Small business owners are great at creating products and services. This is because entrepreneurs are "idea people" at their core. Some are even great at developing an initial customer base. Unfortunately, many business owners don't know the crucial ins and outs of business management. Track the following 7 metrics and you will have a much better understanding of how to make your business successful.
1. Customer acquisition cost
How much does it cost for you to acquire a new customer? This important business metric can include a lot of factors. Your personal time, marketing efforts, business insurance, utilities, payroll, and several other expenses come into play here. Your customer acquisition cost should be expressed as how much money you spend to bring in new business divided by the number of customers you acquire over a certain period of time.
2. Lifetime customer value
How much revenue does every new customer generate for you over their lifetime? Business owners often concern themselves with the amount of profit in a single sale. That is a vital metric to track, but lifetime customer value is even more important. Coupled with knowledge of your customer acquisition cost, knowing your lifetime customer value reveals how much money you can spend on lead generation, advertising, marketing, and other forms of pursuing new prospects.
3. Sales revenue
This is the fun one. Everyone likes seeing a full cash register at the end of the day. Your sales revenue is simply the amount of income you receive for the products and services you provide, minus any returns and merchandise you have yet to deliver. Look at this number very closely to ensure you aren't sugar-coating the figures.
4. Level of customer loyalty
How loyal are your customers? Do they buy once and then go away? Do they talk to their friends about your company, positively or negatively? When you give someone what they want, and add value, you have a chance of creating a very loyal customer. Use surveys, point-of-purchase feedback, and exit polls to discover what you need to do to earn your customer's loyalty.
5. Product or services cost
This is also referred to as cost of goods sold (COGS). If you don't know your true cost of producing a product or delivery service, how do you know if you are profitable or not?
6. Gross margin
Gross margin is defined as the difference between sales revenue and the cost of goods or services sold. When you know your sales revenue (#3) and cost of goods sold (#5), you understand how much money you are making or losing when a transaction takes place.
7. Sales cycle length
How long does it take for you to turn a prospect into a lead, and then into a purchasing customer? Knowing your sales cycle is extremely important, because you will understand exactly how many times, and in which way, you need to communicate with a prospect to result in a sale.