The 5 Key Metrics Each Enterprise Must Observe

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The 5 Key Metrics Every Business Needs to Track

October
28, 2020

5 min read

The opinions expressed by the entrepreneur's contributors are their own.

Most business people have a heated, ongoing love affair with quantifiable metrics. This is because metrics can be used to objectively judge which direction you need to go with your team. You can track a variety of different metrics depending on what you're doing or want to find out. However, since most of us realistically don't have the time or resources to measure everything that is out there, starters should consider these key areas.

Related Topics: Meaningful Metrics: The KPIs Every Franchisee Should Monitor

1. Customer acquisition costs

Customer Acquisition Cost (CAC) is simply the total cost you spend making someone a buyer divided by the total number of buyers. For example, if you spend $ 100 and get five customers, the cost to acquire customers is $ 20.

Many companies look at CAC in terms of customer lifetime value (CLV or LTV). This is all of the revenue that you can expect from a customer throughout your relationship with them. Typically, you want the cost of attracting new customers to be lower than the CLV, otherwise you will either just break even (no growth) or, worse, lose money. Knowing the CAC to CLV ratio can give you an idea of ​​how much profit you are making in a given window of time, and it can prove that you need a shift in your marketing channels or other operations. Both are important for short-term and long-term goal setting.

2. Customer churn

Think of customer churn as the hot potato metric – it measures how many people you drop and stop buying. You can find this rate by dividing the number of customers you lost by the number of customers you had at the start of the specified period. So if you initially had 100 customers and lost 13, the churn rate would be 13 out of 100, or 13 percent.

To be clear, any business is going to lose customers. That's just competition and the reality of dynamic market demands. So you don't want to keep this metric at zero. You just want to make sure you don't lose customers faster than you can replace them. When you see that, it means there is a real problem within the company that you need to address. This could be a lack of good customer service, the fact that you switched to an inferior product material, an ongoing series of bad, publicly visible ethical decisions by your managers, or a series of things. However, high customer churn always requires an internal review or an advanced re-analysis of your target customers.

3. Net Promoter Score

Your Net Promoter Score (NPS) is really all about your customer's experience. Generally used, it can tell you how loyal people are to you and how they see your brand. More specifically, it can also tell you how much people like certain products, services, marketing materials, agents, and more.

To determine your net promoter score, ask your buyers how likely they are to recommend your business, product, or service to someone else. They rate you from 0 (wouldn't recommend you at all) to 10 (very likely to be recommended). Then separate critics (0 to 6) from passives (7 to 8) and promoters (9 to 10). Subtract the percentage of critics from the percentage of promoters for your final score. For example, if 5 percent of customers are critics and 85 percent are promoters, your NPS is 80.

Determining your NPS is important as there really is nothing like free word of mouth advertising. People are really more willing to buy after receiving good recommendations from others, especially when those recommendations are from family and friends. And the more people who are ready to reach out to recommend you, the less effort and resources you will have to invest in adding new customers to your group or reducing customer churn – and the greater your profits can be.

4. Employee net promoter score

This is essentially the same concept as NPS and is calculated the same way (subtract the percentage of critics from the percentage of promoters). You just apply it to your employees to see how satisfied they are with your company or a particular manager. This makes a huge difference when it comes to developing your company culture and overall team engagement. ENPS provides good insight into the changes to keep talent and serve customers well.

Related: Another way of thinking about achieving goals in the workplace

5. Customer satisfaction rating

This rating is known for short as CSAT and indicates the percentage of your total customers who are satisfied with your services or products. If you have 100 customers and 90 are satisfied, your CSAT is 90 percent. Like NPS, CSAT is easy to implement. It can help you overcome customer-company disruptions and respond quickly to problems so people keep buying and recommending you. Implementing it immediately after a transaction or interaction (e.g. through customer surveys or star ratings) is a great way to find out in real time what customers think of you. You can also determine it over time to help identify problems that arise.

You don't have to be overwhelmed by metrics. Start with such core fundamentals and then expand them based on your other unique business goals. These form your roadmap and enable you to move forward confidently. Consistently measure your final metrics and you'll lay the groundwork for really solid decisions across the board.