key business metrics

Key Business Metrics That Will Help You Steer Your Company

When you’re running a business, it’s easy to get caught up in everyday tasks. For example, sales, marketing, and customer service require your continuous monitoring. You need to pay attention to product development and human resources as well. However, you want to steer your business toward your major financial goals. Therefore, it’s important to keep a close eye on the finances of your venture, too. To that end, there are some key business metrics you should be tracking.

Of course, you’ll watch cash flow. You’ll also look for ways to cut costs and increase profits. Therefore, you need to handle relevant accounting tasks.

However, you should also spend time each month examining the main finance-related metrics of your business. Tracking these key business metrics will help you to spot potential problems. Better yet, you can learn about existing problems before they become major ones. All of this will make it easier to see which areas have the best potential for growth. What’s more, tracking key business metrics will give you insights for better strategies going forward.

Most online graduate degrees in the business field detail this side of business management thoroughly. Therefore, they are worth exploring for this benefit alone. Nonetheless, there are some key business metrics you can start tracking today. Read on to find out more.


Customer Acquisition Cost

One of the first things you need to know is your customer acquisition cost (CAC). This refers to the amount you have to spend to acquire each new client. This is an important metric. That’s because it shows you if you’re spending too little or too much on your marketing and sales strategies.

Once you’ve determined your CAC, you can decide whether the amount you’re budgeting is right for your business. The items that go into this metric are things like advertising, search engine optimization, events, giveaways and the like. This key business metric varies significantly from business to business. Moreover, the customer acquisition cost usually goes down as organizations grow and build a more recognized brand name.

To work out your CAC, divide the total amount you spend on customer-building strategies in a set amount of time (for example, a month or a year) by the number of new clients you land over that same time period.

Lifetime Value of Customers

Another key business metric that relates to your customer acquisition cost is the lifetime value of customers. This metric also helps you analyze your marketing and sales budget. The term refers to the net profit you will receive from your clients over the course of your relationship with them.

The lifetime value indicates the repeat business you’ll get from shoppers over time. As a result, it helps you to know how much money is sensible to spend on “buying” each new customer. The higher the lifetime value, the more you can outlay. That’s because you’ll have more chance of earning this money back.

You can determine the likely lifetime value of customers in your venture. To do that, take the average value of your sales (that is, how much on average clients spend per transaction), and then multiply this by the number of repeat transactions you get per customer. Multiply this total by the average time period you retain a typical client.

key business metrics

Client Loyalty and Retention Rates

You won’t likely achieve the business results you’re after if you don’t spend time thinking about ways to continually improve client loyalty and retention rates. In other words, you need to consider how long you can keep a customer around. The more loyal a client is to your business, the more likely they will keep buying from you again and again as the years go by. In most cases, they will also purchase in larger quantities or at higher transaction amounts.

Customer loyalty also leads people to recommend you to their friends, family members, and other contacts. In turn, this helps you obtain new customers in an affordable way. This word-of-mouth advertising is invaluable.

If  you have a high “churn” rate, this means that most people only ever shop with you once and never return. In this case, you probably have various problems with your business that need to be addressed immediately. For example, your product range or quality could be low. Or, your customer service might be lacking. Likewise, your shipping times may be too long.

As you can see, it’s vital that you analyze retention rates regularly. There are a few different methods of measuring this metric. For example, you can send out customer surveys. Or ask clients for direct feedback when they purchase from you. Alternatively, you can examine transactions to work out what percentage of customers buy from you after their first purchase. It also pays to determine the average number of times customers spend money with your firm. Additionally, calculate the average amount of each transaction. Then look to see if this changes over time.

Keep Your Hands on the Wheel by Watching These Key Business Metrics

Pay close attention to the key business metrics we have discussed here. Then use the insights they give you to steer your business toward greater success.