It’s only possible to take steps to grow your business when you know where you stand at the moment. This means turning to key performance indicators (KPIs). By KPIs, we mean the metric you use to gauge performance and track your progress toward goals.
Since every business has a different way of defining growth, there’s no universal set of KPIs that every business should be using. Instead, you’ll need to choose those that are relevant to you.
1. Sales Revenue
Many businesses determine growth by some measure of revenue. Sales revenue is simply the total amount you receive in purchases from customers minus returns and undelivered services.
2. Revenue Growth
Related to sales revenue is revenue growth. You can use this to compare revenue performance over a specific period of time, such as monthly, quarterly, or yearly, to see if your rate of revenue is increasing or decreasing. For many businesses, yearly revenue growth is the most useful, as it eliminates seasonal fluctuations.
To calculate your revenue growth rate, subtract the revenue from your last period from the revenue of your most recent period. Then, divide the resulting number by the revenue from your last period. Multiply the result by 100 to turn it into a percentage.
3. Revenue Concentration
Another way to look at revenue is with revenue concentration. This will show you if a large amount of your revenue is tied to just a few of your clients, which is a dangerous situation to be in: if you lose just one of your clients, the survival of your entire business could be in jeopardy. In the case you do find that your revenue concentration is too high, you need to take steps to diversify.
4. Revenue Per Employee
One more KPI related to the above is revenue per employee. This is useful for gauging productivity of individual team members. Plus, knowing the average value of team members can help you decide whether it would be cost effective to grow your team — or if it may be more appropriate to cut back.
5. Net Profit Margin
Net profit (or bottom line) is the amount that remains after you subtract expenses like operating, marketing, payroll, and debt. Even more important is net profit margin, which is net profit divided by revenue. This shows how much of your net profit makes up your revenue. Margins that are too low are a sign of poor growth.
6. Customer Acquisition Cost
It’s important that the cost of acquiring a new customer is significantly lower than the amount you gain from the average customer. This is where the KPI cost of customer acquisition (CAC) comes in useful.
You can instantly decrease CAC if you set up a referral program that gives customers an appealing incentive to refer your business to people they know. In addition, you should find out which of your marketing channels are leading to the lowest CAC and focus your efforts on these.
7. Customer Lifetime Value
To give CAC meaning, you need to compare it to customer lifetime value (LTV). This is the total amount an individual customer is likely to spend on purchases from your business. LTV needs to be higher than CAC — and in the best case scenario, it will be significantly higher.
LTV will show if most of your customers make one-time purchases or if many remain loyal and make several repeat purchases. To an extent, this will depend on the type of products you offer, but aspects like customer service also have an influence.
8. Income Sources
By examining how much income you’re receiving from various sources, you can identify which sources are the most profitable. For instance, income per customer will show you which types of customers (in other words, which segments of your audience) bring in the highest revenue. This will give you insights into which activities would be best to pursue to grow your business.
9. Sales Opportunities
In addition to the customers you are able to convert, it’s worthwhile considering how many opportunities you’ve had for sales. Calculate how many qualified leads actually turn into customers and consider what you could do differently to turn more of these opportunities into sales.
10. Monthly Recurring Revenue
If you have a subscription-based business, it’s worth measuring monthly recurring revenue (MRR). This is because retaining customers, rather than gaining one-off purchases, is key to your growth. MRR is useful for projecting future revenue and showing investors that your product is having success with your target audience.
There are several types of MRR to measure, beyond simply how much revenue you bring in consistently each month. These include:
- New MRR — The amount attributed to new customers.
- Churn MRR — The amount of revenue lost from customers who cancel earlier the average customer lifespan.
- Expansion MRR — The additional amount from upgraded packages.
11. Sales Targets
You can turn the targets you set for individual sales reps or your sales department as a whole into a KPI by measuring either revenues or units sold in a particular period of time. Unlike many other KPIs, you’ll be measuring this in real time and you can use the metric as an incentive for better results. For this KPI to be effective, it’s important to set reasonable targets based on previous performance, otherwise you risk employee burnout.
12. Profitability Over Time
By looking at profitability over time, you’ll see what’s happening to your financial resources. This KPI involves using expenses and income over time to make a profit and loss report. You can use the findings to decide where you could cut costs (and whether this would be necessary at all), whether you need to increase prices, if you should be seeking more customers, and if you need more clients with higher LTVs.
13. Return on Equity
If your business has shareholders, return on equity (ROE) is an important KPI, as it shows both profitability and efficiency of your business. You calculate ROE by dividing net income by shareholder’s equity.
14. Current Ratio
If you want to measure the solvency of your business, a KPI to track is current ratio. This weighs your assets (for instance, accounts receivable) against liabilities (like accounts payable).
15. Traffic to Leads Ratio
Traffic as a metric is simple enough, but you need to figure out what you define as a lead for this KPI. This could be a user signing up for a free trial, requesting a callback from your sales team, or even downloading premium content. Any action that expresses an interest in your offerings turns a prospect into a lead.
16. Landing Page Conversions
The main place you collect leads is likely your landing pages. Although the average landing page conversion rate across all industries is 2.35 percent, you should be aiming for something much higher. Too many marketers neglect basic A/B testing, meaning their conversion rates could easily be much higher. The top 25 percent of businesses have a 5.31-percent landing page conversion rate and the very best have a rate of 11.45 percent or higher — this is what you should be aiming for.
17. Leads to Customers
Another way to use leads in a KPI is to measure how many leads convert to customers. By examining the different types of leads that become customers, you’ll also see what channels have the most qualified leads and what kind of nurturing is most effective. In addition, this KPI exemplifies why quality is much more important than quantity in your lead generation efforts.
18. Sales Closing Ratio
A slightly different KPI is sales closing ratio. This compares the number of quotes you sent to leads to the number of deals you closed. If your number of closed deals is too low, you need to strive toward attracting more qualified leads. You may also need to change your lead capture process to collect additional or more useful information about users to assess how qualified leads are early on.
19. Working Capital
Opportunities for growth may arise that you’re unable to take advantage of if you lack access to cash. Monitoring working capital tells you how much is available to your business, including through bank loans and money from friends or family.
20. Active Users
Finally, if you offer a subscription-based service, a KPI you should not neglect is active users. For business growth, this number needs to increase each month — although sometimes staying the same month to month may not be an issue, particularly if many customers are upgrading their plans. What you never want to see, though, is a decrease in active users. This indicates something is wrong with your offering and you need to take action to fix it.
Now you know what to measure, the next step is to act on your findings. Check out our business growth services for support meeting your goals.