if it’s time to raise capital again.
3. Customer satisfaction and retention – A business's success rests largely on customer satisfaction and retention. If it cannot attract paying consumers, or if customers only buy once and never come back, the outlook is not good. Satisfied customers are one of the best sources of recommendations and repeat purchases. After all, word-of-mouth marketing is one of the most effective marketing tools. This is why it's critical to track how long a company's consumers stay and how satisfied they are.
4. Accounts receivable – It's easy for a business owner to focus on new sales and attracting new customers. But if you’re not actively tracking the age of your accounts receivable, meaning the length of time between a sale and payment, you could end up making sales that never result in actual revenue for your business.
5. Social network user penetration – Although social network user penetration is a relatively new metric for businesses to watch, it has become a critical factor for success. Most of us today use social media platforms, websites, smartphone applications and other digital tools to learn about businesses. But if a business owner isn't engaged on these sites, they'll likely fall behind the competition.
6. Profitability trends – Many small business don’t expect to make a profit for a few years. Some of the world's most successful firms, such as Amazon and Google, were publicly listed for years before becoming profitable. While turning a profit is the fundamental goal of every business, as long as a company is able to survive on cash flow, the trend in a company's profitability may be more important. It's one thing to lose money when there's a road to profitability, it’s another thing altogether to burn through money while incurring increasing losses every year.