7 Growth Metrics Your Business Needs to Track
No matter how large or new a business is, measuring progress is essential for financial success.
Knowing which numbers to track is the first step.
Tracking key financials means you have the data available to make the most well-informed decisions about your business. These data points help you determine where to spend your dollars in investing in the business, whether it be equipment, people or services needed to grow. They also can help inform where you deploy your human capital, including your own time and energies, to get the most out of your hard work.
To start, you need to be clear on the right metrics to track. Without that information at hand, you may not be able to make decisions that will drive future business, increase revenue and provide returns.
Here is a closer look at some of the core metrics to consider for your business.
1. Customer Acquisition Cost (CAC)
How much does it cost to gain a new customer?
Knowing the answer helps you gain a clearer picture of how well your sales team is performing and the effectiveness of your marketing strategy.
CAC is usually calculated by including all costs used to reach a new customer. This includes:
Advertising and marketing expenses
Incentives and discounts offered
The cost of staff and external vendors
Etc.
The lower the CAC, the more efficient your efforts.
2. Lifetime Value (LTV)
Each customer will generate a total revenue amount during their “customer lifetime”.
Calculating this amount helps organizations project how much revenue should be expected from each new customer brought in … and the success of retention efforts to keep the customer buying again and again. In short, it’s a measure of how happy your customers are with what you offer.
Many companies use the LTV and CAC calculations in tandem as a measure of how long it takes to recoup the investment in acquiring each new customer. By tracking the LTV of different customer segments, companies can pinpoint which customer types are the most profitable. It’s also a useful tool for forecasting future revenue and profits.
3. Revenue Growth
Revenue growth is a comparative metric that helps you measure how much revenue was generated in one time period compared to a previous time period.
Typically, this is done by comparing revenue in one quarter to that from the same quarter in a previous year. Comparing revenue in this way helps to normalize for seasonal variances, such as increased holiday sales. It’s a useful tool to determine whether your revenue is trending in the right direction.
4. Break-Even Point
Your break-even point is when your total cost equals your total revenue. It’s an important factor as you grow your business, providing investors with a projection for when you, and they, expect to realize a return.
Determining and tracking your break-even point has several advantages. It can help you:
Calculate optimal pricing
Find missing expenses
Determine revenue targets
The break-even point can also help you develop a budget and is usually a requirement for investors or financiers.
5. Gross Margin
The relationship between revenue and production costs is important to understand. Gross margin is that measure. You start by calculating net sales, which is gross revenue minus any returns, discounts, and allowances. From net sales, you subtract the cost of goods sold, which includes direct labor and materials to produce your products.
Gross margin shows you how efficient your operations are and outlines how much money you have left to pay for your outlying expenses.
6. Budget Variance
Having a budget is foundational for any business. A budget variance calculation helps you to understand how accurate your budget is to your actual spending.
Budget variances can be calculated at a high level or granularly, helping you pinpoint areas where your budget projections were accurate or off. It’s a helpful tool to help you adjust future budgets to more accurately reflect your actual spending.
7. Cash Flow
One of the most important metrics you can track is cash flow. It accounts for everything coming in and out of your business and goes far beyond revenue and expenses.
Cash flow is essential. It’s a measure of how much cash you have on hand to pay your bills, invest in growth opportunities, and cover any unexpected expenses. It’s a critical indicator of where your money is coming and going and how much you have available. Good businesses constantly strive for improving cash flow.
Want to Get the Most Out of Your Metrics?
Tracking metrics is important for gaining a deep understanding of the key financial factors affecting your business. That’s why it’s important to work with an accountant who knows what metrics to track.
At Teitelbaum & Co., we help businesses create and monitor the metrics that drive growth. We analyze those results and work with you to help you interpret and use the results for better business success. To learn more, contact us today.