How do you measure your business’ performance? How do you know your business is healthy? Are you using the right metrics to measure business growth? If you want answers to these questions, you should read on.
If you’re in the business of growing your company, it’s important to know how. You need to be able to measure whether or not your business is growing at a rate that will allow you to continue operating and growing for years to come. But how do you know if your revenue and profit levels are increasing?
This can be a tricky question since there are many factors at play when evaluating growth rates—such as competition from other companies and changing market conditions—but we’ll try our best here!
Cash flow is important as it largely helps in determining how solvent a business will be in the future. Cash is the life of any business, so it is important to track your cash flow with income and expenses in mind. Making huge revenue in terms of sales of products and services does not necessarily mean that the business is profitable.
While your business may be making a lot of revenue, it might be making huge expenses as well that might result in an overall loss when compared to your financial statement. It is important to look at what you have left after you have removed all expenses. What is left indicates how well your business is performing.
Profitability is the ratio of net income to total revenues. Profitability is a key measure of how well a company is managing its costs, and it can be used as an indicator of future growth.
You can calculate profitability and measure business growth by subtracting all operating expenses from your gross profit (or product sales) and dividing that number by the sum of all your operating expenses and sales over a period of time:
- Profitability = Net Income/Total Revenues
- Note: This formula does not include any taxes or interest payments that may have been paid during this period; however, if you know what percentage would be attributed to taxes and interest payment(s), you can add those figures into the calculation instead.
Cost of customer acquisition
Another thing you should consider to measure business growth is how much you spend acquiring new customers over time. Small businesses make sales forecasts that need to be met. They find the customers and persuade them to buy their product or use their service.
The associated cost of finding customers over a given period is the cost of customer acquisition. Usually, customer acquisition is done through marketing and advertising.
Customer acquisition costs are derived by dividing total acquisition expenses by the total number of new customers over a given period.
Customer loyalty and retention
Customer loyalty and retention are key metrics to measure business growth. Loyal customers are more profitable than new customers, so it’s critical that you know how many of your existing customers will stay with you over time.
Retaining customers is important for businesses as it is less expensive to acquire new customers. To achieve the growth you have to work towards making your customers happy in order for them to keep coming back. You can put processes in place that will help you with customer retention.
The best way to determine customer loyalty is by asking them at each stage in their relationship with your company.
For example, if a customer has been using your product for 3 months and then decides he wants another one, ask him why he wants another one and what factors influenced his decision (e.g., price).
The result should be an understanding of why people keep coming back for more—and how much value they get from using the product or service on a daily basis.
If there are low levels of retention among existing clients (or no repeat purchases), then this indicates areas where improvements could be made so that new clients feel more welcome into the fold as well!
Employee satisfaction and retention
Employee satisfaction and retention are two important metrics to measure business growth. You can use these metrics to determine whether your employees are happy with the company and if they’d be willing to stay with your company long-term.
It’s important that you understand what employee satisfaction means before measuring it: What does “satisfied” look like?
In general, an employee who is satisfied will have high morale (they enjoy their job), feel challenged in their role, have good relationships with coworkers/supervisors/leadership team members, etc.
When measuring employee satisfaction, consider how much time an employee spends at work each day—does he or she arrive early every morning? Does he or she take lunch breaks regularly? Are there opportunities for growth within the organization (training classes)? If not, this may indicate some problems within the work environment itself!
You can make use of the productivity ratio to determine how well each department of the business is performing.
When you have these sixth metrics in place, it’s time to start thinking about the next step—growing your business. By engaging your employees, measuring key performance indicators, and prioritizing growth, you can ensure that your business is always moving forward. This will help ensure that you’re able to achieve great things with minimal effort over time!