5 KPI Metrics Every Small Business Owner Should Monitor
Posted By Dashboard Spy ~ 1st November 2011
Watch this excellent video to learn about the 5 metrics all small businesses need to monitor. CEOs need to monitor the following Key Performance Indicators regardless of the maturity of their business:
Cost per acquisition – CPA is measured in various ways, but the best way is to roll up all sales and marketing costs for the month and divide by the number of customers acquired that month. If your sales cycle is 6 months, then use the sales and marketing expense from six months ago as the numerator and use this month’s unit sales as the denominator.
Revenue per employee – We measure revenue per employee on a monthly basis, dividing total revenue by the number of employees and then multiplying by 12 months to get an annualized number. Tracking this figure each month has enabled us to make sound hiring decisions, manage our expenses, and be accountable to the labor investments we make.
Customer loyalty – What you want to know here is how referable your business is. When you’re likely to be referred, you get leverage on those marketing and sales dollars spent each month. Therefore, the higher the referability, the more you can invest in CPA.
Lifetime customer value – When you know how much a customer is worth to you over the life of the customer, your decision-making improves significantly. You also know how profitable and healthy your business model is, how effective tweaks in your model are and how to adjust as you grow.
This metric is a super-metric because it is comprised of two critically important drivers of the business model. LCV = Average Revenue Per User / Churn. So, you can increase your LCV by increasing the ARPU or by decreasing the churn. Play with this equation and it doesn’t take long to realize that churn rate is what makes or breaks a business model. Furthermore, slight reductions in churn can make massive improvements in LCV.
Usage. Every software company needs to know how its customers are using and adopting the software. There are those who feel otherwise, but I feel that any software company wanting to drive long-term value for its shareholders needs to drive usage. Usage is king. Everything else falls in line nicely when customers use the company’s software.
