Here’s the big question every business owner should be asking… How do you know if your business growth is going the way you want?
In order to answer this really important question for your business, you really have to be able to pull up objective data to tell you whether or not your business is:
- Achieving its aims, and
- What you need to do to keep growing
The fact is that today’s technology makes it a great deal easier than ever for you to be able to track the business growth metrics you require and do this tracking yourself in-house without hiring an expensive analyst. For example, Google Analytics offers a robust array of metrics and is free to use. There are also a range of paid software programs you can use that automate calculating the data you need.
So, here are the five suggested business growth metrics you need to track.
- Return on Revenue (ROR)
The revenue return rate is how much profit your business is making from its sales revenue after expenses are subtracted. To calculate this, take your total sales income and subtract all your business’ expenses. The calculation must include day-to-day expenses, as well as expenses that aren’t as easily seen such as rent and office supplies for example. And also include non-cash factors like depreciation of equipment and property. This is important to track because it gives you an insight into the link between the prices your business is charging for its goods/services and the business’ profitability from selling those specific goods/services in the marketplace at those price points.
- Run Rate
The run rate is a calculation of future performance based on present performance. For instance, if you have two years of data, calculate a monthly average over the past two years. Then, if you’re looking at the next year ahead, multiply this past monthly average by 12. Obviously, the environment in which your business is operating in might change and you should take this into account when using this metric.
- Average Customer Spend
By calculating what your average customer is spending with your business will tell you how much each customer buys on average from you. This is calculated by taking your total revenue and dividing it by the number of current customers you have. The importance of this metric is that it gives you an indication of how your company is performing in your marketplace. It also gives you a benchmark against which to set future new average customer spend targets. Because this is one of the best and most profitable ways to achieve business growth.
- Customer Acquisition Cost
This metric is the actual cost of convincing a potential customer to buy your product or service. Which means it tells you how effectively your sales and marketing efforts are paying off, and how much you need to spend to convert leads into customers. This is very important because you can use this to predict your future finances and revenues as your business grows.
- Customer Retention Rate
Your customer retention rate tells you what percentage of your customers stay with you and buy again. And the reason why this is really important is because it costs you much more to go out and attract and gain new customers than it is to keep your existing ones and get them to buy more existing and new products and services from you. The fact of the matter is, if your rate of retention is low, your business is probably losing money. Low customer retention means you need to step up your efforts to engage and build long-term relationships by offering continued value to your audience who not only trust you to spend more, but also refer you to others.
- Return on Advertising Spending
This calculation looks specifically at the metric for the cost of advertising and the amount of revenue it’s earning your business in return. In other words, it tells you whether your business’ advertising spending is paying off or not. If it’s not, you need to consider more effective or less expensive methods for your messages and the media you are using.
In summary, business growth metrics help you assess your business’ growth progress against its growth objectives. And if you really want to see growth, you should set business growth goals and plan marketing strategies and tactical programmes with timeframes for achieving them. You can then test promotions, set controls and make changes and tweak if you’re not seeing the results you want.