Regardless of your business’s size and scale or the type of service you provide, every single business should be tracking their metrics. This practice can give business owners useful information to aid them with decision-making and inform them about the performance of their organization.
Ignoring metrics as a business owner is like driving a car blind; you won’t be able to clearly see the big picture and therefore are more likely to run into issues and traps. Focusing on the right metrics and implementing strategies to improve them can help you grow your business and make it more successful.
There is an absurd amount of business metrics out there; however, not all of them will be useful for you. To help make sure you’re tuned in to the most informative and important metrics, here are 4 of the most critical ones your business should track in 2020.
1. Total Revenue
The total revenue is a very straightforward metric; however, it is important to know and keep an eye. Total revenue can be described as the amount of money your business brings in due to its activities, such as selling goods or services to customers.
Revenue is vital because there’s simply no money to pay for the costs of running a business without it. To do this, you simply need to find a method to record the total income collected from business activities.
Instead of focusing on total revenue, you can also break it up between different product lines. This allows you better to analyze your pricing strategy or your portfolio of products and work out which ones are doing the best to make adjustments to increase the revenue received from these items potentially.
Every business has expenses, and it’s important to track these to know how much you need to cover the costs. Expenses can be broken up into different categories, but perhaps the most crucial one is your overheads, also known as your fixed costs each month.
Overheads are basically your non-negotiables, the stuff you need to pay for to be able to run your business effectively, if at all. This includes rent, legal fees, utility bills, and employee salaries.
Tracking overheads is important as it makes you aware of how much revenue you need to cover these costs. It can also help you calculate what percentage of your income is going into your overheads, so you can figure out how profitable your business is becoming.
3. Customer Lifetime Value
This is a useful metric to learn and track, as it can show you how valuable your customers are and inform you of their spending patterns. For every purchase a customer makes, there is also a cost of acquiring them and getting them interested in the business through the various marketing methods businesses can implement.
The customer lifetime value tells you the financial worth of each customer, allowing you to vaguely gauge how much you can expect to earn from each customer. This metric can help in aiding business decisions, as it gives a clear idea of how long it’ll take to recoup the money lost in investing in bringing new customers in. To work this out, you first need to get info on the following:
- Average order value: the average amount spent per customer.
- Average purchase frequency: an average of how often a customer buys from your business.
- Gross margin: your total profit.
- Average customer lifespan: the amount of time between a customer’s first purchase and they’re last.
Once you have this information, you can then use the following formula to work out your Customer lifetime value:
Customer lifetime value = (Average order value) x (Average purchase frequency) x (Average customer lifespan) x (Gross margin)
This may seem like a complex equation, but there is plenty of more demanding mathematics involved in obtaining good metrics. A specialized master’s in business administration that focuses on analysis can give you the skills to better create and assess metrics. You can study one now at Victoria University Online.
4. Brand Awareness
This metric is the extent to which customers are familiar with your business and its branding. It can be a vague metric to track, but it is valuable knowledge as it lets you know how impactful you are in your domain, and it is especially good when comparing against competitors.
To figure out your brand awareness, marketers can track the number of mentions the business gets online on social media posts and blogs. Tools such as Hootsuite can do this well. Totaling this up gives you a good indication of the impression you’re making on people and can indicate how well your brand awareness efforts are going.