Whether you’re a veteran business owner or just starting, there are standard metrics that businesses overlook. I will explain three key business performance metrics that your company needs to know and track to ensure that you have full visibility into whether your business is booming.
Turnover rate and cost
You should know your employees’ turnover rate, which means the percentage of employees who leave a company within a set time. This may be different within specific areas of your organization, and you should try to get as granular as possible with your data, so the averages don’t fool you. For example, suppose your turnover rate for the organization as a whole is very low. It might hide that you have a very high turnover within a particular area like customer service or finance. Looking at this key business metric by department or division will let you see which areas of your organization need improvement.
Once you know your turnover rate, you need to figure out what that turnover is costing you. Do you know how much it costs your company to hire an employee, train them, and then replace that employee if they do not work out? One of the best employee retention techniques to reduce turnover is to make sure each employee is an excellent match for their position. Job failure and high turnover are often because the employee is not wired to succeed in that particular position. Turnover costs your business a lot of money and can impact your bottom line. If you’ve never tracked this business performance metric before, you can use this AcuMax calculator to find out your turnover costs.
Lifetime value of a customer
The lifetime value (LTV) of a customer is the revenue that a customer generates for your business over the lifetime of their use of your services. For example, if you have a contract with a client, you can calculate LTV by first determining the customer value by multiplying the average purchase value by the purchase frequency. Those figures should be in whatever contract you have with a customer. You will then multiply the average customer value by the average contract period (in months or years) that you have with the customer. This formula also holds for things like subscription services.
Knowing the LTV is vital because it will help you determine the best approach to customer acquisition. Once you know how much a customer is worth, you will know whether your marketing or customer acquisition strategies benefit your business.
Customer Acquisition Cost
Customer acquisition cost (CAC) is the total sales and marketing cost required to earn a new customer over a specific period. The total sales and marketing costs include all program and marketing spend. Your figure should consist of salaries, commissions, bonuses, and any overhead associated with attracting new leads and converting them into clients. If you’re a new business, your CAC might be higher as you have an unknown product and brand, so it might take more advertising and a longer lead nurture time to get new clients. You should track how your CAC changes over time and you should see your CAC decline as you become more established in the marketplace. If you launch a new product or service, you might see a spike in CAC, but that should decline over time. Knowing your CAC and comparing it to your LTV will let you see which marketing channels and campaigns best meet your business needs.