Businesses

9 Key Business Metrics to Keep an Eye on in 2018

You swim in a sea of data – but which key business metrics matter the most in 2018?

key business metrics to measure

 

As a manager, business owner, or entrepreneur, you know you can’t keep track of it all.

You need to keep your finger on your company’s pulse—quickly—by only paying attention to the most pertinent business success metrics.

The key performance indicators (KPIs) you choose should closely match your goals for 2018.

Of course, your goals for some of the items on this list should say, “We’re doing well; keep this statistic at its current level.” Certainly, don’t try to improve every metric you can think of.

Sit down with this list, gather up the numbers you need to determine each, and assess your 2017 figures.

Determine which of these items you’ve already mastered; commit to regularly checking that they stay that way.

Next, choose a few weak KPIs to shore up over the year. Set regular targets for improvement. Pay attention to your managers’ progress in addressing these issues.

Keep a close eye on these figures; don’t wait for a disaster to remind you of your weak places. Make these issues (and the people who fix them for you) your very best friends.

Last, do the same for your strengths. Surely, you’ve exceeded expectations (and market norms) in at least one area of your business. Make a plan to build on your successes by determining periodic goal/tracking/analysis cycles.

 

What gets measured gets managed.

William Thomson (Lord Kelvin)

 

9 Key Business Metrics to Keep an Eye on in 2018

Let’s have some fun with this.

In this article, let’s suppose you own and manage a lima bean soda factory.

Remarkably, you’ve built a thriving business around vegetable-flavored fizzy drinks.

You’ve leveraged people’s conflicting desires for sugary beverages and health foods with one breakthrough product: Meenie Greenie.

Now, how should you keep track of your growing business?

You’re long past the squishing-beans-by-hand phase. You’ve hired a staff to help you with the vast array of tasks that add up to sodas in the hands of happy customers.

  • In 2018, what data should you track?

You only have so much time and attention. You can’t keep track of every bean and every bubble.

  • How can you be sure you’re looking at the key business metrics for managing growth – and ignoring all the time wasters?

Scan through this list, find the area of your business you want to focus on, and dig in.

You can consume this article in any order. Skip around and choose from the key business metrics that suit your 2018 goals.

However, be sure to read the headings for all these categories. Just because you want to focus on a few vital KPIs in 2018 doesn’t mean you can ignore the others.

However, with the right statistics and a little simple math (I’ll walk you through it), you can get a solid picture of your business’ health.

So, let’s get started!

Key Business Metrics for Cash Flow

1) Working Capital

You must know the amount of working capital you have on hand at all times. You and your accounting team can use this number to measure your short-term financial prospects and estimate efficiency.

To calculate Working Capital, you will need your Current Assets (CA) and Current Liabilities (CL) figures.

Let’s say you own some big wooden hammers for smashing lima beans, some bottling equipment, bags and bags of lima beans, and a warehouse full of CO2 canisters. You have $5,000 in the bank.

In total, these assets equal $15,000. You have certain liabilities, such as a business loan, a mortgage on your workshop, etc. Let’s say your liabilities equal $20,000. Your Working capital equals -$5,000:

WC [-$5,000] = CA [$15,000] – CL [$20,000]

It’s time to convert that product in your warehouse into profits and get your business into the black.

However, positive working capital isn’t always a good thing, either. It can signal that you aren’t reinvesting your capital in your business (or have an excess of inventory).

2) Burn Rate

Quite simply, this metric represents how quickly your company is losing money. In accounting terms, Burn Rates are the mathematical opposite of profits – negative profits.

Startup owners and managers, in particular, must pay strict attention to Burn Rate. Don’t get the two varieties of this metric confused: Gross Burn Rate (GBR) simply means your total costs; Net Burn Rate (NBR) refers to GBR minus revenues.

Let’s look back to the early days of Meenie Greenie, when all you had were some big hammers and some big dreams. You spent $500 a month (your GBR) on beans, bottles, lids, carbonation, etc. You made $200 in lima bean soda sales each month (your Revenues).

NBR = GBR [$500] – Revenues [$200]

At this point in your business’ growth, you were burning $300 per month. Luckily, demand grew as more and more people tried—and loved—your lima bean sodas.

3) Runway

I list this derivative of Burn Rate among my Key Business Metrics because it keeps you aware of an even scarier fact: how long until your company goes broke.

Suppose that back in the early days of Meenie Greenie, you could afford to lose $300 per month – but not forever. Your friends, who loved your initial small-batch versions of this lima bean beverage, pitched in $1,200.

So, how long until you run out of cash and have to start liquidating assets (like those giant hammers)?

Divide your Cash Reserves by your Burn Rate to determine your Runway. This new figure represents how much healthy time your company has left:

Runway [4 months] = Cash Reserves [$1,200] / Burn Rate [$300/mo]

You have four months to increase your profits to the $500/mo level before you need to borrow more money, fund your business out-of-pocket, or ask your friends/family for more cash.

Remember, you can use your runway to estimate a Zero Cash Date, exactly four months from the day you ran these figures. Mark this day in red – and celebrate when you sail past it, still in the black.

Key Business Metrics for Marketing

4) Customer Acquisition Cost

As businesses do more and more of their marketing online, managers increasingly rely on this metric.

Today’s companies can target and track consumers as they move through sales funnels from prospects to loyal customers. With this information, you can easily calculate Customer Acquisition Cost (CAC) from your Marketing Cost (MC) and number of New Customers (NC) for a given time period (P).

CAC = (MC/P) / (NC/P)

or, more simply:

CAC = MC/NC

Good news!

As long as you select data from the same time period, you don’t have to include the duration of the period you’re analyzing in your calculations.

Simply divide your total marketing cost for a certain period by the number of new customers you attracted during that same period.

