Often when we start a business, the most daunting task can be to know when the business is working — or when it’s dying a slow death.
Business metrics, if defined and understood well, can help us identify the state of the business. They are key numbers that we can easily track, which help us understand if the business is moving in the right direction.
These metrics help understand what levers to move to get the desired outcome.
They are like a guiding light to be able to make smart decisions in our business — and they are critical to your success. Without these metrics, you are like a missile full of power but with no guidance on the target.
At first, the numbers may look really daunting, but once you are past setting them up, your business should grow exponentially. Today, I’m going to outline some key guiding metrics you can get started with to scale your business.
NOTE: Some businesses may have a higher value for a particular metric. Some businesses value one part of business over the others. We will discuss those while discussing the metric. The final list of which metrics are higher priority for you depends on your business plan.
The metrics below are not listed in order of priority, but in order of simplicity to track (in my opinion!).
Ready to geek out?
Metric #1: Revenue
For any business, this is a critical number. Revenue is the total amount collected by your business.
Ideally this should be easily trackable through your merchant/bank/PayPal account.
Whichever service you choose to collect payment, that service should be able to send you a report, or provide you with a login where you can track the revenue.
Here is what is more important: you should set up a time every week where you log into that portal and look at your total revenue for the week.
You want your weekly revenue to continuously grow, and doing this helps you to keep an eye on it. If a week is too short for your sales cycle, track it on monthly basis.
This would mean you will go every week or month in your payment collection service. Open an Excel sheet and enter the weekly or monthly revenue and then check if it increased from the previous entry.
This simple activity ascertains that you always have a view on total revenue of your business.
More importantly, you will know if your business grew in that period.
How are your revenue numbers looking?
Do they suck?
No worries. We have a hack for it.
The reason we track revenue is for the same reason. If we keep an eye on it, we will know when we need to take counter measures to increase that number.
Here are some actions you can take to increase your revenue.
- Run a promotional campaign to your clients
- Run a promotional discount campaign to your potential clients
- Add more budget to your profitable advertising campaign
- Add more related products to your suite allowing you to run a promotional campaign
Either of the above campaign should be able to increase your revenue that week/month.
If done right, this should increase your revenue in perpetuity.
Metric #2: Subscribers/Clients
If you have a subscription service, then you must always look at how you are adding new subscribers. The same applies for transactional business. If you have a transactional business you need to consistently add new paying clients to your business.
This metric is important and ties directly to the above metric of revenue.
Consistent increase in clients allows you to be certain of business growth.
It also ascertains that more and more potential clients are hearing about your business.
The same system that shows you the revenue should be able to show you the number of new clients. Alternatively, if you have Google Analytics setup on your business, it can also help you track new clients on your business.
If getting new clients seems to be a challenge, you may want to look into:
- Creating an aggressive content creation and distribution strategy
- Advertising on new platforms where you may be able to find clients
- Finding your client demographic using your Facebook fan page data and targeting a similar audience
Metric #3: Profit
This virtually is the most ignored metric in a startup setting.
As kick-ass entrepreneurs, we want to keep a long view on our business. This makes us careless about the profitability of the business.
Here is why that may be a metric which, if ignored, can run your business to ground:
Profitability helps understand viability of the business.
Is the operating cost of the business too high?
Are you starting to run at a loss — even when you have just started the business?
Is the variable cost of business too inconsistent for you to be able to create predictability for the business?
These questions are troublemakers. They may cause discomfort — but once known, can increase the viability of the business.
Here is how you can address profitability of your business:
- Take the total revenue. Now deduct fixed costs of the business. These are costs like office, fixed server costs, or any retainers you may have.
- Further find the variable costs of your business. These can be your HR cost in a fast-growing business with a lot of staff hiring, or your marketing cost if you are aggressive with advertising.
Because these costs vary, you can take an approximate that may give you a ballpark profit amount.
Once you have deducted these amounts, you will have an approximate profitability of the business.
It is okay to have an approximate on profitability. What you want to know is the percentage of revenue that becomes the profit.
You want this percentage for a new fast-growing business to be at least 15–20%. If you are running a really profitable unit, i.e. over 30%, you may want to consider investing more in growth.
If you are running a loss in your business… you have much to worry about. Here are some questions that may help you navigate and find your loss making areas and convert them to profit:
- Study similar business model like yours and find their cost centers. Are your cost centers similar in percentage? If not, what is bloating your cost center? Is there something you can do to cut it? Note: Often businesses look at cost centers and try to cut centers like marketing. Marketing is the fuel of your business. It’s an investment center. Never cut on marketing. It’s like taking out the power center that drives your whole business.
- Are there innovative models you can come up with to defer payments? Are there better compensation models you can consider which allow payments on results?
- Do you have production efficiency? Is there a lot of waste in your business?
Metric #4: Cost of Customer Acquisition
Cost of customer acquisition is essentially the amount of dollars you need to invest, in order to get a potential customer to come through the door — and convert to a paying client.
Here is how you know cost of client acquisition:
Total cost of advertising divided by total number of customers.
So, for example, you invested $1,000 in Google Adwords to acquire 100 paying clients. Then, your cost per client is 1000/100 = $10.
This number may vary, depending on the channel you use for advertising.
