Knowledge is power- Sir Francis Bacon
As a business owner in the modern business environment, chances are you have already felt the power of data in shaping your business and other businesses around you. What you call that innate business sense boils down to a natural feeling for patterns and numbers.
However, in our hyperreal, digitised world, the amount of data generated in any field is astounding. You can no longer rely on your innate sense to spot patterns and plan with mountains of data ready to confuse you.
What you need to separate the proverbial wheat from the chaff is a deep understanding of high-quality business metrics. Armed with the knowledge of these metrics, you can hone your business instincts and direct your resources with surgical precision, ensuring success and reducing risk. Here’s a complete guide explaining the critical business performance metrics every business owner should know to succeed in the hyperreal, digital world.
What are metrics in business?
A metric is a quantitative measure of something. Business metrics help you monitor, track and analyse the various aspects of your business. For example, sales revenue is a straightforward metric that most people are familiar with.
In the modern business environment, company metrics leverage data to assist you in all business areas, like market strategy, customer satisfaction, etc.
Critical business metrics every business owner should know
1. Earnings before interest, taxes, depreciation and amortisation (EBITDA)
Let’s start with a business performance metric that better measures profitability than revenue. You can calculate the EBITDA of your business by adding interest, tax, depreciation and amortisation costs to the net income.
You can also use EBITDA to monitor a specific aspect of your business. For example, calculating EBITDA without adding taxes and depreciation shows how debt can affect your business.
2. Product engagement
Another often-overlooked company metric is product engagement. While you are naturally passionate about your business’ product, the market and the customers decide its profitability.
Keeping track of how many customers interact with your product can give you a better idea of how your product has been received in the marketplace. A favourable product engagement signals what you’re doing is working. On the other hand, little or no product engagement helps you know where to make improvements.
3. Lead conversion rates
As a business owner, you would have realised early on that possessing leads is different from converting them. Your business grows through lead conversion. Hence, lead conversion rate is a company metric that denotes the overall growth of your business.
By effectively tracking lead conversion rates, you can identify the favourable customer segments for your product or service by age, region, income, etc. You can also predict the time of the day when more leads get converted and so on. All in all, this simple metric can help you devise precise strategies for increasing sales.
4. Net promoter score
The net promoter score is another high-level company metric related to customer satisfaction. It is the business world equivalent of word-of-mouth promotion.
From just this single metric, you can get the answers to all the questions regarding the reception of your product or service, such as: do your customers like your product? Do they recommend your product to others? Does your product or service retain customers or lose them? Are the customers satisfied with your product or service?
The quantitative answers to these questions can help you create targeted marketing strategies, decide on future investment courses and make improvements or adjustments to increase your customer base.
5. Sales growth year to date
As a business owner, you invariably keep an eye on sales. However, yearly or even quarterly sales figures only paint part of the picture sometimes.
With the metric sales growth year to date, you can better understand how and why your sales figures fluctuate. In this sense, sales growth year to date gives you an idea of the standing of your business. Sales growth year to date will tell you if your sales figures are increasing every month and whether your business is on the right track.
6. Customer lifetime value (CLV)
For you, as a business owner, it all boils down to customers. The metric customer lifetime value tells you the exact profit earned from a particular customer.
Customers from whom your business earns more profit are your ideal customers. Using the customer lifetime value metric, you can devise strategies and allocate funds to retain these customers. Coupling the customer lifetime value metric with the net promoter metric, you can design highly specialised marketing campaigns to improve these metrics and expand your profitable customer base.
7. Employee productivity
Employee productivity is one of the less tracked company metrics. It’s a no-brainer that productive employees drive business growth. Effectively tracking employee productivity can help you determine how productive your employees are. You can then adapt your policies if required to improve this metric.
8. Customer attrition
Customer attrition determines how many customers you lose monthly, quarterly or yearly. Due to this metric’s negative connotation, many businesses often ignore this.
However, you can use this metric to get much information about your customers and your product, such as when customers leave the most, which product or service sees the highest customer attrition, etc. Additionally, making quick, visible changes based on customer attrition metric makes your customers feel heard and creates a good reputation for your business.
Concluding thoughts
This brings us to the end of exploring the meaning of business metrics and the description of key business metrics that can be a game changer for your business. By leveraging these company metrics in our data-driven world, you can ensure high profitability and longevity for your business.
As a business owner, you require funds to improve and maintain your business performance metrics. Funding your business from your savings can significantly strain your finances. Keep your savings for a rainy day and consider business loans.
Tata Capital provides flexible business loans with minimal business loan documents and no collateral. With Tata Capital’s collateral-free business loans, you can focus on improving your business metrics and catapulting your business to the next level.
24 September 2024
6 mins read
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