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What are Business Metrics?


‘Business development’ describes the process used to accelerate profit growth by setting measurable goals for the future that yield quantitative results. The data collected during a development period can be used to check your on-going performance, allowing you to identify whether your goals are being met. However, business metrics are a little different. ‘Metrics’ refer to the data that will tell you exactly where your business is in real time, illustrating how near or far you are to the goals you’ve set yourself.

Business metrics are simply a calculable measure of the health of your business. By applying metrics you will have a reliable system in place to keep a track and analyse the status of any specific business developments. ‘Business metrics’ refers to a wide range of data, spanning almost every aspect of your business. Every department within your business will have its own way of monitoring progress; for example, your marketing department will track and analyse all marketing and social media metrics; sales departments will track and analyse the sales performance metrics, such as new leads and opportunities; and executives will track and analyse the ‘Big Picture’ metrics that determine the overall return on investment.

All metrics should be compared with the objectives that you set out at the start. This will allow you to effectively compare and assess the status of your business and subsequently act appropriately on the information you collate. As you will know, there are different metrics used by different departments within your business. In order to find the correct solution, you must first identify the area of business relative to your product or service. Once you have recognised this, you can continue to implement the appropriate measures to improve your business’ overall growth and successfully achieve any objectives you have set out.

RSVP have put together a brief list of the most common and important business metrics, how they could help you achieve the objectives you have laid out and what you can do to implement them. The types of metrics used will depend on the sector of business you’re assessing - so here are a few of the key data-sets you can explore.



Marketing Metrics & Social Media Metrics

Marketing metrics refer to the data collected from your business’ marketing channels, such as your social media platforms, advertising campaigns and lead nurturing. Monitoring your digital marketing KPI’s can help your team stay on target from month-to-month. It is crucial for marketing teams to actively track their progress using the most relevant metrics. Return on Investment (ROI) is the most important calculation made using this data:

ROI per KPI = (Amount of revenue generated from a marketing strategy – how much was spent on the marketing strategy) / the KPI (leads/conversions/website visits)

Social Media Metrics are values used by marketing teams to track the performance of social media campaigns- a fundamental part of any forward-thinking business strategy.


Social Followers VS Target Audience: Why Community Management is Important…

It can be easy to mistake a huge following on social media for a well-cultivated community that targets your customer persona. You can spend time and money collecting a million followers, but the conversion rate will be negligent if you don’t cultivate your following and aim campaigns specifically at those who might benefit from your product. Dedicating time to online community management can lead to a huge increase in organic sales, whilst also allowing you to effectively target those who identity with your brand and make use of products like your own. You can collect social media metrics based on what your community is interested in, what other brands they interact with and who is engaged with you content and how. Using this data, you can forge a clear customer persona and provide your community with content that brings them closer to you. 


Web Traffic Sources

When you have successfully identified your online market, it’s important to identify how well your online campaigns are at bringing traffic to your website and, ultimately, how much of that traffic is concluding with a sale. Website widgets are a useful way of tracking who is coming to your website, where they are coming from, how long they spend on there, what links they are most drawn to, and who is buying from you. The Google Analytics suite is free to use and provides detailed metrics on all the aforementioned indicators. 

 

Sales Metrics

In order to thrive in a highly competitive business environment, organizations must be in control of their sales. The best way to gain control over your sales is to provide your sales team with the right performance indicators and metrics.


Sales Revenue
Revenue is made up of the income you acquire from customer purchases, minus the cost of those products or services that have been returned or are undeliverable. The best way to control your businesses sales is to excavate data constantly in order to provide your sales team with the right performance indicators.

This data then needs to be compared to other marketing data; such as advertising campaigns metrics, price changes, seasonal forecasts and competitive actions.

The most sophisticated metrics you can use in order to compare your performance against your competitors’ are:

  • Sales growth – The rate at which you acquire more sales
  • Product performance – How well your product does against similar products in the market
  • Average purchase value – How much of each purchase cost is …
  • Average profit margin – The gap between how much money you make before expenses and after expenses.

These metrics and KPI’s are crucial to monitor. In the long run, this information will inevitably tell you whether your business will survive or perish.


