Every entrepreneur should be familiar with key business metrics – the quantified parameters of business efficiency and success. Knowing their values is crucial for managing business processes, tackling challenges, addressing problems, and handling regular tasks. Basically, they are a tool for monitoring the health of your business and need to be tracked regularly and accurately.
The problem is, there are too many metrics to keep track of them all. Besides being overkill, this would totally deplete the limited resources of your startup or small business. That’s why it is essential to figure out what metrics actually matter, and monitor them consistently. The metrics you select depend on the nature of your business and on resources you have at your disposal.
Below, we’ll take a closer look at the most common business metrics that are crucial for small businesses, and see how they can be monitored.
Sales and finance metrics
Sales growth is a key metrics for businesses of any size – and one of the easiest ones to track. However, there are specifics related to the nature of your activities. For example, while it sounds intuitive to measure and compare monthly sales growth, sometimes it can be misleading. In some fields, sales are seasonal, so the most reliable approach is to calculate sales growth year-to-date.
Net profit margin
This metric shows how efficiently profit is generated in a company compared to the revenue. It is calculated by measuring revenue for a specific period (normally monthly values are taken) and deducting all sales expenses from it. Of course, it also may vary over time, so comparing yearly values would be helpful to understand general dynamics.
If your company produces several different products or offers several services, product performance is an important business metric. It helps you understand and compare profitability of specific products and services, and provides a basis for further analysis of performance of offered products or services, and their viability.
Customer lifetime value
Customer lifetime value (CLV) is a metric that shows the average amount of money you get from your customers during their lifespan with you. Basically, it gives you an idea of the value you receive from each customer on average, and allows you to evaluate whether the amount spent on customer acquisition is worth it. This metric is calculated by multiplying average amount spent yearly by a customer by average customer lifetime.
Customer retention rate
Keeping existing customers is always less expensive than acquiring new ones, so it’s important to know how many of your existing customers keep working with you and using your products and services. This is what a customer retention rate helps understand. It is calculated as a relation of the number of existing (not new) customers at the end of a period to the number of customers at the start of that same period.
Customer churn rate
This metric, being the opposite to the previous one, shows the percentage of customers lost during a specific period. It is calculated in relation to the number of customers that have left during a period to the number of customers at the start of that period. This metric is important for any business and vital for businesses that provide services on a recurring basis (e.g. subscription services).
Work process metrics
Met and exceeded estimates
Aligning ambitions with reality is a key part of setting realistic goals. At the beginning of any business activity, inaccurate estimations can happen – but considering this as a lesson to learn and improving estimation techniques in the future means setting realistic deadlines, and, eventually, serving happy customers in the future. This is why knowing the proportion of met and exceeded estimates helps: constantly failing to meet estimates and deadlines indicates that your workflow procedure needs improvement or reorganization. Use time-track data to see how many hours your tasks take and how this number differs from the estimated figure.
The first step to organizing work processes wisely is understanding how realistic your estimates are – and here’s the second step. Use employee performance reports to measure individual input into the overall results and to identify possible weak points. In case of overdue work assignments, employees’ performance data can also provide insights into why the employees failed to meet set deadlines.
Overworked hours and time balance
Speaking of workflow organization, overtime and time balance data is a source of information on where exactly and how your work procedures need to be improved. This data reveals understaffing problems, helps identify the most time-consuming tasks, shows what activities are waste of time, and provides a big picture of how work is distributed on the team.
Measuring absenteeism for a specific period is essential for teams of any size and particularly important for small ones, where resources are usually limited. Collecting data on both planned leaves and unplanned absences, such as sick leaves, helps understand general trends and seasonal dynamics, and allows better work planning for future – not to mention fighting absenteeism. Use special tools to log absence data, prepare reports on its basis, and compare the results on a regular basis.
Employee satisfaction and happiness at work significantly increase productivity and create strong motivation, so tracking these parameters and keeping them high is crucial for success of your business. Learning how your company culture can be improved and taking actions to create a comfortable environment is barely possible without feedback from your team – so conduct surveys on work environment, workplace conditions, perks and benefits, and other things that influence employee satisfaction. You can try using special HR software to collect feedback from employees, or speak to them individually.
There’s no lack of advice on the Internet on how to measure and influence success of your business. But, while there are so many business metrics to keep track of, monitoring them all turns into wasting time and resources.
So select the parameters that really matter depending on your particular industry and nature of your business, monitor them consistently, and take actions to improve the results over time.
Marina Pilipenko is a Marketing Manager at actiTIME, a time-tracking software company. She writes about productivity and time management and enjoys outdoor in her free time.