Wondering How to Measure Your Business Growth? Ask These Questions
Has your goal been to grow your business during this fiscal year? If so, I'd to share some key performance indicators (KPIs) that we use with our clients’ businesses to benchmark their growth success. Business owners should check these KPIs every quarter to monitor how well their business is doing. If growth seems to be stagnating, or maybe even falling behind in certain areas, it's important to know that as soon as possible so you can make the changes needed to get your business back on track and end the year with a positive record.
How to measure your business growth
These indicators are not always reviewed in a traditional financial analysis, but they can give a business owner a different perspective on the health of his or her business. How would you answer the following questions?
1. What is your customer churn rate?
This rate is determined by the percentage of customers you lose. If you have 100 customers in a given fiscal year, and you find that 50 do not return, you have a churn rate of 50%. Because the cost of acquiring new customers is higher than the cost of retaining them, this number is an important indicator. As you acquire new customers, think how you can enhance the relationship to become more that a one-time transaction. Think about other services or products that may be of benefit to a first-time customer.
2. What is your monthly recurring revenue?
This is the money you can count on now and in the future. Losing a major client can greatly affect this number and put your business health at risk. A healthy business is one that has diversified its customer base so that it is not reliant on one or two large clients as a major source of revenue.
3. What is your customer acquisition cost?
How much do you need to spend to find your new customers? Consider your marketing costs, your sales team costs, and your research and development costs. The total becomes your customer acquisition cost. It may be high, so the goal is customer retention through high-quality customer service.
4. Can you identify the customer lifetime value?
This number indicates how much value the retained customer will provide throughout their relationship with your company. This number needs to be higher than the customer acquisition cost. If not, alter the strategies used to find new customers and look for ways to provide additional services and products to retain your customers.
5. How much cash do you have available?
There will be rainy days. You can count on that. Having some cash readily available can solve a lot of the headaches that may arise when your business hits a rough patch.
6. How are you acquiring inbound qualified leads?
Are you networking, working from referrals, or buying leads? The process needs to be continuous and always adding to the sales funnel, no matter what lead acquisition strategy you are using. This stream of leads needs to be part of your business systems to keep your future secure. Leads are the lifeblood of an organization. Working with a few customers and not keeping the lead funnel full will result in a gap between when you finish with current customers and when you start working with new customers. Be careful or your positive cash flow will be compromised!
Taking the time to establish a well-planned system to monitor your business growth is the key to success, and will provide valuable insights for years to come.
