- December 29, 2020
- by Jakub Szyszka
- No comments
If you haven’t heard of any business metrics, then indeed, you must have been living under a rock for the last… 100 years or so. 😉
Every successful business needs a way of keeping track of its performance. Here’s where metrics come in place, a set of measurable indicators of processes, performance, and financial goals.
What Are Business Metrics?
Business metrics show company leaders and managers how their business is performing in certain areas. In some cases, they also indicate the condition of a given segment of their company (marketing, customer service, sales).
Although they might differ from industry to industry, most focus on financials, sales, customer retention, and customer satisfaction.
Today we’ll showcase our recommended vital business metrics to follow in 2021.
Let’s dive in!
1. Cost of Customer Acquisition
Famous under the name of CAC (customer acquisition cost). It’s a must-have for companies across all segments and industries, from SaaS, B2C commodities up to professional services firms.
This metric shows how much cost has been incurred to acquire a customer or client.
Why it’s that crucial? It showcases how a company is efficient in its sales or customer acquisition process.
How to measure cost of customer acquisition:
CAC = Sales costs + marketing costs/number of newly acquired customers
Of course, it’s reasonable to account for all of these figures for a certain timespan (monthly, quarterly, or annually)
2. Monthly Website Traffic
Well, this is a clear no-brainer for any business with a digital presence.
Of course, if your sales process isn’t connected to your website, then it might not be that crucial.
However, if you’re using your website to acquire prospects and funnel them through in the hope of converting them to paying customers, you might want to look at your website’s stats.
Low monthly website traffic is a SaaS, e-commerce, or services company worts nightmare.
💡 Pro-Tip: Setup a proper marketing strategy as soon as possible. Make sure to include goals that relate to achieving high monthly traffic. Use tools as Google Analytics, SEMrush, or Ubersuggest to continually monitor your website’s SEO and backlink profile.
3. Sales Revenue
Well, this is what pays the bills.
Whether that’s keeping track of a company’s quarterly revenue or MRR in SaaS companies, it’s essential to bring in recurring revenue. Due to their business model, some companies rely on having a minimal amount of clients break even and provide a sufficient workload for their employees.
Software companies are a great example: they need a steady stream of revenue and a constant amount of work for their development teams to keep top-level tech talent (software engineers might leave if they won’t have a project to work on).
4. Customer Retention Rate
To put it simply, if you’re not keeping your customers (that have also cost you some time and money to acquire them in the first place), then you’re in quite some trouble.
Also, some call it ‘churn’ (then we measure the number of customers leaving).
How to calculate the customer retention rate?
Customer Retention Rate = ((no. Customers at End of Period – no. Customers Acquired During Period) / no. Customers at Start of Period) * 100
5. Gross Profit Margin
The complete essential when it comes to a growing business.
It showcases if your company is turning an actual profit on its products or services.
In simple terms:
Gross margin = revenue – cost of goods sold / revenue
This index shows how efficient a company is when operating its business.
Crucial to note: a low gross profit margin might highlight inefficiencies in your company’s internal processes (whether that’d be production or sales).
Spending too much time across your projects is also a sign of inefficiency. That’s why we’ve built TimeCamp to help you keep track of your work across all projects and teams.
Be sure to give TimeCamp a try for free and see how much time your teams can save.
6. Customer Lifetime Value
This, especially in the SaaS company industry, is also quite a significant metric.
As mentioned described by Hubspot:
Customer lifetime value is the metric that indicates the total revenue a business can reasonably expect from a single customer account. It considers a customer’s revenue value and compares that number to the company’s predicted customer lifespan. Businesses use this metric to identify significant customer segments that are the most valuable to the company.
With this in mind, companies need to make an effort to maximize their customer’s CLV as keeping current customers is far more efficient than acquiring new ones.
A higher CLV is essential for a company’s long-term growth.
Choosing the right business metrics
It’s safe to say that the metrics you choose should reflect the type of business you do and its characteristics.
For example, a commercial jet manufacturer won’t necessarily need to measure its monthly website traffics as this type of business is known for personal networking and conducting sales at major airshows or expos. Additionally, an MRR metric might also not be as relevant as it were to be for SaaS product companies.
In a nutshell, make sure to answer these questions:
- What is my industry?
- Is it a service or a product company?
- How long is the average sales cycle?
Regardless of your go-to industry, a successful business is the one that can adapt, optimize, and innovate throughout time. That’s why being equipped with the right set of business metrics is essential for your company’s long-term growth.
Remember, metrics help you understand where your company might be heading, but it’s your responsibility to transform metric indications into actions and processes.
Lastly, do you have any specific business metrics that you’re keeping track of in your company?
Are there any you’d recommend reviewing? Be sure to let us know in the comments!