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4 Metrics Every Business Must Keep an Eye On

Supplier: Phocas Software
26 November, 2014

As a business owner, it’s easy to lose sight of the critical numbers, when you’re focused on getting through the hundreds of tasks on your plate.

We often see this with established organisations, but more so with growing businesses.

Owners of growing businesses are typically so busy juggling tasks, departments and decisions that certain critical processes for business growth, such as measurement, are put on the back burner, and ultimately, neglected. As a result, the numbers aren't tracked, and the business doesn't know how it can improve.

Measurement and reporting are core business activities, and must be prioritised. We outline the 4 Critical Metrics that an organisation must track and monitor on a regular basis:

Sales Revenue

One of the most obvious metrics your business must track is sales revenue. Total sales revenue is defined as income from customer purchases of goods or services, excluding returned or undeliverable products / services and the costs associated with returns.

Of course, the numbers indicate how well your business is performing, but this is not the only purpose of this metric. Forbes believes that sales data needs to be mined constantly for deeper meanings and trends, and correlated to marketing campaigns, price changes, seasonal forces, competitive actions and other cost of sales.

This way your organisation can determine the different factors that contribute to sales revenue and use them in some way to improve the numbers.

Monthly Profit or Loss

Another typical metric businesses measure is monthly profit and loss. The true measure of an organisation's profit or loss goes beyond the cost of the product or service and the price at which it is sold, and must include the fixed and variable costs of operation that are incurred on a monthly or weekly basis. These fixed and variable costs range from rent or mortgage payments, to utilities, insurance, taxes and salaries.

The two biggest factors that contribute to your total profit, are the price you charge for your product or service and the cost of operations. It is therefore important that you also have clarity on the total cost of operations, including all fixed and variable costs to determine if there are any actions you can take to increase your profit numbers.

Customer Attrition

Every business understands that customers don't stay forever. There is a customer lifecycle for every business, wherein the customer begins the lifecycle as a prospect, then grows to become a customer, and then perhaps a loyal long-tem customer, or they move on. The drop of customers in a business is typically referred to as attrition or churn.

According to YFS Small Business Contributors, a 30-day measurement of churn will give you an indication of customers who abandon your product for a short time, but may come back to it at a later time. A 90-day measurement will give you a better idea of the people who permanently drop. Through this data, you are able to identify the reason for their drop and employ the necessary means to rectify the issue.

Customer Retention

Too many start-ups have failed as the business owners neglected their customers, and focused their resources on new customer acquisition, according to YFS Small Business Contributors. In fact, it is more important than ever for business owners to focus on retaining current customers. The customer buying process has changed drastically, and new customer acquisition is more challenging and more expensive.

It is important to determine your customer retention rate, and analyse it to identify the contributing factors. To gain further insight, approach your current customers and ask them about their experience with your business. This will tell you if you need to develop a customer retention program or take any other measures to improve the retention rate.

To help you better focus on customer retention, compare your current customer acquisition costs with customer retention costs, and determine which one costs less and / or brings in more returns.

These four metrics are the core underlying metrics every business must measure. To get in-depth insight, reports must be supplemented by data such as inventory numbers, conversion rates, monthly revenue per customer etc.

However, we all know that the process of reporting is intricate and typically involves complex analytical tools. It may take a lot of time, and at times your decisions are made redundant, as these numbers constantly change.

But these are not reasons to stop measuring and reporting altogether. In fact, these factors should encourage your business to develop better measurement and reporting processes, which at their core, rely on having good Business Intelligence and skilled analysts to draw insight from your data.

To learn more about the metrics you need to know to improve sales results, download our free Guide to Cross-Selling and Upselling Opportunities.

Otherwise, to learn specifically about increasing sales, refer to our recent article 3 Simple Steps to Cross Selling.