Key small business metrics: Part two
Find out how tracking customers and competitors can help you continue to measure success.
Metrics aren’t strictly sales and costs. Your business performance can be measured in other ways to identify potential improvements.
In part one we covered financial metrics. Let’s look at how to track and measure other areas so you can continue enhancing the performance of your business.
Customers, of course, are the lifeblood of any company. There are a couple of ways to measure how efficiently your company performs when it comes to signing up new customers, keeping existing customers, and earning revenues. Review these numbers monthly or quarterly.
Customer acquisition cost: This measures how much it costs your business to acquire a new customer. Add up your marketing and sales costs and divide them by the total new customers over a period of time. Determine whether this cost is going up or down over time.
Retention and attrition rate: Depending on your type of business, there are a variety of names for this: churn rate, renewal rate, or repeat customer rate. Regardless, the idea is the same: an efficient business retains a large percentage of existing customers — for contract-based businesses – or gets repeat business from its customers — for transaction-heavy businesses such as retail stores. Therefore, it’s important to track the percentage of customers you retain over time, or how much additional or repeat business you’re getting from existing customers.
Running a successful business is not just about doing a little better than last month or last year. You should also look at how your business compares with other businesses in your industry or similar industries. This will tell you how efficiently and effectively you’re operating compared with your peers. Here are a few methods for measuring:
Competitive Intelligence Tool: This measures various factors such as revenue size and salary levels for similar businesses in your industry and/or area. When you're competing for talent, this can give you an idea of what you’re up against.
The Bureau of Labor Statistics: The bureau offers a variety of statistics, called Industries at a Glance, related to more than 100 industries. You can find out information such as employment rates and average hourly earnings for industries by their North American Industry Classification System (NAICS) code.
BizMiner: This site publishes a variety of statistics for comparing how well your business looks against other businesses in similar industries of similar sizes — for instance, whether your spending on sales and marketing is in line with similar businesses.
Your CPA might also have access to published metrics, such as standard cost levels and margins that are considered normal ranges in your industry.
Benchmarking based on metrics
Once the benchmarks are established, you can have a quarterly comparison report generated and then review and discuss the data with your CPA.
Using those reports, start comparing your company. The data may reassure you that your business is within industry levels — or may signal that parts of your business are not in alignment — perhaps because of a cost center that is substantially higher than the industry norm. Once you know that, you can take a deeper dive to understand and address the variance.
Metrics are important tools for leading a business toward profitable growth — or turning around underperforming areas. Not only do metrics help you as a small business owner, they’re also valuable tools to help you develop your management team’s strengths by teaching them what to measure and address.