Posted by Revenue is the most critical analytical metric when it comes to small businesses. But it’s not the only metric anyone should be concerned with!
I admit that some companies have really gotten a very creative way in justifying their business model to investors. But still, I think other metrics are also concerning and need to be focused on, especially if you have planned to succeed with your small business.
So, let’s jazz up with the eight most useful metrics for your small business without much content.
1. Customer Acquisition Cost (CAC)
This metric matters the most if your business is in the early stages of your growth because if you want your business to survive in initial hurdles, you need some users.
But it costs money to acquire potential customers.
But the thing to focus on is how many customers you need, or will it be profitable to you?
Risks are something that we can’t avoid!
So make calculations!
To calculate your CAC cost, divide your average sales and marketing costs, including overhead expenses in your business departments.
After calculations, make sure to highlight your business stage. What does it mean?
Here’s what!
If you get a high CAC cost, it means you are spending too much money to acquire new customers. All you need is to lower it, and you need to optimize your sign-up pages and landing pages.
2. Retention
I have seen many entrepreneurs that get so obsessed with customer acquisition that they forget about customer retention.
Unfortunately, everyone needs to break out of this obsession.
If all are entirely focused on acquisition only, and you are neglecting your current customers, chances are they might eventually get frustrated with you and leave.
One of the most important things that I learned about retention helped me break my single-minded focus on acquisition and probably help you.
So who precisely should you focus on?
There are two kinds of customers you need to think about:
Current customers: Try to satisfy them.
Inactive customers: Try to get their opinion and increase your interaction with them.
3. Churn
Churn, usually called attrition, is another fundamental metric to keep an eye on!
Ever measured how many customers stop paying you for your product?
Try to examine at 30 to 90 days. Because usually, some people purchase things as per their availability. If your customer comes back even after the 89th day, it means he is your potential buyer and loves to purchase from you.
But again, in the future, if someone doesn’t intend to come back? Will you lose him?
There is no getting around that!
You should try to retain your customers. Try to find out what an adequate level of loss is to you if you lose a customer.
You can approach your customer by phone or email, though I recommend you do as many as you can on the phone. Make them feel like you are a real person, not just a business.
A better way to keep churn low is to utilize the data to anticipate churn and create personalized retention plans.
4. Revenue
One of the most important metrics! It needs to pay attention first of all because it’s all about the profitability when you say revenue—in simple words, making money!
Revenue is basically the income that your company brings in! When customers purchase your product, revenue can also include other income like interest or late fees.
Revenue doesn’t come easily, and you’ll be paying out a lot more money than what is coming in if you are a SAAS since customers usually pay in small increments.
One way to avoid this is by offering more extended contracts and requiring advanced payments.
If you have the right product, you should have a high conversion of not paying users that eventually become paying customers.
To increase revenue, focus your efforts on marketing materials and other printed stuff and grow.
5. Life Time Value
What exactly is the Life Time Value (LTV)?
It is how much you can expect to earn from your customer when they are with your company.
I mean to say you should know how long most customers stay with you. It could be three months, a year, or longer. After learning that, multiply the monthly revenue you expect from that customer, you get your customer LTV.
Keep in mind that you should all the expenses related to the fixing or maintenance of your product. Here, the plus point for you is to remember that your business will fail if your CAC is higher than your LTV approximation.
Here are two guidelines from marketers that you can find useful:
1. LTV > CAC
2. Aim to recover the CAC in < 12 months.
Otherwise, your small business will need too much capital to grow.
6. Product Metabolism
This metric measures the speed at which you and your small business move and make decisions.
Like human metabolism, the product metabolism is high in the early stages of a startup.
As your business begins to mature, metabolism starts to slow down.
Netflix is an enterprise that’s recently made some rather dramatic changes to see how it operates, namely raising prices and branching-off one of its divisions into a full-fledged company.
Not everyone agrees that this was a wrong decision! But still, it is too early, I think!
So let’s wait time will show.
Like many metrics, maintaining product metabolism is a balancing act.
1. If you change too fast, you will create instability.
2. If you change too slowly, you will irritate your customers.
7. Viral Coefficient
This metric measures the organic progression of your business. Usually, small businesses start by inviting friends to use the product. If it is the right product, then these beta users will tell their friends and so on.
Other ways to make your product viral are through social media features like share buttons, send email invitations, and update promotions on social apps like Twitter or Facebook.
Here are your inputs for the viral coefficient:
- The initial potential customers.
- Number of invites sent to gain customer.
- Average invites that convert.
- The conversion rate over some cycles is your viral coefficient.
A positive viral coefficient rate refers to four things:
- Giving your customers a positive user experience.
- Found a good product/market fit.
- A low cost of acquisition.
- High profitability.
One way to expand your viral coefficient is to build incentives for your products.
8. Activation
The conversion rate from when a visitor becoming an active user, the signal being some sign-up. Or download!
A high rate conversion means that the visitors had a good user experience at first. A low activation rate means that your product isn’t awe-inspiring enough to get started.
SAAS products usually use activation to attract and gain a following in their business’s early stages, hoping that the excellent user experience will entice people to pay for extra benefits.
Conclusion
Amazing? Yup! The way all of these metrics are linked together!
But it can be challenging to measure and monitor all of these metrics as a small influencer. So, don’t waste time.
I recommend you start your small business and focus on the ones that affect your bottom lines, such as revenue, CAC, LTV, and churn.
Then pay attention to retention, your viral coefficient, activation, and goods metabolism.
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