Running a business requires careful decision making. Increasingly, business owners are turning to data to help them make better decisions.
Fortunately, there are a lot of data points available to managers of modern businesses. Sometimes the challenge is figuring out what to ignore and what to pay attention to.
The following are six metrics that every business team should care about.
1) SALES REVENUE
Increasing your sales revenue is one of the most important parts of running a successful business. This is arguably the most important of all the business metrics. While it isn’t the only indicator of success (it doesn’t account for expenses), your revenue indicates how much you are successfully selling.
In many cases, businesses that have high revenue, but low profit are able to optimize their costs. However, those with low revenue do not have such a simple option. It is often worth investing in increasing your sales revenues.
2) SALES CONVERSION RATE
This is the rate at which you are able to convert leads into customers. Knowing this number is important because it helps you understand how efficient your sales process is. Even if you are bringing in a lot of revenue, a low conversion rate suggests that something is wrong.
While this metric by itself does not paint a very complete picture, it should be part of most businesses’ scorecards. If you want to understand how effective you are at selling to your customers, the conversion rate is a must-know data point.
Formula: (Leads converted into sales / qualified leads) x 100
3) GROSS MARGIN
Your gross margin is the amount of money you make before fixed expenses. In other words, it is revenue minus cost of goods sold. If you sell an item for $50 and it cost you $35 in supplies, the gross margin is $15 or 30%.
This number can be examined on a per-sale basis or as part of your complete income statement. Understanding this number will help you figure out your pricing and determine how much you can spend on acquiring each sale.
4) NET PROFITS
Net profit is arguably the most important metric. This is the amount of money you make after accounting for all expenses. It may be expressed as a dollar figure for a timeframe or as a percentage of revenue.
This is perhaps the only figure that you can examine by itself. However, many businesses intentionally increase their expenses and make investments to minimize their net profits. This is because profits are the taxable income for a business. Therefore, if you can invest in growth, you can avoid taxes and grow your business.
5) SALES GROWTH (YTD)
It is very valuable to know how you are performing in terms of sales compared to previous periods. This is often examined as a year-to-date figure. So, if you made $400,000 by July of last year and $500,000 by July of this year, you have grown your sales YTD by 25%.
This comparison does not only need to be on an annual basis. Many companies examine their sales growth on a quarterly basis. However, you should keep seasonality of sales in mind if the time of year is significant in your industry.
6) COST OF CUSTOMER ACQUISITION
Finally, you should be tracking the amount of money you need to spend to acquire a single new customer. This will typically be the amount of money spent on marketing and sales divided by the number of customers.
This number may be examined for the entire business or based on the channel. So, you may find that your cost of customer acquisition is 10% higher for search ads compared to social ads. These insights can help you make better marketing decisions.
Try creating a scorecard with the above key performance indicators. By tracking them all, you can determine the overall health and performance of your business. There may be other KPIs that you want to examine. However, the above six are some of the most important.