In a previous article about conducting a year-end review, I mentioned non-financial metrics businesses should track. Today I’d like to go a little bit deeper into those non-financial metrics and also why we should measure the particular ones I’m going to mention. This is meant to be a general list and to keep it as useful as possible to as wide a user group examples will be drawn from many different types of businesses. As small business owners, we tend to get bogged down in the financial details without paying thought to the drivers of those financial details.
There are various customer-based metrics that can and should be measured. A lot of this depends on your type of business and business model. If you sell chickens, for example, you can sell to a customer once-off or have repeat business from the same customer. A service like web design may be once-off service with maintenance and update work involved. Bearing factors like that in mind good customer metrics to measure include
- Number of customers
- Customer retention
- New customers
- The average revenue per customer
I believe the goal for most is to grow and these metrics measure your business growth through the most important metric. I think I say this too often but one more time won’t hurt anyone; business is a customer, the rest is commentary.
This applies more to businesses which either manufacture a product (physical or intangible) or work on an existing item such as a painting service. The safety policy seems like an idea for large manufacturing plants but safety and error minimization are important to small businesses and maybe even more important. Errors whether they be of the kind that threaten the health and safety of staff or that require touch-ups and restarts are very costly to the business. Imagine a web designer who continues to make coding or layout errors and has to go back and forth to fix them or the photographer who needs to take 300 photos to get the right one. In both the aforementioned cases the cost is time, the opportunity cost is the inability to move on to the next task.
While volumes have a direct bearing on the financial story they may tell a story that cannot be seen by looking at the finances alone. A look at the Zimbabwean situation shows that while many large companies are reporting huge profits their volumes are down considerably. Of course, we all know that the money is not worth as much as before, according to the interbank rate today’s dollar is only worth 15 cents from February 2019. Metrics to track here include sales volume, returns, stock holding period and expiry rate in the case of perishables. This can tell you a lot about customer behaviour towards your products and sometimes predict things to come.
Cash flow is very important, if not the most important part of the business. If you don’t believe me ask someone who just sold a whole lot of products on credit but doesn’t have money to pay for their bills or reorder stock. While the accounting format for cash flow calculations can get very complicated it doesn’t have to be for you or your small business. A predictive cash flow analysis can be done using a spreadsheet or mobile wallet apps. The idea is to know how much net cash you will have any given point in time. This can be done in a spreadsheet app by creating a timeline going forward and using a predicted running balance of income and exexpenses. This will allow you to spot any cash flow quagmires before they occur or at least plan for them.
These four metrics will help you see your business through a more analytical lens. They do not operate on their own, put together with the financial numbers they tell a story of your businesses performance. The financial numbers still matter of course regardless of the currency used. This should give you a wider view of your business.