Seven Metrics You Should Be Measuring To Ensure the Growth and Sustainability of Your Service Business
Do you want to ensure the success of your investment decisions? Are you searching for metrics that can assist you in keeping track of the progress of your business? If you are saying yes to these questions, then this guide is for you.
Focusing on your performance measurement systems can not only help your business track your investment decisions but can also assist in giving key information regarding the progress of the ongoing or future projects. These performance measurement systems play an integral role in communicating the present situation of a business. Plus, it can provide important information that you use to set the objectives of your business keeping in view all other factors. Growth, profitability and retention are closely linked to each other. And it is the performance metrics that give accurate information in optimizing profitability, growth as well as retention. Business metrics play a significant role in accessing the rate of success or failure of a business. They can not only show the progress of a business towards the short-term or long-term milestones but are also very helpful in tracking and monitoring cost management.
Today, we will be discussing the seven most crucial metrics or the key performance indicators that you must track. We will also throw light on some main points that must be considered at the time of setting your business goals. All these metrics can depict important issues that your service business is facing. Moreover, they can provide information that you can use to implement your business strategies for ensuring business growth. Before getting into seven business metrics that ensure the profitability and sustainability of your business, we will discuss a little bit about the business metrics.
What exactly are business metrics?
Business metrics depict a measurable value that is used to assess the success or failure of a business processes. One thing that you should keep in mind is that business metrics and the key performance indicators are not the same. They are different in various aspects. Companies use business metrics to target all areas of business in order to track the performance. On the other hand, key performance indicators or KPI are used to track the performance of certain business areas. Business metrics that you may track to ensure the growth of your service business may include sales, customer retention and loyalty, monthly profits and loss, productivity and financial ratios, size of inventory and much more. But here, we will focus on seven key business metrics that may help your service business to grow and sustain in the market in a better way so, let’s get started!
What are the 7 metrics that may ensure the growth and sustainability of your service business?
1. Monthly Recurring Revenue
Without any doubt, we can say that one thing that can hold back a service business is the uncertainty. Yes! You read it right! It is the uncertainty whether, in the cash flow of the business or the overall revenue, it can affect a business. If you are simply making future plans or you are creating a marketing strategy or making investments in equipment, it is the uncertainty that can come at any point and you have to handle it. To deal with such fluctuations, you need to consider a business metric that can assist you to structure your business by taking advantage of recurring revenue. This business metric is Monthly recurring revenue.
Monthly recurring revenue, also known as MRR, is one of the most important business metrics that represent the amount of recurring revenue that business, either small or large-scale, generates. This metric can help you to measure the performance of your field team as it can depict how much income is generated each month. The best thing is this business metric can not only measure the revenue trends over the month but can also reflect the growth rate as well as customer retention. In addition, it shows that whether your spending is sustainable or not, ensuring the overall growth and sustainability of your service business. In short, it is the monthly recurring revenue that can give a clear visualization of whether the revenue of your business is growing or shrinking as time passes, helping to guide decision making process.
2. Customer Churn
Do you feel that your customers are leaving your business every month? If so, then you need to understand that something is wrong with your offering. At this point, a popular customer retention metric can play a significant role. It is Customer Churn. This metric shows the percentage of customers who stop doing business with your company. If the percentage is high, it means that your product or service has failed to meet the expectations of customers, making them leave the business. By calculating your customer churn rate, you can identify the problem beforehand and prevent your business to make a costly mistake in the end. The best solution is to talk to your customers to get to know what problem they are facing.
3. Customer Lifetime Value
If you want to track the efficiency of your business to bring in high-value customers, you need to measure customer lifetime value (CLTV). Customer Lifetime Value measures the revenue that a single customer can reasonably bring to the business. As it measures the net profit or revenue so we can say that the customer lifetime value will be higher if a customer continues to purchase from a business for a long time.
For a service business, this metric is very important as it costs less to retain the existing customers rather than getting new ones. So it can help a business to develop strategies that not only get new customers but retain the existing customers so that they can become long-term customers, keeping in view the profit margin. By measuring the customer lifetime value, you can get to know those segments of your customers that can prove to be the most valuable for your business.
4. Operating Productivity
Along with measuring the revenue that each customer is generating to the business, it is crucial to measure the operating productivity of your field staff. If the process of tracking the operating productivity is skipped, then how you can know the inner workings of your business? The employees are always said to be the best asset for business, either small or large-scale. So, this metric can prove to be the game-changer for your business as you can understand the rate of productivity of your staff. Moreover, you can also come to know whether the field team of your business is contented in doing work or now. If not, you can develop some good methods by which you can monitor productivity whether it is sales productivity, support productivity or marketing productivity.
5. Profit over Revenue
If you are looking for the right ingredients that can assist your service business to achieve success, then it is necessary to consider the profit over revenue business metric. Profit over Revenue is a key performance metric that may be very fruitful for your service business. Most businesses only focus on the number of sales they are generating against each customer but they ignore how much profit is generated by the business in a certain time period. At this point, the profit over revenue business metric plays a key role.
Imagine your business is constantly increasing the number of sales as more and more customers are entering in your customer base. But what if at the end of the year, your profit or loss statement is still in the negative? For the growth and sustainability of your business, there has to be profit. To measure how much profit your business is generating, you need to make this metric a part of your business so you can forecast how you can cut the costs if the business is facing loss.
6. Customer Acquisition Cost
Cost of Customer Acquisition, also known as CAC, refers to the amount that a business has spent to acquire new customers. This cost may relate to advertising, marketing, cost of hiring contractors, the salary of the field team or the cost of software, etc. It can assist you to know whether you are spending more or less than the profit that you are generating. If the gap between the cost of acquiring customers and the revenue each customer is generating is high, the greater the overall profit of the company is.
7. Digital Funnel
Digital funnel is an important business metric that depicts the number of website visitors and customers along with how many leads your website is generating in a certain time period. It will assist you to understand which part of your marketing system needs improvement. Calculating the digital funnel is mandatory because most of the website visitors can actually become a part of your customer base, helping to increase revenue and sales volume ultimately.
Business metrics are very crucial in measuring the overall performance of a business. They give a true picture of various areas of a business so that you can get to know whether each area or department is working well or not. If a certain area is lacking behind due to certain reasons, the business metrics may inform you the key reason so you can be proactive in making further decisions, ensuring the long-term sustainability as well as the growth of a business. Want to measure the effectiveness of the efforts that you put in your business? If so, then you need to use all the above-mentioned metrics so you can enhance the value of your business as an investment. So, what are you waiting for now? If you want to have a comprehensive and deep view of how your service business is performing, you can select any of the above key metrics!
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