Let’s say you spent $10,000 acquiring 1,250 new Meenie Greenie drinkers in 2017. Your Customer Acquisition Cost for 2017 equals $8.

CAC [$8]= (Marketing Cost [$10,000]) / (New Customers [1,250])

5) Conversion Rate Optimization: Split Testing Numbers

Even the world’s best marketing strategists don’t know for sure the direction consumer behavior will trend next week – or next year. Until you learn how a marketing effort works in the real world, it’s all just speculation.

Fortunately, marketers have a simple and incredibly powerful tool at their disposal: split testing or A/B testing.

Your job, as a manager, is to ensure your marketing team regularly split tests your marketing materials (especially your paid advertisements).

Nothing shrinks a marketing budget like cutting out poorly-performing ads and focusing your resources on the best.

Here’s how it works: Try two virtually-identical variations of the same ad (or website or landing page), with only one difference. This could be the positioning of a Call-to-Action button on a page or a different fashion model drinking the same bottle of soda in the same pose.

If possible, ask your marketing team for a list of split testing percentages for every ad campaign.

If you have a massive marketing department, spot check them on a regular basis.) Simply point at an element on a page and ask, “When was the last time we split tested this?” If you keep your people on their toes, you won’t waste money on poorly-converting ads.

Especially if you rely heavily on internet marketing, consider many other key business metrics like Website Brand Engagement, Social Media Traffic, Landing Page/Lead-to-Client Conversion Rates, Overall Website Traffic, Your Traffic Source Balance, and Qualified Leads per Month.

Of course, you’ll also want to monitor the ROI on your Inbound Marketing infrastructure.

Key Business Metrics for Operations

6) Operational Efficiency

Compare your Sales, General, and Admin expenses (SGA) to Sales to measure Operational Efficiency (OE). Let’s say you currently spend $5,000 per month on SGA items and sell $20,000 worth of Meenie Greenies.

            OE [25%] = SGA [$5,000] / Sales [$20,000]

Research other businesses in your niche to determine if this figure is too high, too low, or just right. You may need to optimize costs, review your processes/systems, and remove redundancies from your operations.

Also, always pay close attention to your Employee Happiness metrics. “Soft numbers” like Worker Satisfaction also qualify as key business metrics. Your business is only as good as the people who make it work. Be sure to attract and keep the best talent in your industry!

Key Business Metrics for Sales

7) Gross Margins

Remember to keep an eye on your margins. Understand what other businesses in your industry consider appropriate profit margins.

Some companies, from Walmart to Hindustan Unilever, may have success delivering low-cost goods at astoundingly high volumes. However, your company probably doesn’t fit into this category.

Even if you don’t sell boutique, local sodas like my imaginary Meenie Greenie business does, you likely rely on branding and emotional cache to sell your products and services.

8) Churn Rate

  • Do you keep the customers you attract?
  • Do you nurture and maintain brand loyalty?

Measure your (Customer) Churn Rate to assess your customer retention. An integral part of startup financial models, these key business metrics can make or break your longevity.

For example, let’s say your Meenie Greenie company attracts many clients but doesn’t get much return business. Many people try this beverage, spit it out, and get on with their lives. However, you run a thriving business anyway because you rely on a few rabid fans who order lima bean sodas by the truckload.

You may want to incentivize customers to stick with your brand.

Consider framing your “difficult-to-drink” beverage as a challenge. Just think of how many people drink wheatgrass shots, fish oil, and apple cider vinegar in the hope of improving their health. If you present your Meenie Greenies as “mean to the tongue and nice to the belly,” you could see an improvement in Churn Rate.

To calculate Customer Churn, you need to know how many customers you’ve lost/gained (∆C) over a certain period. You’ll also need your total customer volume (C) figures for that time.

Customer Churn = ∆C / ∆T x C

Let’s say you 20 people left your Meenie Greenie monthly bulk shipping program over the last 2 months. However, you gained 30 new subscribers. Your Change in Customer Volume (∆C) equals 10. But, what does this number mean? To add context, you need to look at your Average Customer Volume over that time. Let’s say 50 people per month typically participate in this program. In this case, your Customer Churn equals 10%:

Customer Churn [10%] = ∆C [10] / ∆T [2 mo] x C [50]

Compare your program’s churn rate to others in your (or similar) niches to determine its financial health.

Click here to read about financial models and the various kinds of churn. You need to keep a close eye on these key metrics, especially if you run a subscription business. Customer Churn is just the beginning!

Regardless of your business model, you’ll also want to look at other key business metrics for like Sales Revenue, Net/Gross Profit Margins, Days Sales Outstanding, Year-to-Date Sales Growth, Net Promoter Score, and Customer Retention.

Key Business Metrics for Time-Use

9) Most-Productive Hours

When designing work schedules and considering flex-time options for your employees, you must have the right productivity data.

One of the key business metrics for maintaining peak efficiency, Most-Productive Hours involves some managerial work – but pays off very handsomely.

Track your employees’ work volume with a productivity measure that best suits your company. For these figures to have relevance, you need the best, most-concrete metrics. For workers in our hypothetical soda business, this could mean new sales per week, leads generated, or simply the number of beans smashed by big wooden hammers.

Remember, when managing your team’s time use make sure to consider other key business metrics like face time and effort analytics.

Use Toggl’s time-tracking app to manage employee time-use without wasting time on the process. You can create work hour reports in seconds and easily manage payroll (especially with multiple clients). Toggl’s 85+ integrations with platforms like Slack, Trello, and Gmail make it fast and easy to know how your people spend their work hours – and stay on top of these key business metrics!

By On January 15, 2018

  1. […] For a more in-depth discussion of customer acquisition cost, check out our article on key business metrics. […]