7 KPIs Every Growing Business Should Track
For a business to grow and thrive, it’s important that it monitors its different aspects and departments, from sales and marketing, to finance and operations. That’s where Key Performance Indicators (KPIs) come in.
KPIs are a type of performance measurement. They are quantifiable business metrics that track your organization’s progress towards achieving its goals.
Setting the right goals will allow you to effectively evaluate your business progress in real life and improve your decision making. Although the metrics that you decide to track should be individual to your organization’ goals, there are a few that are relevant and important for most businesses.
The first metric each growing business should track, and the simplest one, is net profit over time. It measures how much profit your business makes from its revenue and is calculated by subtracting your business expenses from your total revenue.
This KPI is most useful in helping to determine your business’ financial state.
Net Profit Margin
Net Profit Margin is the profit generated as percentage of revenue.
It is one of the top KPIs that investors look at, as it’s an indicator of profitability. A high margin shows that you can manage your business effectively and minimize expenses, while ensuring good revenue.
The calculation is simple. You divide your net income by sales, then multiply this by a hundred.
Customer Acquisition Cost
Customer Acquisition Cost (CAC) is the cost of acquiring new customers for your business. In early stages of the business, as you spend more resources to build your customer base, this metric often is not as important. However, as the business grows it’s important that this number is tracked and under control.
CAC can be calculated by adding sales and marketing expenses and dividing them by the number of new customers.
As important as acquisition is customer retention, whether that is repeat sales of your products or continuing to subscribe to a service on a monthly basis. It is often more costly to attract new customers than to retain old ones.
Tracking this metric can also help you find your most valuable customers, those who stay with your brand the longest, and ensure you focus on this demographic with your marketing and sales campaigns.
Customer Lifetime Value
This metric measures how much your customers are worth. The lifetime value of a customer can help you decide how much you can spend on acquisition – so if a customer spends on average $50 on your services or product, you want to ensure that the cost to acquire them is below that.
Customer LTV is calculated by the average transaction amount multiplied by number of sales and the average retention time. If you work with clients on a project basis, LVT can be calculated by multiplying the average number of projects with the client by the average cost of the project.
Revenue Growth Rate
Revenue Growth Rate is a good KPI to help you calculate how well your business is growing. This is the rate at which your revenue increases and is calculated by subtracting your current period’s revenue from the revenu of the previous period. Then you should multiply that difference by 100 to get the final metric. Make sure that the periods you’re comparing are of equal length.
Net Promoter Score
This is a widely used market research metric calculated by a single survey question that asks your customers how likely they are to recommend your product or service to a friend.
It measures your customers’ experience of your brand and their loyalty to your business. It’s a good predictor of business growth, or an early warning sign to help you improve operations, services, or product.