The 3 Metrics Every Business Owner Should Be Collecting
The best business advice I’ve ever received is to measure the metrics that matter. You can collect a lot of data on your business, but not all of it will be useful.
Simon Slade, CEO of SaleHoo of offers these three metrics he believes to be the most important for growing his businesses.
- Conversion Rate: This is the most important metric for making informed decisions about your business. Conversion rates show you how many customers are doing what you want them to. Naturally, this will mean different things for different companies. Perhaps you want your customers to subscribe to your newsletter, or make a purchase, or answer a questionnaire. Regardless of what the action is, you need clear numbers on how many people are doing it.
Calculating your conversion rate is easy: divide the number of “successes” (customers who did what you wanted) by the number of potential successes (customers who had the opportunity to do what you wanted). This rate gives you an idea of how well your strategy is working, which will ultimately help you improve that strategy and get more customers to do what you want them to.
- Customer Acquisition Cost (CAC): This metric answers this question: How much does it cost to get a customer to do what you want them to? It’s important to know how much money your company spends on converting customers. The primary cost involved in this is marketing expenses.
To calculate your CAC, simply divide the marketing dollars spent in a given timeframe by the number of customers acquired in that same period (e.g., a $50,000 marketing budget divided by 5,000 newly acquired customers means your CAC is $10).
This number won’t mean much until you consider it in relation to your Customer Lifetime Value (CLV). Calculating a customer’s CLV will help you predict the net profit of your company’s entire relationship with a customer, which will help you better understand the significance of your CAC and how you can improve it to make your marketing dollars work more efficiently.
- Rate of Referral: Your rate of referral is a reflection of customer satisfaction. Only happy customers will recommend your company to their friends and family.
Keeping your rate of referral high can also improve your bottom line. When an existing customer refers a new customer to your business, you reduce your CAC. Your satisfied customers can do the work for you—and you can encourage them to with incentives.
Track your rate of referral by asking new customers how they heard about you or providing existing customers with referral codes new customers can use when they purchase from your business.
In conclusion, Slade says: “No other company is precisely like your own, so there's no better data for planning improvements than your own. Tracking the right data can help you validate your business ideas, identify the right customers, and explore the potential of new products.”