By Sreeram Sreenivasan
Business owners are generally so busy dealing with tasks, problems and decisions that it’s easy to lose track of the numbers that matter for your business. As a result, it becomes difficult to know what is working well and what needs to be fixed, how to grow your business.
Growth metrics are the key numbers and trends that tell you whether your business is growing as fast as you’d like and in the right direction. It is important to monitor them regularly so that your team can track progress, spot and address problems before it becomes too late.
Here are 7 growth metrics every small business must keep an eye on.
1. Revenue Run Rate
Revenue run rate is the revenue your business makes every month. Initially, you can start by setting monthly targets and measure your business’ monthly sales performance against it. As your business grows, you need to start tracking it using weekly performance. You can also compare the current period with previous months to see how your business is growing over time. This also helps you see effects of seasonality, directional trends, etc.
If your business has multiple sources of revenue, it is important to monitor revenue growth by each source. This will tell you which sales and marketing channels are effective.
2. Conversion Rate
Conversion rate is the percent of visitors who perform an action on your website or app. The action can be registering on your website, buying your product or anything else. Conversion rates can help you understand the effectiveness of your activities. You can see how your marketing efforts are performing, how users are responding to your new features and other offers, etc. The more the conversion rate, the better it is for your business.
3. Customer Acquisition Cost (CAC)
Customer Acquisition Cost is the cost of getting a new customer. You can calculate it by dividing the cost of marketing and sales (including salaries and overhead) by the number of customers you get during a specific time frame. E.g., if you spend $1000 in a month and acquire 20 customers, your CAC is $50 for that month.
4. Lifetime Value (LTV)
The lifetime value of a customer is the total revenue you expect to earn from a customer as long as he/she uses your product/service. You can track the lifetime value averaged across all your customers, to get an overall direction. It should be, at least, 2 to 3 times the Customer Acquisition Cost. Otherwise, you may be spending too much money on getting customers, and the return may not be worth the effort.
5. Churn Rate
Churn rate is the percent of customers who stop using your product or service. It can be due to various factors: they are not happy with your products and services, new competition in your market, they find it too expensive over long term, etc.
It’s important to monitor churn every month as it can cause a dangerous drop in revenues, if neglected. You should monitor churn rate both by the number of customers and the amount of revenue lost. Further, you can group your customers into various categories to analyze churn by category. This will help you figure out which type of customer is dropping out more than the others.
6. Burn Rate
Burn rate is the amount of cash your business spends every month. If it is not monitored regularly, your business may run out of money and you’ll have to shut it down. The lesser the burn rate, the longer you can stay in business. Burn rate tells you how much time you have before you run out of money. It is important to identify all the sources of expenditure, and monitor burn rate by source.
7. Monthly Profit or Loss
Every business strives to make customers happy and increase profits. So it is important to measure profits every month. For that, it is necessary to clearly identify all the sources of revenue and expenditure (fixed and variable). This will help you correctly calculate monthly profits. Otherwise, you may be misinformed by the inflated or deflated value of profit.
To start off, you can create a simple dashboard to track these numbers and trends, and share it with your team. Monitoring it daily/weekly will help you see where you stand with respect to business objectives, spot growth opportunities and risks sooner, and take action. You can keep adding more numbers and charts to it as you feel the need to track more and more information.
Keeping track of growth metrics regularly empowers your team to identify issues early, achieve business goals and grow your business in the right direction.