Every business must track metrics. Even if you’re a photographer selling photos, you still need a roof over your head and food in your belly, right? That means the revenue metric is, at minimum, the one you must track.
Successful businesses monitor far more than revenue. They also work to improve all the key metrics that enable their company to grow.
So which metrics should you track? Why are these important? I’ve experienced a gamut of business metrics, having rolled out multi-million dollar software products and worked at both small businesses and large corporations. I know how challenging it can be to stay on top of performance metrics.
That’s why the key is to zero in on the numbers that matter most for your company. Let’s examine some fundamental data metrics to help you identify the ones to track for your situation.
As a business owner or manager measuring and tracking key performance indicators (KPIs) is absolutely essential. The right metrics provide insights into what’s working, what’s not, and where you may need to shift strategies or allocate more resources.
While there are countless metrics you could track, not all of them actually give you useful information. You need to identify and focus on the metrics that matter most for your specific business goals and objectives.
Here are 15 of the most crucial business metrics you should be tracking regularly
1. Sales Revenue
This may seem obvious, but sales revenue is one of the most fundamental metrics you need to track. It refers to the total money generated from sales of products and/or services before any expenses or taxes are deducted.
Monitoring sales revenue week-over-week, month-over-month, quarter-over-quarter, and year-over-year provides visibility into growth trends over time. Sudden declines can signal problems that need further investigation.
2. Net Profit Margin
While sales give you your top line revenue, net profit margin shows you the bottom line. It’s calculated by taking your net profit (revenue minus total expenses) and dividing it by total revenue.
Net margin reflects pricing, costs, efficiency and overall fiscal responsibility. Low or declining margins indicate you may need to cut expenses or optimize pricing. High or improving margins mean your operations and finances are healthy.
3. Gross Margin
Gross margin measures profitability from sales alone, before factoring overhead, administrative, R&D and other operating expenses. It’s calculated by taking total revenue minus the direct costs associated with producing your products/services.
Tracking gross margin shows you how profitable your actual offerings are. It can help you determine optimal pricing, production costs and product mix.
4. Sales Growth Year-to-Date
Comparing your current year-to-date (YTD) sales to the previous year provides insight into your growth trajectory. Higher YTD sales indicate you’re on track to exceed previous records. Lagging YTD sales suggest a need to amp up marketing, offer promotions or make other changes to spur revenue.
5. Cost Per Acquisition/Customer Lifetime Value
Understanding customer acquisition costs and lifetime value helps greatly with marketing and sales budgeting. Cost per acquisition (CPA) is the average expense to acquire a new customer. Customer lifetime value (CLV or LTV) is how much revenue you can expect from an average customer over the life of your relationship.
When CPA is lower than CLV, your customer acquisition strategy is profitable. If it’s higher, you may need to refine marketing and sales tactics to attract higher value clients.
6. Customer Retention Rate
Retaining customers you already have is often more cost effective than continually seeking new ones. Calculate retention rate by taking the number of customers at the end of a period divided by the number at the beginning.
High retention means you’re delivering value that keeps clients coming back. Falling retention signals a need to improve products/services, support or loyalty programs to reduce churn.
7. Net Promoter Score
Net Promoter Score (NPS) measures customer loyalty and satisfaction with your brand. Using surveys, customers rate the likelihood they would recommend you on a 0-10 scale. Those who give 9-10 are promoters, 7-8 are passives, and 0-6 are detractors.
Subtract the percentage of detractors from the percentage of promoters to calculate your NPS. Higher is better, as it indicates higher satisfaction and loyalty.
8. Lead Conversion Rate
Lead conversion rate shows how well your sales team is capitalizing on leads generated through marketing. Take the number of leads that become customers and divide it by total leads.
If conversion rate declines, it indicates issues closing leads. That may require better lead nurturing and qualification or improved selling skills to boost conversions.
9. Average Sales Cycle Length
The sales cycle is the amount of time it takes from initial contact with a qualified lead to closing the sale. Lengthy sales cycles mean you’re losing momentum with prospects.
Identify causes for delays like complex pricing, improper lead nurturing, or sales skills gaps. Streamline processes and equip sales reps to move leads through the pipeline faster.
10. Sales Team Performance
Sales metrics shouldn’t just look at the sales department as a whole, but also the individuals on the team. Track metrics like:
- Number of sales and average purchase size per rep
- Lead follow-up and activity metrics
- Length of sales cycle per rep
- Percentage of closed sales per rep
This enables you to identify your star players as well as those who may need additional coaching and training.
11. Traffic and Engagement Metrics
Key website metrics provide insight into your marketing and content strategies. Track unique visitors, visits, page views, bounce rate, time on site, and other metrics.
Higher traffic combined with strong engagement metrics indicates your marketing is succeeding. Declines may signal outdated or ineffective tactics.
12. Online and Offline Conversion Rates
Conversion rate is the percentage of visitors that take a desired action, like downloading content or making a purchase. Track website conversion as well as conversion rates from other marketing channels like social media, email or direct mail.
Compare conversion rates across channels and campaigns to determine where your marketing dollars are best spent.
13. Marketing Originated vs Non-Marketing Originated Leads
Distinguishing between leads generated through your marketing efforts vs. other means (like word-of-mouth, referrals, etc.) shows how well your marketing programs are performing.
