The Magic is in Your Metrics
I’m going to start by saying, I got a bit carried away so I have had to split this into two parts so I don’t overwhelm or bore you. So please come back next week for part 2.
As we discussed last week, as a business of any size, metrics are the lifeblood of your business and we defined what metrics are. This week, I want to help you improve your metrics. So let’s get to it.
You cannot measure your metrics by following your gut feeling. Running a successful business requires a thorough analysis of the work, sales, and financial results. And it can’t be done without tracking relevant business metrics. When you know how you are performing, you can begin to work on improving that performance.
Key Performance Indicators (KPIs)
Business metrics, also called KPIs (key performance indicators) display a measurable value that shows the progress of a company’s business goals.
Business metrics indicate whether a company has achieved its goals in a planned time frame.
How to Improve Your Business Metrics
There are lots of ways to improve metrics in your business, but I’m going to focus on three key areas this week:
1. Define your metrics
2. Set goals for your metrics
3. Track your metrics over time
Defining Your Business Metrics
Let’s start with defining your metrics. This may seem like a no-brainer, but you’d be surprised how many businesses don’t actually have a clear understanding of what metrics they should be tracking.
The first step is to figure out which metrics are most essential for your company. This will differ depending on your industry and the sort of business you’re in, for example, a product-based or service-based, etc. Some common examples include sales figures, client satisfaction rates, employee retention rates, web traffic, and so on. You must start monitoring the metrics that are most vital for your company once you’ve identified which ones are.
Set Your Business Metrics Goals
Once you’ve got your metrics, the next step is to create objectives for each one. These goals should be clear, measurable, doable, relevant, and time-bound (SMART). If one of your key indicators is web traffic, a SMART objective might be to boost web traffic by 10% each month. Tracking your metrics will give you something to aim for and help you measure your progress.
There are a variety of methods to track metrics, but one of the simplest and most effective is to make a spreadsheet where you can enter data on a regular basis. This will let you monitor your metrics over time and notice any patterns or trends that emerge.
Track your metrics over time
Finally, it’s important to track your business metrics over time so that you can see how you’re progressing. This can be done using the spreadsheet method mentioned above, or you can use a software tool like Google Analytics. Whichever method you choose, tracking your metrics over time will give you valuable insights into your business and help you identify areas where you need to make improvements.
See examples of business metrics in last week’s blog.
9 Ways to Measure and Improve Business Metrics (4 this week, 5 next)
1. Sales Revenue
Sales revenue tells you a lot, but not everything, about your business. Comparing monthly sales figures shows you whether or not your customers are interested in buying your offerings, whether or not you are competitive in the market and whether or not your marketing efforts are paying off.
It’s crucial to keep in mind that sales results are influenced by a variety of additional variables.
How to measure:
Sales revenue is calculated by adding up all the income from client purchases, minus the costs associated with returned or undelivered products.
How to improve:
I didn’t want to say it, but the reality is that the easiest way to grow your sales revenue is to increase the number of sales. Easy peasy, right? This is definitely a long-term strategy and can be achieved by changing or increasing your marketing efforts, employing salespeople, or creating discount offers that are hard to resist.
2. Net Profit Margin
The net profit margin is a metric that indicates how much net income or earnings is made as a percentage of sales. It’s the proportion of profits after you have deducted all the costs of doing business, such as tax, salaries, stock, etc., to revenues. Net profit margin is usually expressed as a percentage, although it can also be shown in decimal format.
Net profit is a good way to predict long-term business growth and illustrates whether or not your income exceeds the costs of running your business.
How to measure:
Calculate your monthly revenue and reduce all the sales expenses.
How to improve:
You can improve your company’s Net Profit Margin by increasing your revenue. There! I said it. Annoying right? More annoyingly, the best way to increase your net profit is to raise your prices and the second-best way is to sell more. While this is all pretty obvious, it’s important to keep track of these numbers, because if you don’t, you could find you are selling an item at too low a price to cover postage and packaging for example.
You can also improve your margins but reducing your cost of sales and production costs, but you will need to do extensive research to determine what your options are in these areas. Since you would need to source alternative production partners, it could take considerable time.
3. Sales Growth Year-to-Date
Sales are highly dependent on the events of the world and the socio-economic situation of your customers. Just think of the pandemic sales of masks sent 3M et al profits skyrocketing. While now, post-pandemic, we are seeing a massive surge in sales of holidays because people are fatigued and want to get away from the memory of the last two years.
Sales Growth Year-to-date indicates the pace at which your company’s sales revenue is increasing or decreasing. You can create comparisons of your sales growth over various periods – monthly, quarterly, annual, and long-term metrics will give you a better understanding of how your company is doing.
How to measure:
Check your monthly sales revenue and the number of new sales conversions.
If you have a sales team, you can even track the performance by team.
How to improve:
Sales growth can be improved by investing more resources in your marketing and sales activities, such as positive media coverage or new product launch.
Make it a goal to improve or maintain your sales growth every month.
4. Cost of Customer Acquisition
Did you know it costs money to get a customer? We call it the Cost of Customer Acquisition and it is calculated by dividing all the costs spent on acquiring new customers (usually marketing activities) by the number of new clients acquired in a specific time frame.
For example, if you spent £500 on marketing in May and acquired 10 customers in this time frame, your CAC is £50, which is great IF you have high ticket items for sale, but if it’s costing you £50 to sell a £7 product, that’s NOT good.
The Cost of Customer Acquisition and Customer Lifetime Value should always be measured together. If a new client is worth an average of £1000 to you, acquiring them for £50 is an excellent deal. Who wouldn’t pay £50 to get £950 in return?
How to calculate:
Customer Lifetime Value – Multiply the average value of a sale by the number of repeat transactions and the average retention time in months for a typical customer. For example, your average customer buys a £7 planner, then they buy your £50 training programme, and later they sign up for your £97 per month membership and they stay for 14 months. This means your average customer has a value of £1415.
If this is your jam and you’d like more, in-depth information on this, Neil Patel has a great article on the topic here. https://neilpatel.com/blog/how-to-calculate-lifetime-value/
How to improve:
To improve your Customer Lifetime Value you can let go of clients who are decreasing your net profit and are difficult to convert and focus on the most rewarding audience. I would certainly recommend reducing the marketing cost on this segment if you don’t feel comfortable letting go of them entirely.
Please don’t try to figure this all out on your own if you are beginning to feel overwhelmed. I can and want to help you. Book a call. And join me next week for the remaining 5 more fun metrics.