As a small business owner it’s likely you are focused on growing your business. You’ve probably been using growth metrics of your own, but there are 5 growth metrics your business NEEDS to track. These five metrics are:
- Customer Acquisition Cost
- Lifetime Value
- Sales Growth Rate
- Net Promoter Score
- Cash Flow
If you’re not already tracking these, the good news is it’s not too late. You can easily begin factoring these in with the metrics you are already using to reach new levels of growth. Here’s how:
Customer Acquisition Cost
Customer Acquisition Cost (CAC) is a measure of the total spending and cost associated with attracting and gaining customers. For businesses looking to grow or measure success, you can look at your CAC rate.
The easiest way to calculate your CAC is to add the cost of sales to the cost of marketing and divide that by the number of new customers acquired.
CAC is an important metric to track because it shows how much time and money you spend on acquiring new customers. In order to maximize profit, you should be continuously looking for new ways to lower your CAC.
Lifetime Value
Another metric focusing on the customer is their Lifetime Value (LTV). LTV refers to the amount of revenue you can expect to earn during a customer’s lifetime. This is a great tool to determine the success of your customer acquisition strategy and marketing initiatives.
While there are plenty of more accurate and in-depth ways to calculate your LTV, the easiest way to do it is by multiplying the average customer expenditure per visit by the average number of visits per week. Then you will multiply that number by 52 (weeks in a year). Once you’ve done that, you can multiple your new total by the number of years you consider your customers’ lifetime. Your final total will be the LTV.
Inverse to CAC, your goal should be to increase your LTV, this would mean your customers are gradually spending more and more money on your business, which is a strong indicator of growth.
Sales Growth Rate
Tracking your sales isn’t always glamorous but it does provide valuable information for your bottom line. Sales growth rate is the best way to measure how quickly you are able to grow your sales in a set period of time.
You can find your sales growth rate by subtracting your prior period sales from your current period sales and dividing that total by your prior period sales. Once you’ve done that, multiply it by 100, this will give you the percentage, which is often easier to understand.
This metric can give you a glimpse into the past and allows you to set goals based on those numbers. It can also help you see where your business is headed based on trends in data. It is essential to analyze your sales growth rate to give you a better understanding of where you are headed.
Net Promoter Score
Your growth is influenced by your customers/clients. As a small business, you should be focusing on customer satisfaction as a key factor towards growth. Net Promoter Score is one of the leading tools for measuring your customer experience.
According to Net Promoter, you can measure your customers’ experience by asking one simple question: How likely is it that you would recommend [brand] to a friend or colleague?
From there, your clients will use a scale to score:
- Promoters (score 9-10) are loyal enthusiasts who will keep buying and refer to others, fueling growth.
- Passives (score 7-8) are satisfied but unenthusiastic customers who are vulnerable to competitive offerings.
- Detractors (0-6) are unhappy customers who can damage your brand and impede growth through negative word-of-mouth.
Source: https://www.netpromoter.com/know/
This is an excellent way to measure your customer experience. The better scores you have using this tactic the closer you will be to reaching your growth goals.
Cash Flow
Cash flow is arguably one of the most important metrics to use when analyzing your growth. It indicates the amount of money coming in and out of your business. The healthier the cash flow, the better. However, this is often overlooked, and when that happens, it can cause major implications for the success of your business.
A typical cash flow statement will include:
- Cash from operating activities
- Cash from investing activities
- Cash from financing activities
*Note: Disclosure of noncash activities is sometimes included when prepared under the generally accepted accounting principles (GAAP)
Your cash flow statement gives you a glimpse at long term success as well as the status of your current financial position. A negative cash flow means you need to make some adjustments, while a positive cash flow means you are growing and doing well while you do it.
Partner with an Accountant that Understands Growth
Partnering with an accountant that understands growth will help you master tracking each of the five key growth metrics.
They will be sure you are reaching your full growth potential by sharing each of these metrics with you and walk you through what they need and how you can improve them. Partnering with Adian is an excellent choice if you want to grow your business! Set up a Free consultation today!