Business Metrics and Their Impact On A Growing Business
This article was first published on Magic.
Running a business demands objectivity and accuracy. You can’t rely solely on word of mouth or gut feeling to know how your business is doing. You need data.
Some key metrics for small businesses cover departments such as sales, marketing, and finance. Monitoring these will give you context into which targets were reached, which ones were missed, areas of improvement, new goals, and recurring trends.
Benefits Of Monitoring Business Metrics
Identify problems before they happen
There may be recurring patterns and trends within your business operations and overall industry landscape that are hindering your growth. With business metrics, you can make accurate forecasts and informed decisions to avoid oversights.
Tracking business metrics helps you determine whether your company is performing well or underperforming based on your industry’s competitive landscape.
Performance indicators expressed in terms like “good quality” or “bad quality” are vague and subjective. Looking at business metrics will help you transform feedback and operational performance into measurable numbers. Remember, what is measured can be managed.
Business metrics help indicate whether or not your business is reaching its goals. Moreover, you can accurately adjust strategies and processes that will produce more sustainable results.
Important Business Metrics For Small Businesses
You can extract a lot of insights from any aspect of your business. But which ones should you pay attention to? You can save time and money by tracking only those metrics that have the biggest impact on your business. Below are some of the crucial metrics to track in sales, marketing, and finance.
Sales
Sales Growth Rate measures your ability to increase revenue from sales over a fixed period of time. This particular metric gives a broad picture of your growth instead of focusing on specific departments.
Sales Growth Rate = (Current Period Sales — Prior Period Sales) ÷ Prior Period Sales*100
If your sales growth rate is lower than in previous periods, this can indicate that your sales team needs to rethink its strategy. There are several ways you can increase your sales growth without restructuring your entire business model.
- Support your sales team with training
- Promote other products to existing customers
- Focus on building strong customer relationships
- Don’t neglect existing customers when seeking new ones
Customer Churn Rate refers to the number of customers that stop purchasing from you over a given period. This is commonly applied to subscription-based models where it takes note of subscribers that cancel or don’t renew their subscriptions. Identifying your churn rate will help you evaluate your marketing efforts’ effectiveness and overall customer satisfaction.
Customer Churn Rate = (Customers at the Start of Time Period — Customers at the End of Time Period) ÷ Customers at the Start of Time Period*100
Having a high customer churn rate may call for a different approach in strategy. Some ways you can reduce customer churn include:
- Ask for feedback regularly
- Ensure consistent, excellent customer service
- Create a community
- Focus on your most profitable customers
Marketing
Return on Ad Spend (ROAS) measures the revenue your business generates for each dollar spent on advertising. A high ROA is an indicator that your advertising efforts are effective — more prospects are connecting with your advertising messages.
Return on Ad Spend = Revenue Generated by Ads ÷ Cost of Ads
If you are seeing low ROAS for your business, consider taking the following steps:
- Segment your audience based on multiple attributes such as geolocation, their device used, job title, and more.
- Optimize page load speed
- Use negative keywords to put more emphasis on specific keywords that matter
- Ensure accurate conversion tracking by comparing offline conversion data with social media metrics, such as Facebook clicks
Customer Acquisition Cost (CAC) refers to the amount of money you spend to convert leads into customers. This shows your business’ profitability by comparing the cost of attracting customers (marketing, sales personnel, advertising, and more) to the number of customers you actually gained.
Customer Acquisition Cost = (Cost of Sales + Cost of Marketing) ÷ Number of New Customers Acquired
A low customer acquisition cost indicates that you are spending money efficiently and seeing higher returns. To ensure low CACs, try optimizing your content with these customer acquisition techniques:
- Content marketing provides unique and relevant content to catch your audience’s attention
- Email marketing is a popular and effective method that keeps you connected with your audience, whether by sending a promotional email or a happy birthday email.
- Search marketing, which can be categorized into organic and paid, optimizes your content to make it easily found and accessible to your target audience.
- Social media marketing helps increase brand awareness and promote your content published on other platforms.
Finance
Gross Profit Margin measures how much your business earned minus operational costs, labor, materials, and other direct business expenses. For startups and small businesses, profit margins may generally be lower as brand-new operations can take a while to show efficacy. But as you grow, your revenue should ideally be able to cover your production costs.
Gross Profit Margin = (Net Revenue — Cost of Goods Sold) ÷ Net Revenue
Take note of these tips for increasing gross profit margin:
- Determine the right pricing for your products
- Focus on your most profitable product mix
- Manage your inventory to make data-driven decisions on sales, purchasing, and marketing
- Consider automating repetitive tasks to reduce overhead costs
Working Capital calculates a business’ ability to pay its liabilities with its assets within a period of time. Examples of assets include checking and savings accounts, accounts receivable, stocks, mutual funds, and other resources that can be converted into cash. Liabilities refer to all the expenses a company is expected to pay within a business cycle. A positive working capital indicates robust financial health, operational efficiency, and capacity to clear bills within a year.
Working Capital = Current Assets — Current Liabilities
Some strategies you can implement to manage working capital are:
- Implement thorough credit checks to reduce debt
- Consider converting to electronic payables and receivables
- Compare risk with profitability to calculate the appropriate cash balance
- Prepare cash budgets to project cash flows
Tracking Business Metrics With Magic
There’s only so much one person can do within a day, even more so for a small business owner. By hiring a virtual assistant, you can stay on top of your business metrics without compromising your core responsibilities. Magic can match you with a VA that can help you track your performance in any department, such as:
Monitor SEO efforts, track metrics on Google Analytics
Create cash flow statements, organize corporate documents, update credit card statements, reconcile transactions
CRM database management, data mining, data entry
Check out the Magic hiring guide to get started!
