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“What you can’t measure, you can’t manage.”
So goes the popular saying, and as wearying and tiresome as this saying is, it holds absolutely true in the business world.
I’ve come to understand that nothing really grows without effective checkups. I’ve been in business for close to 7 years now and I’ve not seen any business rise to the top without proper focus on the right metrics.
The right metric to track may differ for different industries. The metric to track for the HR industry would obviously be different from what the health industry needs.
This is why I advice rookies in the business world to put business measures in place from the onset to track alright.
As an entrepreneur, from my little findings, it is easy to be focused on just profit and loss, or at the other end, be involved in every nut and bolt of the company. But it’s a proper focus on what makes your company grow and how to heighten those figures that matters.
Adopting the following metrics would help you streamline and concentrate on the most important part of running your business.
1. The Costs of Keeping Your Clients – Also Known As Lifetime Value Costs (LTV)
Many budding entrepreneurs focus on getting new clients, which is great and I love the idea. They look at the numbers and are elated at the volume of clients.
However, how many of them are repeat customers? This is a reality check I got late in my business. An important metric in place should be one that would analyze the cost of buying your customers loyalty and keeping them.
After that reality check, I found myself asking –
What are my customers buying? How often do they return? More importantly, why are they returning? What do they keep purchasing? What would it cost me to keep them loyal? Just as important, what are they not purchasing?
These questions gave me more clarity into what I was doing.
Over a period of time, it’ll do you good to calculate what your repeat customers spend. Compare it against the initial cost of acquisition. This shows whether you have a profit or loss.
This metric lets you know what aspect of the business you should expand on, and those you should improve – or eliminate. The more returning customers you have, the more your client acquisition cost drops, and the more you can purchase new customers.
2. Employee Qualification and Satisfaction Costs
Most startup entrepreneurs place all their value on their customers, and almost none on their staff. This in the long term would be counterproductive – except you’re the only staff.
Ensure members of your staff are qualified – and satisfied. Qualification goes beyond just certificates and skill to attitude and teachability.
Satisfied employees who have bought into your vision would think long-term with you, and ensure maximized output and productivity. This would of course reflect on bottom line.
Have regular surveys and conversations with your employees to track their satisfaction and continued suitability. When possible, transfer your skills and knowledge. This would help to ease up on some of the pressure you face as a startup.
3. The Cost of Acquiring Customers – Or Customer Acquisition Cost (CAC)
Yes, you have gone marketing and spent quite a bit to gain clients, and the number of clients seems to be swelling. Good. But is the cost per customer worth it, or are you spending too much on marketing?
Let me make this simpler.
Taking into factor wages and expenses as well, calculate the total amount your company spends on marketing and sales within a period of time. Then, divide this by the number of clients you acquire during this same period of time. Your result is the cost to acquire one customer. Is that too high for your business, or it is just okay?
Most rookies spend a lot on trying to acquire customers, justifying their reasoning with the lifetime value of a client.
However, high customer acquisition costs do not make sense except the clients have proven over a long period of time to be profitable and reliable.
If you decide to spend more on marketing, make sure you cut back on other operations to keep a balanced budget. Also, your products and services should ensure you have returning clients.
4. Efficiency and Effectiveness Costs
How efficient and effective are your processes? Let me put it in a simpler manner, how efficiently can you deliver to the client at the smallest possible cost?
Whether you are selling products or services, is the cost of time, production, labour, materials etc efficiently proportional to meeting the clients need?
Do you have to use up high quantities of time or resources to meet these needs? If you do, what are your biggest expenses and how can you reduce these costs, while still delivering quality series and products?
Tracking should be done as widely as possible to streamline down to the exact huge-expense spots. Individuals, departments and leaders should be tracked per time and resources, and the results compared against sales.
5. Financial Costs
Of course, it is well known that income generation and prudent financial management lead to financial success. Take control of your finances.
Know what’s going on with all your major assets of cash, inventory and account receivables. Know how much cash is coming in and how much is going out. Know the biggest sources of your income and expenditure. Track your finance flow weekly.
Remember your taxes, and make sure you have at least a half-year payback to avoid lack or going under. Finally, let your current and prospective clients and investors sbe impressed at your financial data – not put off.
The consistent use of these metrics will ensure your budding business stays afloat and flourishes.
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