Every business wants to be successful in its space, but what defines success? This is something business owners have to determine at the start so they can track their progress. The best way to measure success is to track certain metrics, such as sales, new leads or conversions. These numbers can tell owners if their business is growing, but some are more important to watch than others. Here are a few metrics that every business should track to measure its success.
Probably the most important of sales metrics is revenue. This is how much money a business is bringing in within a certain time frame (monthly, quarterly, annually). Without revenue, businesses can’t function. Without increases in revenue, businesses can’t grow. Revenue can tell more than just the health of the business, though. It can also point to whether people are interested in buying a product or service, whether marketing efforts are paying off and how competitive a business is. They’re a quick pulse of all the most important elements of success.
When measuring revenue, it’s important to subtract the costs of returned items from the total revenue so the result is as accurate as possible. If that number isn’t quite where it should be, the easiest way to improve it is to increase sales by trying new marketing tactics, hiring new salespeople or even offering attractive discounts.
Net Profit Margins
This is a key metric when predicting long-term growth. A net profit is the amount left over when owners subtract the costs of business from the total revenue. The key is to create predictable profits month-over-month, so a business is consistently earning money.
One way to improve profit margins is to increase the price of products and services and sell more of them. This can be a tricky balancing act, so it’s only advised when margins need a good push to reach their benchmarks. When you increase prices, it might turn off some buyers, which makes it trickier to sell more. If you can nail your marketing messaging, though, then you can demonstrate the worth of your product or service and justify the increase.
Another tactic is to become more competitive in the industry. This might mean taking the opposite approach and lowering your prices. This approach can be beneficial if a business’ prices are already higher than most of their competition and management determines that’s why profit margins are suffering.
Cost of Customer Acquisition
Nothing in life comes free and that includes customers. Every customer a business acquires came through a marketing channel which took time and money to establish. The cost of customer acquisition addresses the dollars that went into capturing someone’s attention and bringing them to the business for a sale.
This is one business metric no one should ignore because it can tell a business if its marketing budget is well spent. For example, if it costs $50 to convert a customer to buy a $25 product, the business is actually taking a loss with each sale. To make sure your cost ratio is productive, analyze your client database to see which leads are most likely to convert and focus on those opportunities.
Net Promoter Score
Net Promoter Scores take the pulse of popular opinion about a business. It’s a quick score of how well a business serves its customers. Businesses can gather information through a quick survey that asks customers to rate their experience from 1-10. Whatever software a business uses to send the survey—usually a CRM—will crunch the numbers and divide customers into three categories: promoters, indifferent and detractors.
Promoters are people who believe in the business and have a good experience. They’re the most likely to share positive information with others. Detractors are people who had a negative experience and are not likely to recommend the business to others.
The Bottom Line
These metrics are great ways to measure the success of a business and monitor its growth.