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6 metrics every small business owner should be tracking

Posted by Neha De

January 17, 2022    |     4-minute read (721 words)

In order to take their company to the next level, every business owner needs to track the right metrics in order to have accurate data for making informed decisions. Business metrics, or performance indicators, are quantifiable measures of specific components of a business. These can be used to monitor, track and evaluate the success or failure of the various business components. 

Having a solid understanding of business performance metrics is beneficial because of the benefits business intelligence tracking metrics provide. Here are three top reasons why this is important.

1. Effective decision-making – Often, entrepreneurs go with their gut when it comes to making decisions. However, such decisions are not based on objective reasoning. By looking at actual business metrics before making a call, they can avoid bias that can lead them down the wrong path. 

Relying on data and facts instead of emotion or opinion also allows them to prioritize the health and well-being of their organization and its customers.

2. Tracking progress – In order to increase sales, business owners need to be able to see the progress they are making and accordingly take action if improvements are required to meet set goals. The only way to do this is by tracking metrics. 

3. Identifying problems – Business owners can identify trends and spot problems that can harm their business simply by incorporating metrics and reporting them in their company. 

6 key metrics every business should monitor

Check out the six crucial metrics that small businesses should track. 

1. Cost of acquiring new customers – Without knowing how much it costs to acquire a new customer, entrepreneurs cannot determine the success of their sales and marketing efforts, or even the profitability of their business. To calculate the cost of acquiring new customers, divide total sales and marketing expenses by the number of new users generated.

2. Monthly burn rate – Even the best business idea needs cash to survive. Whether it is through raising capital from investors or surviving on the funds originally put in, measuring the company’s monthly burn rate is the best way to know how fast one is running through their finances and how long the business can survive — or when it is time to raise capital again. 

3. Customer satisfaction and retention – The satisfaction and retention of its customers is the key to the success of any organization. If a business cannot attract paying users — or if customers only buy from them once and never return — then the company is in trouble. Satisfied consumers ensure not only repeat orders but are also a great source of referrals — after all, word of mouth is still the best tool in a company’s marketing arsenal. This is why it is essential to measure the rate at which a business is retaining customers, and how satisfied they are. 

4. Accounts receivable – It can be easy (and distracting) for a business owner to focus on making current sales and attracting new consumers, but if they are not actively tracking the age of their accounts receivables (time when the money from a sale actually comes in), ultimately, they will make sales that never result in actual revenue for your business.

5. Social network user penetration – Social network user penetration is a relatively new metric, which is not becoming a crucial criterion for business success. Most of us now use social media platforms, websites, mobile apps and other digital tools to find out about companies. And if a business owner is not active on these platforms, they will almost certainly lose ground to competitors. A downward trending social media engagement means they need to develop a more engaging online presence to generate sales in future.

6. Profitability trends – No small business should anticipate turning a profit for at least a few years. In fact, several of the world's largest companies, including Amazon and Google, were publicly traded for years before becoming profitable. Hence, while making a profit is the primary objective of any business, as long as the company is able to survive on a cash flow basis, the trend in a company’s profitability may be more important. Losing money is one thing if there is a pathway to profitability, but if a business is burning through cash and taking larger losses every year, it could mean it is not going to make it.

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