It is best to know your cost of acquisition by channel, as this helps determine how much you can invest in that channel of advertising.
For example, if you invest in Facebook advertising and your cost of acquisition for each client is $10, or on Google say the cost of acquisition for a client is $20.
Below you will see an explanation of value of a client. Say the value of a client from Facebook is $11 and from Google is $24.
Even if the cost of acquiring a client on Google is higher, in the above scenario you have a lot more profit generated through Google Advertising.
This means you should invest a lot more on Google — even if the cost of acquisition is higher.
This is why this number is important to track: this allows you to scale your advertising/promotional efforts on the channel where you are a lot more profitable.
It also makes you less scared, as an entrepreneur, about the investment you are making — and it makes you more ballsy.
Cost of acquisition is a bit more complicated to optimize. Usually, the cost of acquisition can be better managed by looking at the below-mentioned metric, value per customer.
We are trying to keep the cost of acquisition just under or the same as value per customer.
If that is a challenge, here are some elements you want to look at in your advertising:
- Are you targeting the right audience?
- Is your bidding strategy optimal?
- Look at your ad copy — are enough people clicking on it? Is the price per click optimal? How can you optimize every click?
- How is your sales copy converting? Can you test alternate headlines, sales styles, or follow up sequences?
Metric #5: Value Per Customer
Value per customer is the revenue generated per customer in a set period of time. In most businesses, it should be tracked for the first 30 days.
The reason I suggest a 30-day time frame is to keep a shorter window of monetization, allowing us to make investments without risk.
If the business is well-funded, it can track and consider the value of a customer for an extended period of time.
Value per customer allows you to know how much you can invest in acquiring that client. The higher the value of a customer, the more we can invest in acquiring them.
Here is how you can know the value of your customer: take the revenue of your business in a particular time frame, then divide the same with the clients acquired in that period.
Say you have $10,000 in revenue over 30 days, and you acquired 100 clients in that period.
This will mean $10,000/$100 = $100 per client.
If you are suffering the horrendous challenge of an unattractive value per customer, here are some measures you can take to optimize your value per customer:
- Check your conversion funnel. Are you making a compelling offer? Can you offer an incentive for your potential clients to take action?
- Check your sales page conversion. Can you split test headlines? Maybe the opening paragraph? Split test your video sales letter?
Metric #6: Advertising/Traffic Investment
Tracking your investment in advertising or any other channel is a determinant of a progressive business.
More investment means faster growth, more exposure — and clients.
In a progressive business, it is important that you consistently try to increase the investments in different advertising channels.
However you choose to find clients, your investment in that should increase. Every week, every month.
A good way to safely increase your investment is to track your cost of acquisition and value per customer. Until your value per client is higher than the cost of acquiring them, you can invest more.
If scaling traffic is a challenge, here are some questions you may want to consider:
- Have you done your competitive research to ensure you are present where your competition is? You can use SEMRush.com to check that for online businesses.
- Have you explored other related media channels? Some popular channels for advertising/promotion are:
- Google Adwords
- Facebook ads
- Twitter ads
- YouTube ads
- Media buying
- Guest blogging
Metric #7: Autopilot Revenue
This is another key metric that is often ignored. Great businesses snowball to bigger business every day. They don’t operate in spikes.
A lot of businesses don’t operate that way. They rely on partner promotions, individual transactions and create one-time clients.
Once you have a certain baseline revenue that you generate every single day and every single week, it makes it much easier for you to grow your business.
It gives your business stability. It gives you less sleepless nights.
You can create autopilot revenue in your business by:
- Thinking of subscription model for your business. Can you create a business where clients pay you a certain amount every month or every year?
- Thinking of consistent promotions. Is there a way you can drive new leads and clients to your business consistently? Is there a way you can automate the sales process? Is there a way you can create these funnels that work for you all the time?
With the above metrics, you will already know a lot more about your business. These are easy numbers to track. They will need some setup time, but once you are setup, you will see how your business becomes so much more predictable.
Not only that, but you will be able to confidently see how your business will grow.
You’ll find out what needs to change to accelerate that percentage, and what activities your team should focus on.
There are some submetrics that are applicable to particular business models. These may apply to your business as well:
- User Engagement: Specially if you have an app business, or a business that needs active consumption — user engagement is a critical metric to track.
- Conversion rate on sales page: Conversion rate on the sales page helps you reduce client acquisition cost. The better the conversion rate, the more clients you get, which hopefully reduces your investment in acquiring a client.
- Conversion rate on lead capture: If you have a sales funnel that requires your potential clients to first opt-in to some lead magnet, is it worth investing in optimizing your lead capture? This will help you get cheaper leads, leading to cheaper cost of acquisition.
- Lifetime value of a customer: This helps with the long view of business. If your lifetime value of a customer is really high, it may allow you to secure funding. If you have a well-funded business, this will allow you to have a long view of the business.
Now, there are many numbers in a business. One of the businesses I work with tracks 1,150 numbers… there is no end to it.
But if you track the above-mentioned numbers, they will give you a broad view of the business.
They will help you make smart decisions.
They will allow you to focus on the key activities, and your team to focus on the right activities.
If you were to suggest, what are some of the other numbers we may have missed? Share those in comments below.