Size of Gross Margins
Gross Margins- also known as Gross Profit Margins- represent each pound of revenue that your business earns as gross profit. In order to calculate the size of your businesses gross margins you must take the overall total sales revenue, minus the cost of goods sold or services provided and finally divide that figure by the total sales revenue. You’ll find your result is expressed as a percentage and as a percentage the higher it is the more the company has retained on each sale. Gross margins demonstrate the company earnings by taking into consideration the cost of sales and the production of goods and services. You can also use the information to measure your competitive positioning within the given industry; signifying your brand impact, customer loyalty, superior product offering and cost advantage.

Track margins are also incredibly important, especially for your growing business. The impact of increased volumes should improve your efficiency and lower the cost per unit (increase the margin). Making the effort and staying innovative is vital in the pursuance of improving your company’s productivity. Many companies charge forward not knowing what their margins are or where they’re going wrong when they simply should be measuring efficiently. After all, what you don’t measure can’t come be put into play.

 

Financial Metrics

Company success rides on generating revenue and properly managing your finances. Not only will customers be scouting your financial data, but also potential investors and stockholders. If you have no control of your financial status, you can turn key people off your organization that may have potentially been key assets in your business development.  


Operating Productivity
Productivity measures how efficiently resources are used within your business. This will be presented as a ratio between the outputs (goods and services) and the inputs (labour and materials used). In order to achieve a proficient level of productivity, it’s incredibly important to track the inner workings of your company - starting with your staff or a specific team.

If you don’t know how or what your team is doing, how can you possibly know the mechanics of your own company? The way in which your team works can have a huge impact on the success of your business. Therefore, discontented or under-motivated staff can put your company in serious jeopardy. On the contrary; high staff productivity can be your best company asset. Productivity percentage can be applied to any aspect of your business; here is a simple calculation for an accurate ‘Sales Productivity’ percentage.

Sales Productivity= Actual Revenue ÷ Number of Sales People

Using the information accumulated from this calculation, you can further your research by comparing your teams productivity to the industry norm by consulting industry statistic and planning for continuous improvement based on your findings.


Monthly Profit or Loss
Keeping track of profit on a monthly basis is just as important as monitoring your loss. Profit isn’t simply the difference between costs and prices- the calculation must also include fixed and variable costs of operations that are paid on a monthly basis including:

  • Rent/mortgage payments
  • Utilities
  • Insurance
  • Taxes
  • Salary

Beyond reducing the cost of operations, the biggest lever on profit is usually the price you can charge for your products or services. The amount you charge over the base cost of your item or service is called ‘the mark-up’ and the difference between cost and price in called ‘the margin’. You can identify the status of your business by these figures represented as a percentage. For example, a small company with margins below 60% will have a tough time growing, so your target percentage should be within the realms of 25-50% not including the operational or fixed expenses.

 

SaaS Metrics

SaaS companies (Software as a Service) need to pay close attention to metrics that display their ability to retain customers, generate recurring revenue, and to attract new customers.


Customer Retention
Customer Retention is all about enticing the right customers, getting them to buy your product and developing a long term relationship in order to sustain business rapport (for more information please view our previous white paper on Customer Retention). Many of RSVP’s clients currently have a stronger focus on customer retention rather than acquisition. They have found that maintaining a loyal customer base provides the essential foundation that future acquisition can be built upon, providing stability and enhancing their business’s credibility.

 There are several methods to measure your customer retention including;

  • Customer surveys
  • Direct feedback at purchase
  • Purchase analysis

Business experts like Fred Reichheld (New York Times best-selling author, speaker and business strategist) forecast that a 5% improvement in customer retention could lead to a 20-100% increase in profit. So you can’t expect results from any of these methods with an extemporized approach. All these methods require an organised and methodical process to see beneficial retention.


Customer Acquisition Costs
In definition, the cost of customer acquisition is a measure of the total cost associated with acquiring new customers. Many of these costs, dependent on the product or service you are providing, include things such as promotional campaigns, product fulfillment and data analysis. You can calculate many of these costs by using a simple equation.

Total Acquisition Expenses÷ Total New Customers = Advertising ROI

By using this equation, you can reliably analyse any element of customer acquisition and effectively be able to identify the status of your results. In time, as the growth of your business increases, you should see a definite diminishing in the cost of acquisition.

 

Conclusion

A final thought; be sure to continuously track any available data from your competitors in order to reliably analyse whether you are being as competitive as possible. Market comparisons and self-evaluation are your best way of developing the success of your business and insure that you are in complete control of the direction your company is going in. Best of luck!