Ideally, you want a high percentage of leads tied directly back to marketing. If not, it indicates a need to expand reach and improve messaging.
14. Email Marketing Metrics
For email marketing, open, click-through and conversation rates should be tracked. High open rates mean your subject lines are effective. Click-throughs indicate interest in offers/content shared. Conversions show readers taking action, like signing up or making purchases.
Evaluate metrics by campaign as well as audience segment to better target and optimize ongoing email marketing.
15. Social Media Engagement
Track followers, likes, shares, clicks, mentions and overall reach across social platforms. Monitor engagement metrics for your brand overall as well as specific campaigns.
Social metrics demonstrate brand awareness and interest. Spikes or declines in engagement can show how audiences respond to specific content.
Key Takeaways: Choosing and Tracking Metrics
-
Focus on metrics aligned with your specific business goals, whether it’s sales, marketing success, customer satisfaction, or other KPIs.
-
Use metrics to gain insights into what’s working well, what needs improvement, and progress made over time.
-
Software tools and analytics make it easier than ever to automate tracking for many essential metrics.
-
Review metrics regularly (ideally weekly or monthly) rather than just annually or quarterly. Frequent monitoring enables quicker responses to issues.
-
Don’t ignore negative or unfavorable metrics. Use them as opportunities to explore problems and improve ways of doing business.
-
Share results and discuss metrics tracking as a team. Get input on metrics employees find useful to enhance engagement.
Carefully chosen and tracked performance metrics are crucial for guiding smart business strategies and decisions. While the metrics you track will evolve over time, the ones above provide an excellent starting point for assessing overall health, growth, efficiency and success. Consistent monitoring and action on key metrics will lead to data-driven improvements across all aspects of your business.
This device is too small
If youre on a Galaxy Fold, consider unfolding your phone or viewing it in full screen to best optimize your experience.
Our Small Business Expert
Every business must track metrics. Even if you’re a photographer selling photos, you still need a roof over your head and food in your belly, right? That means the revenue metric is, at minimum, the one you must track.
Successful businesses monitor far more than revenue. They also work to improve all the key metrics that enable their company to grow.
So which metrics should you track? Why are these important? I’ve experienced a gamut of business metrics, having rolled out multi-million dollar software products and worked at both small businesses and large corporations. I know how challenging it can be to stay on top of performance metrics.
That’s why the key is to zero in on the numbers that matter most for your company. Let’s examine some fundamental data metrics to help you identify the ones to track for your situation.
Customer lifetime value
You have loyal customers regularly buying from your business. It would be great to acquire more such buyers. But at what point is the cost of acquiring customers overshadowing the revenue they generate? Customer lifetime value tells you this.
Customer lifetime value allows you to evaluate the financial worth of each customer. It gauges the amount your business can reasonably expect to earn from customers over the lifetime of their relationship with your company.
This metric is useful to apply in business decisions. It measures how long it takes a business to recoup the investment in acquiring a new customer and retaining them. It helps identify the segments of customers who are most valuable.
Moreover, the underlying metrics used to calculate customer lifetime value are important factors in your business success. Consequently, customer lifetime value encapsulates a number of key aspects of your business. These metrics are:
- Average order value: The average amount spent per customer.
- Average purchase frequency: How often customers buy from your business on average.
- Gross margin: Your profit, the same value discussed above.
- Average customer lifespan: The average amount of time between a customer’s first purchase and their last before they stop doing business with you.
The customer lifetime value metric requires first calculating the above components over a specific timeframe, usually a year, then putting the pieces together to derive customer lifetime value. Because many steps are involved, you can examine customer lifetime value in depth by reading The Ascent’s article about the topic.
Here’s a summary of the customer lifetime value formula:
- Customer lifetime value = (Average order value) x (Average purchase frequency) x (Average customer lifespan) x (Gross margin)
Tip: Customer lifetime value may seem onerous to track, but it can be transformative to your business. Amazon used it to determine that its Prime customers were the most important, and invested heavily in growing that part of its company. That’s the kind of insight you can glean from customer lifetime value, so it’s worth the effort to capture this metric.
Examples of Business Metrics to Track Production & Profit
What metrics should a business track?
Tracking metrics always comes down to revenues and cash flow. Without cash, we would be out of business. We have to have the funds necessary to maintain a sustainable operation. Anyone who is in a business knows that revenue is the most important KPI, and everyone has to be accountable for it. – Arijana Koskarova, Creative Hub
Why is tracking business metrics important?
Tracking business metrics is essential to drive revenue growth. Measuring the right metrics can help businesses quantify their success, identify areas for improvement, and make informed decisions. Being able to track and analyze these metrics provides insights that are essential for growth.
What are the key metrics for your business?
Two key metrics for my business and my clients are gross margins and net liquidity. If your gross margins are compressed, your profitability will suffer and you will become resource-constrained trying to expand the business. I like net liquidity defined as cash plus A/R less, A/P, credit cards and short-term debt.
What metric is most important for business growth?
Growth Growth is the one metric that matters most. This includes growth in business, in mindset, in employee engagement, in customer satisfaction, as well as growth in human capital. Growth requires optimism, integrity and sound judgment. It necessitates stepping out of your comfort zone and embracing the unknown.
