In simple words, business metrics is KPI (Key Performance Indicators) or analytics.
Depending on the nature of your business, be selective, don’t monitor too much data because as business owner you have already too much on your plate hence many KPIs can make you frown.
However, collecting, analysing and using the right data can help us make smarter business decisions about our time, our budget and our team. We’ve seen it with our own successes. We need to get to a point where we can treat our efforts — marketing channels, product features, team hours — as levers; when we push or pull one, we know what result to expect. We can’t depend on luck; this will be the only way to make business growth systematic.
My article today discusses most important key metrics that are ignored or procrastinated by most business owners. Yet, I urge my esteemed readers should track right away for success.
Cost of acquisition (CoA): If you have a business, you need customers. You need to find these customers and persuade them to buy your product or service. This is called customer acquisition and generally it costs money. Advertising & Marketing costs are increasing day by day and investing in wrong marketing channel can badly affect profit margins of your business.
So, how to calculate cost of customer acquisition? It’s very simple, take a look at below formula:
Cost of customer acquisition = total sales & marketing cost / number of new customers added
Let’s say, you spent Shs1m on sales & marketing and got 100 new customers on board, so the average cost of acquisition will be Sh10,000. This is overly simplified example. In reality, you should consider all the hidden costs such as salary of your sales team, phone bills, internet bill or any other expense that goes into making a sale.
It’s also possible that every customer is paying different amount for your product or service. So, use the term ‘average’ with an intention to get meaningful insights.
Tracking CoA is important coz, if the cost of your product is less that what spent on acquiring new customer then clearly you are making loss. This tracking will also help you understand which marketing channel is working for you and helping you generate more profit.
Monthly Recurring Revenue (MRR): Revenue or turnover is income that a company receives from its normal business activities. Monthly recurring revenue is the amount of revenue you expect to receive every month. Idea here is to answer the question: “Will that revenue be here tomorrow?”
We should focus on building a sustainable business and that’s why tracking MRR is very important. Cashflow is a lifeline of any business and it must be positive. You don’t need fancy tools to track this number. A simple excel sheet is good enough.
Expense by category: We all know the importance of tracking business expenses, but it’s really surprising that most of my clients consider only the large expenses like purchase of raw material or appliances. I know a startup owner who used to order pizzas for his small team every Friday.
It was a nice ritual to unwind from a hectic week. During tax filing time, he collected all the bills for previous year and shocked to see that he had spent more than Sh5m only on Pizzas! Shocking right? Small expenses are easy to ignore but they can affect the profit margin if not controlled.
Right from day 1 of your business, track every small expense like travel, phone bill, tea/coffee bills, expenses incurred during recreational activities and so on. Apart from big ticket purchases and marketing expenditure, all small things like these matter in a long run. Track spends in every category and try to minimise it every month.