Economic Indicators

Critical Business Metrics to Measure Regularly

As entrepreneurs, marketing managers, and other leaders, we’re always busy working on new projects, dealing with administrative tasks, and planning for the future. However, it’s vital to stop now and then to analyze where things are currently at and see how to improve strategies moving forward.

It pays to measure key business metrics regularly, at least once a quarter. Keeping an eye on metrics will help you notice potential growth areas and spot potential issues before they become major ones. Tracking insights aid decision making and planning. Here are some of the most vital metrics to start measuring today.

Customer Acquisition Cost

One of the most critical numbers to look at in marketing is your customer acquisition cost (CAC). This metric is the average amount you outlay to obtain each new client. Determine your CAC by dividing the total amount you spend on tactics to land new customers by a set period of time (e.g., a quarter) and by the number of new clients you obtain over that pre-determined timeframe.

Calculate your average customer acquisition cost to see if what you invest in strategies like advertising, giveaways, search engine optimization, local marketing services, competitions, etc., is working for you. There’s no set “right” figure, as it varies so much from business to business and sector to sector.

If this figure is too high, though, it means you’re spending too much cash on ineffective marketing and sales strategies, and you could have cashflow problems as a result. Keep in mind that the CAC usually does lower over time as businesses grow and build more brand awareness. The more established your venture is, the more likely it is that customers will come to you, which doesn’t cost you anything and reduces your average customer acquisition cost.

Retention Rates

Another vital metric you need to know is how loyal customers are to your organization. What are your average retention rates – that is, the length of time you keep your clients? For example, what proportion of customers buy from you once only, versus giving you repeat business over many years?

The longer you have a client, the more they’ll spend with you and the less money you’ll need to spend on acquiring other, new customers. Plus, loyal shoppers are also more likely to recommend your business to their friends and family, work colleagues, and other contacts, saving you money.

High retention rates indicate you’re doing plenty right in your company and pleasing customers, so they don’t feel the need to look elsewhere. Low rates, or a high “churn” rate (where people only shop with you once and don’t return), show you there could be several issues happening in your organization that need addressing.

For instance, your product or service quality could be low, you may not have a broad enough range, people may not see the value in your prices, customer service may be lacking, or shipping times or processes may not be working. Investigating retention rates helps you discover problems sooner.

There’s no single determinate of customer loyalty. To get an idea of where things stand, send out surveys to current clients, or ask for direct feedback when or shortly after people make a purchase. You could also look at data to see what percentage of your clientele buy from you more than once. Pay attention to the number of transactions people complete and the values of these over time.

Customer Lifetime Value

To understand how your business is tracking and where you might make improvements, especially in your marketing and sales strategies, check out your average customer lifetime value. This term is about knowing how much net profit you’re likely to receive from your clients over the length of your relationship with them, based on how often they shop with you and how much they spend.

If this number is very high, you’ll generally need fewer customers to make ends meet. Having this metric available also helps you see how much money to spend on “buying” each new customer. If the lifetime value is high, you can afford to outlay more money to acquire new clients because you should make this money back over time. If the lifetime value is only low, your customer acquisition cost will need to stay small to reflect this.

To calculate this critical metric, start by working out the average dollar value of a sale – the amount clients spend, on average, per transaction. Multiply this number by the average number of transactions you receive per customer, and then again by the average amount of time you retain a client.

These are just three key numbers all entrepreneurs need to keep a close watch on. Calculate the figures over time to spot changes. The more information you have available to you about how your business is performing, the better you can make decisions.

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