4 Must Know Business Metrics – And 1 That Is Overlooked by Even the Most Savvy Business Owners

4 Must Know Business Metrics - And 1 That Is Overlooked by Even the Most Savvy Business Owners

The key to business success is numbers. Businesses that generate more revenue than they spend on expenses survive, and others thrive over the years.

This is something everyone knows.

Many business owners overlook the critical metrics that go behind the scenes to ensure that your company not only stays in the black but also grows and thrives year after year. It is true that you cannot improve what isn’t being measured. Track now and get a baseline. Then, test again to improve the baseline and make it higher.

Let’s take a look at some commonly misunderstood and misused metrics.

Average Cost Per Lead

What is the cost to get your message out to qualified prospects? There is no correct answer. You just need to track your progress so that you can improve. It is essential to compare this cost to the value of an average customer to you. We’ll discuss this in more detail, but the higher the ratio, the greater your profit. This metric can be used to determine how to reduce your cost per lead and increase customer value.

Percentage of leads that are converted into customers

This is the ‘conversion ratio.’ This information can be used to help you improve your sales process and to identify your ideal prospects. It is essential to examine the qualitative data in your conversions. Segment your leads, and you will find that easy conversions often share similar characteristics. This information can be used to ‘clone these ideal leads. That is, you should seek out market segments that match the profile of your top leads.

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Average Annual Number of Transactions

How often do customers buy from you each year? To increase your customer base, you should constantly be expanding your product or service offerings. Keep an eye on trends year-over-year. If the rate begins to fall, it might be time to reevaluate your services or make changes.

Lifetime customer value

It is vitally important that this number be tracked, but most businesses don’t. Here’s how to get it started:

Lifetime customer value (LCV = average transaction size x average transactions per year average years that a customer has been buying from you.

This number is so significant. It forces you to look at the bigger picture of your business. Are you offering enough products or services to make customers want to continue buying year after year? What can you do to increase your lifetime customer value?

Use Lifetime Customer Value as a Marketing Budget Guide

Even if it is only a rough estimate, this number provides an anchor value for your marketing budget.

Do not base your marketing budget on the first transaction value or first-year value of your customers. Instead, you should not be afraid to lose money when you first acquire a customer.

This is often how the best customers are acquired. Businesses that only think short-term may not have the funds to purchase these customers. It is worth investing more if you offer other products and services to get a high-quality customer.

The bottom line

These are just a few of the most important metrics that you should be monitoring. These metrics will give you valuable information about how to best invest your limited resources, such as in marketing, product creation, and innovation.

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