“A good change leader never thinks, “Why are these people acting so badly? They must be bad...
"You can't manage what you can't measure."
– Peter Drucker
Tracking the right business metrics is crucial for understanding your company’s performance, making data-driven decisions, and driving growth. The key to stopping overwhelm is learning to track the main data points and 'zoom' when needed - rather than getting consistently bogged down in a million spreadsheets and levels of data, but not actioning anything.
By tracking these metrics, you'll get a good sense of what is going on and what things should look like, so you quickly notice when things are heading in the wrong direction and you can begin zooming in to figure out why.
And remember, this data compilation doesn't have to be done by you! A good VA will be able to gather the data every week/month, then you only need to review it.
Here are the top five business metrics that every business owner should monitor closely:
1. Revenue Growth
What It Is:
Revenue growth measures the increase in your company’s sales over a specific period, typically month-over-month, quarter-over-quarter, or year-over-year.
Why It Matters:
It provides a clear picture of your business’s overall health and market demand. Consistent revenue growth is a positive indicator of business success, while stagnation or decline suggests potential issues that need addressing.
How to Track It: Compare current revenue against previous periods, and analyse the factors driving changes, such as new products, marketing campaigns, or market conditions.
2. Net Profit Margin
What It Is:
Net profit margin shows the percentage of revenue that remains as profit after all expenses, taxes, and costs have been deducted. It’s calculated as (Net Profit / Revenue) x 100.
Why It Matters:
It indicates how efficiently your business is converting revenue into actual profit. A higher margin means your company is better at managing costs and generating profits, while a low margin might suggest a need to tighten cost controls.
How to Track It: Regularly monitor your income statement to keep a pulse on profitability and identify areas to improve efficiency or reduce expenses.
3. Customer Acquisition Cost (CAC)
What It Is:
CAC measures the average cost to acquire a new customer, including marketing, sales expenses, and any related costs. It’s calculated by dividing total acquisition costs by the number of new customers acquired.
Why It Matters:
Keeping CAC low relative to the revenue generated by customers is crucial for maintaining profitability. High CAC can indicate inefficiencies in your marketing and sales strategies.
How to Track It: Compare CAC against customer lifetime value (CLV) to ensure that acquiring new customers is cost-effective and sustainable.
4. Customer Retention Rate
What It Is:
Customer retention rate measures the percentage of customers who continue to do business with you over a specific period. It’s calculated as ((Customers at End of Period - New Customers) / Customers at Start of Period) x 100.
Why It Matters:
Retaining existing customers is often more cost-effective than acquiring new ones. A high retention rate suggests good customer satisfaction, loyalty, and a strong product or service offering.
How to Track It: Monitor repeat purchases, subscription renewals, and customer feedback to understand how well you’re meeting customer needs.
5. Cash Flow
What It Is:
Cash flow tracks the amount of cash moving in and out of your business over a given period. Positive cash flow means you have more money coming in than going out, allowing you to meet obligations, invest in growth, and weather financial challenges.
Why It Matters:
Cash flow is the lifeblood of your business. Even profitable companies can fail if they run out of cash to pay employees, suppliers, or creditors.
How to Track It: Regularly review your cash flow statements, identify trends, and ensure you have enough cash reserves to cover short-term liabilities and unexpected expenses.
Check out our summary of the Profit First book and method to see if this could help you manage the cash flow in your business.
Using These Metrics Effectively
- Set Benchmarks: Compare your metrics against industry standards or historical data to assess performance.
- Analyse Trends: Look for patterns over time to identify areas of growth or concern.
- Adjust Strategies: Use insights from these metrics to tweak your marketing, sales, operations, and financial strategies.
These five metrics help to provide a comprehensive overview of your business’s performance and enable you to make informed decisions to drive success. Regularly tracking and analysing these indicators will keep you on the path to sustainable growth and profitability.
Need help to stay accountable and take action?
If you want to work with a coach to help you set up your metric tracking, understand when to take action and make a plan to create sustainable business growth, Salty Coaching can help.
Click below to find out more or book in for your initial Discovery Session to see if we are a fit to help you reach the next level in your business.
