Whether you’re a sportsman or a business owner, numbers are critical for tracking your performance. Just as importantly – if not more so – they can alert you to potential problems that you otherwise wouldn't know about until it's too late.
According to figures from ONS, a record 11.2% of UK businesses failed between 2018 and 2019 [1]. Many of these failures were a result of businesses failing to track important business metrics around finance, delivery, and sales, says business coach Kevin Riley. “Most owner-managed companies rely too much on experience and emotion, and don’t look at the hard numbers, which don’t lie,” he says.
In this article, we will provide an overview of some key business metrics, and how understanding them can improve your company’s performance.
Five important business metrics you should know
When it comes to success metrics, cash is king. As a business owner, it is essential that you understand what cash you have available now, and how that will change in the months ahead. Business owners need to know how much money is coming into the business, how that money is spent, and what the company’s assets and liabilities are.
1. Net Cash flow
This metric refers to all the money available to your business if you add up your assets and outstanding income, then deduct liabilities such as unpaid bills and payroll.
Net cash flow gives a better overview of business health than just tracking your bank balance, says Riley. “It’s very easy to feel great because you have £2 million in the bank, but if that’s because you haven’t paid £2 million in bills, then you have a problem.”
An American Express® Gold Business Card gives you up to 54 days to pay back your bills, so you can better regularte your cash flow by having more time paying back business expenses.¹
2. Sales revenue
This metric is like your early warning system – if sales or bookings start to dip, watching this metric closely allows you take appropriate action quickly. Experts recommend tracking sales revenue on a monthly basis, at least.
3. Customer acquisition cost
Customer acquisition cost (CAC) is the total cost to your business of each new customer you attract. It’s calculated by adding up the costs of sales and marketing and dividing it by the number of new customers over the same period.
4. Customer lifetime value
Customer lifetime value (CLV) refers to how much a customer spends across all of their engagements with your business. This metric is helping luxury mens’ accessories retailer Carl Friedrik to meet ambitious growth targets by focusing on customer experience, says Niklas Oppermann, the company’s founder.
“We have a target of 60% annual growth over the next three years, and we know that our customer base will not grow that quickly," he says. "We are using strategies to help increase what existing customers spend with us.”
Alongside email marketing and promotions, the business has invested in high-quality post-purchase customer service, which has led to 30% of new sales coming from existing customers.
5. Current ratio
This is the ratio of your company’s assets (cash at hand plus money owed) divided by liabilities. Generally, a ratio above 1 means you are in good shape.
How to identify the key business metrics for your business
Having a good overview of financial metrics is important, but understanding the overall health of your business involves much more. There are a number of factors that impact which metrics might be key for your business.
How mature is your business?
In general, a newer company will focus on sales and marketing because the owner knows the product or service but hasn’t yet refined the best method of winning customers. In this scenario, you might need more insight into metrics such as conversion rate and lead generation, as well as cash at hand.
A more mature business, meanwhile, would do well to focus on productivity metrics. As a business grows, small improvements in productivity can yield huge benefits – saving 10 minutes a day from a core process could add up to a week’s saving each year.
What product or service do you sell?
The metrics you collect will also depend on your sector or industry. Service-based businesses will need to track operational metrics such as percentage of jobs delivered on-time and on-budget. If your staff are engaging with the public, you can collect and analyse customer satisfaction metrics to identify potential improvements that could support higher customer loyalty.
Are you launching a new product or service?
A new product launch is a critical time for businesses, and it’s important that data is collected quickly before and after a launch. “You need to track spending and the associated cost of acquisition in particular, and look at the results of marketing,” says Riley.
Carl Friedrik tracks online sales data daily, allowing the company to make very quick decisions if a marketing activity isn’t delivering results. “We invested in partnerships with some podcasts, and the data showed very few clicks and no sales," says Oppermann. "We were able to switch very quickly to an Instagram partnership that we could see was working much better to generate clicks and sales.”
How much of your business is done online?
Riley advises online businesses to look at obvious metrics such as site visits, along with average order value, and the cost of getting people to your site via Facebook or Google Pay Per Click ads. “Abandoned carts are also a critical metric to track," he says. "As you make improvements to your marketing, product, and website journey, you should see this number fall.”
How to use business metrics to measure success
Gathering metrics is one thing, but if they end up sitting in a spreadsheet then they won't lead to any improvements in your business. Here are some steps for putting them into action.
Gather data from multiple sources
The measures described above will mean little in isolation, but by tracking multiple metrics you can start to see patterns and connections and tweak your activity accordingly. This is made much easier by the next step...
Create a metrics dashboard
Data dashboard software can automatically connect to multiple systems and pull numbers into easy-to-understand visual overviews of all your most important business metrics.
Applications such as Klipfolio or Zoho don’t require any coding or technical expertise and can easily be customised to create reports that can be shared across the business.
If you're investing in data dashboard software, make your budget go further with the American Express® Business Gold Card, which is accepted by Tableau, Zoho and other dashboard platforms. What's more, for every £1 you spend, you’ll get Membership Rewards® points² that you can use to redeem a wide range of rewards for yourself, your business and your team.
Track performance against targets
How do you know whether the metrics are revealing a positive result for your business?
Firstly, you need to know your benchmarks. For each industry or sector, there will be a benchmark for most metrics, whether that’s the click-through rate on an email newsletter, or the average current ratio.
To identify these benchmarks, you can look at past performance if your company has been operating for several years. When doing so, it's important to compare like with like. “The majority of our annual sales happen in Q4, in the run-up to Christmas,” says Oppermann. “So when we are tracking performance against sales and growth targets, we compare each quarter with the same quarter the year before, because the difference between Q1 and Q4 is vast.”
Ultimately, using the right success metrics means that business owners can make more informed, effective decisions that will drive sales and growth. “Emotion is a great basis for motivation,” says Riley. “But performance metrics are definitely a better basis for decision-making.”
- The maximum payment period on purchases is 54 calendar days and is obtained only if you spend on the first day of the new statement period and repay the balance in full on the due date. If you'd prefer a Card with no annual fee, rewards or other features, an alternative option is available – the Business Basic Card.
- Membership Rewards points are earned on every full £1 spent and charged, per transaction. Terms and conditions apply.
- If you'd prefer a Card with no annual fee, rewards or other features, an alternative option is available – the Business Basic Card.
Sources
[1] ONS, Business demography, 2019
