Growth is the most important metric for a business that wants to survive in the long term. Businesses that do not grow become complacent. Then competition pounces on them.
But a business cannot know whether it’s growing or not just on a hunch. Measuring business growth is important to confirm this with data.
More importantly, measuring the right things for business growth is important. Otherwise, a business can track the wrong metrics and feel like it’s headed to Japan when it’s headed to China.
“You know that old saw about a plane flying from California to Hawaii being off course 99% of the time—but constantly correcting? The same is true of successful startups—except they may start out heading toward Alaska.” — Evan Williams
This constant correction only becomes possible by consistently measuring business growth.
5 Metrics for Measuring Business Growth
Revenue, costs (fixed and variable), and profitability are the most common metrics that businesses use to track growth. But the thing about these metrics is:
1. They are reactive. You only know about them AFTER the month, quarter, or year has passed and can do very little to impact them.
2. They are challenging to manage. Each person has different ideas about profit and revenue, and telling leaders to manage them is like a doctor saying, “you’re not healthy. You must become healthy.”
I’m not denying the importance of tracking revenue, costs, and profit. But you can track other metrics that are simpler to control have a larger impact on these important metrics.
1. Conversion Rate
Revenue and cash-flow are important for businesses that want to sustain and grow.
A business that doesn’t focus on its lead-to-customer conversion ratio burns precious resources because it believes that everyone is its customer and pursues anyone. As a result, it spreads itself too thin.
Tracking your conversion rate offers two benefits:
1. You realize whether you’re targeting the right audience and customers.
2. You hold your sales team accountable by checking whether they’re following the correct processes
The better your conversion ratio, the quicker the revenue will flow into your business. But revenue is not the only metric that measures business growth. The next point is equally important.
2. Customer Lifetime Value (CLTV)
Many businesses focus so hard on getting new customers that they leave the backdoor open for existing customers to leave.
Customers are always dissatisfied. Not just that, most of the dissatisfied ones quietly take their business elsewhere. As a result, while the sales team keeps adding customers to the company’s ledgers, the revenue stagnates, and profit drops.
But repeat customers can:
1. Spend up to ten times their original invoice for your company.
2. Contribute to your company’s profit by lowering marketing costs.
3. Send referrals your way, who are more likely to convert into customers.
Track how much customers spend on your business and find ways to get more of their wallet’s share. You’ll get rewarded with quicker growth than if you focus purely on new customers.
According to research, only six percent of small businesses owner focus on retaining their customers. This gives you a lot of scopes to leapfrog your competition.
3. Customer Satisfaction
Customer satisfaction is much more than fulfilling orders or a money-back guarantee.
It’s an attitude they have towards your business or the difference between what they expected while engaging with your business and what they experienced. You don’t get to decide whether a customer is satisfied or not. He does.
Measure customer satisfaction through surveys and questionnaires and ensure that you take necessary action to improve the scores. A customer-centric approach will increase revenue and profit and streamline operations for your business.
4. Employee Satisfaction
How your employees treat your customers depends on how you treat your employees.
The more fulfilled your employees feel, the better they treat your customers. But customer satisfaction is not the only reason why your business will grow if employees are happy.
Employees who find meaning at work stick around for longer, which means productivity will increase, and attrition will reduce. You’ll also spend fewer resources on finding, hiring, and training new employees.
Give your employees the freedom to take decisions on their own and think for themselves. Use their feedback to refine existing processes. Encourage them to learn from mistakes rather than running away from them.
When your employees feel recognized, they will give you their best and stay invested in your growth.
5. Inventory Size
Inventory can be an asset or a liability depending upon the time you hold it for.
If your inventory keeps moving, it shows that your products and services are in demand. This can also mean that your customers will clear their outstanding dues faster and probably even pay an advance for the limited stock of goods – great news for business.
But if your inventory piles up, it’s either because you’ve incorrectly anticipated market demand or your customers don’t want what you sell. If you’re a distributor, this could also mean your customers (retailers) could return unsold goods. This locks your capital invested, slows down sales and collections – bad news for business.
Use technology to anticipate market needs and stock inventory and set sales targets accordingly. Remember that cash flow, and not inventory, is the most valuable asset for your business.
This is not a one-time process. You cannot track the above metrics once and forget about them. Your customers are evolving, and so are their needs.
Your business can no longer afford to focus on just revenue if it wants to grow. It must also grow in its ability to deliver value to customers.
The more value you deliver, the faster your business will scale up.