Despite what you may have heard, most small businesses don’t fail within their first year. According to the Small Business Administration, only 20 percent of new small businesses go belly up within their first year.
But extend the timeline out to a decade, and you’ll find that two out of three small businesses have permanently closed their doors.
As a small business owner, you have to do everything you can to keep your business afloat. If you’re not keeping an eye on important business metrics, you could be losing out on profits or even putting your company at risk.
Here are the metrics you should be monitoring, to ensure your business succeeds over the long term.
1- Operating Productivity
Productivity is important. If your employees aren’t working hard, your business can’t operate the way it should. But there’s more to measuring productivity than making sure everyone is cleaning rather than leaning. Productivity is often tied closely to employee satisfaction and engagement. When employees are happy with their jobs, satisfied with the way the company operates and the way it treats them, and engaged with their work, they’ll be happier and work harder for your company.
The high staff productivity that can result from a happy, engaged workforce can be one of the biggest factors in helping your company get ahead.
Apply productivity ratios to sales, manufacturing, support, customer service, and any other aspect of your business operations. Use statistics to compare them to industry norms, and take steps to boost productivity as needed.
2- Operating Costs
If you don’t know how much it costs to operate your business, you’re missing opportunities to slash expenses and operate on thinner margins. As a business owner, you’ll have several categories of operating costs to track. Your overhead, for example, consists of the fixed costs that remain the same no matter how well your business is doing.
These include rent, utilities, and employee wages. You’ll also have variable costs, like the costs of shipping, raw materials, and other costs that can vary depending on how much volume growth you’re experiencing. You’ll also have costs related to storing your inventory and acquiring new customers.
The more you can keep these costs down, the more money you’ll have to invest in your company’s growth. When costs grow out of control, your business can’t thrive, no matter how many sales you make or how large of a customer base you have. You can manage costs by choosing a cheaper facility, negotiating deals with suppliers, and making more cost-effective operating decisions, but you have to start by knowing what your operating costs are.
3- Customer Retention and Satisfaction
How happy are your customers? How likely are they to continue using your services? Will they bring in other customers through word of mouth? The answers to these questions will give you some of your most meaningful business metrics.
To foster customer loyalty and retain your existing customers, you need to attract the right customers, and then treat them well so they’re motivated to keep buying from your business — and not only that, but keep buying more and more and even spread the word about your great service and products to friends, family, and neighbors. Loyal customers can increase your profits, but you can’t just assume your customers are loyal. You need the proof. Use point-of-sale feedback, customer surveys, and purchase data to keep track of your customer satisfaction and retention, so you can keep customers coming back over and over again.
4- Conversion Rates
To be successful in today’s economic climate, businesses need to have an online presence. If you run a retail business, you’ll need to be accessible to online shoppers via Amazon, eBay, Etsy, or your own online storefront. Your business will need a social media presence on popular platforms like Instagram, Facebook, Pinterest, and Twitter, where you can provide customer service and foster engagement. And, of course, you’ll probably want to invest in online advertising, including email marketing and SEO blog content.
In order to monitor how effective your online marketing is, you’ll need to keep a close eye on your conversion rates. This metric reveals how many of the users who engage with your business online go on to actually complete a transaction. With this important data, you can tweak your online marketing strategy until it’s perfect.
5- Customer Acquisition Cost
Customer acquisition cost, or the cost of bringing in a new customer through brand awareness, lead generation, social media engagement, and other strategies, is one of your most important business metrics. That’s because you need to price your products and services so that you’re earning enough from sales to make the cost of acquiring each new customer worth it.
Not only that, but knowing your customer acquisition costs is fundamental if you’re to ever have a hope of comparing marketing campaigns to determine which strategies are most effective — the more effective your marketing, the less it will cost you to acquire each new customer.
The Bottom Line:
You need to keep your finger firmly on the pulse of your business if you want it to succeed in the long term. You can do that by regularly monitoring your most important business metrics. With the right data at your fingertips, you can get an accurate picture of how your business is doing, and what steps you can take to help it do better.