Being in business is very difficult and it only is made worse if you don’t know what to look out for. There are some metrics that those seasoned in business know to look out for that can give you early insights into how well your business is doing and what the future looks like. If ignored and especially when in the negative these metrics could become the things you wish you’d known after your business fails. Not all metrics are created equal of course and some apply to specific businesses but not all business.
Average Revenue Per Customer/User
While this measure generally suits service businesses it also applies to businesses which deal in goods. The idea is straightforward, and it’s about the size (though I prefer the term quality) of your customers. Clearly, customers that make bigger orders are an advantage as they cost less to serve and manage per dollar of revenue they bring in. Growing ARPC also indicates customers appreciating a product more while the converse may suggest dissatisfaction with the product offering. To arrive as this simply divide total revenue by the number of customers. The drive of any business is to extract more revenue per customer.
New customers vs Existing customers
Most if not all of us want our businesses to grow. Tracking the distribution of your revenue between existing customers and new customers can be a very telling metric. While a greater percentage of new customers may represent an upsurge in marketing results or referrals it may conversely represent a drop off in existing customers. So while this is an important metric to look at you really cannot look at it in isolation. This may not be simple to track for less formalised or high customer frequency businesses but it is certainly worth keeping an eye on. The ideal situation is a high retention of existing customers (more on this later) with a decent sprinkling of new customers.
New customer source
This is probably the most important metric for new businesses looking to grow early on. If you’re putting yourself out there you really want to know which channels are generating the best referrals to your business and which ones may not be performing as you’d like. You’ve come across this many times with businesses asking how you heard about them so you really need to establish the same for your small business. Find out where your customers are coming from and you can know where and how to target them. Good signs would be customers coming as a result of referrals but there is no bad source of business in all honesty. Some may just cost more than others.
Repeat business rate
Repeat business rate looks at how often your new customers, become repeat customers. The reasons for tracking this metric are obvious and we touched on something it’s linked to before. It’s counterproductive to spend a lot of time, money and effort attracting new customers if you can’t keep them. There are caveats, of course, your business may be a once-off affair, and customers may not need your services again. Fair enough. But for those who have repeat business or an element of it in their business model will want to really keep an eye on this. Are your vegetable customers coming back to you after that first purchase? If this rate is low we really want to know why and see how we can mitigate it.
Well, this one seems bleedingly obvious there is nuance to it. The profitability of the products on an individual basis should always be assessed and tracked. When offering goods this is simple, but services, particularly bespoke services present a challenge for many people to keep track off. Another challenge is tracking the overall profitability of the business. It’s not surprising that many people in business find out a little too late that the business as a whole is not profitable. Profitability should be tracked on a product, client and business-wide basis. To understand this a little better you can look at the discussion on profit margin versus operating margin.
Keeping track of these metrics can very well save your business from sinking into failure. They are not difficult to track but doing so consistently can prove to be quite a challenge. The frequency of your transacting will determine how often you should keep track of these but aim for at least monthly if you are a low-frequency business.