By Ashley Preen
November 10, 2021
Even the young entrepreneur operating a lemonade stand knows that, when sales are up, business is doing well, and when they’re down, more marketing is needed. This metric of sales and gross income are known almost instinctively by anyone starting a business. That’s the whole point of business, right? To make money?
But “making money” is merely one aspect of a business’s operations, and dozens of other metrics must be monitored before that much-wanted cash exchanges hands.
For example, if your advertising and marketing metrics are down, it’s a given that the revenue won’t follow. Sometimes, “luck” appears. But luck isn’t good business. It shouldn’t be counted on. You’re far better off knowing the essential metrics and then working like mad to get those metrics moving up. The revenue will surely follow.
In this article, we’re going to look at all the essential business metrics to measure business success.
A metric is any value that is measured. Ideally, metrics should be measured in relation to an earlier value of that same metric. For example, this quarter’s sales versus last quarter’s sales.
It’s important to measure a metric in relation to an earlier value to know if you should do more of what you did before, or if you need to change something. If things are getting better, you’re doing the right things. If they’re not getting better—by which is meant that the metric has gone down—then you are either doing the wrong things or not doing enough of the right things.
It’s easy to get into micromanagement of business metrics and have metrics coming out of your ears—everything from minute financial ratios to how many cookies the sales team ate yesterday—but “over-measurement” of this sort only adds red tape and doesn’t actually result in any improvement in the business’s performance. It can actually slow it down.
The first rule of measuring business metrics is that they should be measured for the sake of improving overall business performance, not as merely an administrative exercise to have plenty of pretty charts to show at a board meeting.
A KPI is a “Key Performance Indicator”. It is a metric that indicates the overall success of the organization. In other words, it is one of the “really important” metrics and is used for setting objectives for performance.
KPIs vary from organisation to organisation. A social media website might have a KPI of “Number of Active Website Visitors” but a hardware store definitely wouldn’t. A hardware store might have a KPI more like “Number of Items Sold” or “Total Revenue”.
Let’s take a look at a handful of essential business metrics for small business success. As a small business, you don’t usually need to monitor more than this handful of metrics to ensure success.
This one doesn’t require much explanation. But it’s important to realise that simply chasing revenue is not the right move in a business. Revenue is an indicator of overall business health.
For example, if you have no product to sell, how can you make revenue? Well, you can’t. So, you need to monitor sub-metrics such as product quality, service quality, promotional campaigns, etc.
Net Income is the total revenue minus taxes and company expenses. It’s all great to have a total revenue of £20,000 for the month, but if you spent £25,000 in marketing to get that revenue, then your income is actually negative £5,000.
Sometimes, this is how it goes when one is starting out. And, when a business is struggling temporarily, no act is more vital than promoting, regardless of the cost. But it’s important to keep an eye on promotional costs as an ongoing expenditure. Going into excessive debt will only make success in the long term more difficult.
A good rule of thumb is to always keep the income higher than the expenses and taxes. This means that the company is slowly getting bigger and not falling into debt.
This is a crucial metric to monitor in a world that has suddenly gone online. For e-commerce companies, this could even be considered a KPI.
Ideally, website visitors should be organic. This means that the visitors came via search engines or social media, and not through paid advertising.
It takes time to build up organic traffic. It requires a great content strategy, well-written blog posts, and catchy social media campaigns. All of these could also be measured as metrics.
Then, when a visitor lands on your website, you can measure how much time they spend on each page, and whether or not they visit your contact page. These types of metrics can usually be gotten through website analytics software such as Google Analytics.
There are hundreds of online advertising metrics but you only need to keep your eye on a handful.
The average cost per click is determined by dividing the total amount spent on advertising by the total number of clicks obtained.
CPC = Total Spent on Clicks / Total Clicks
Depending on the advertising platform you’re using, an excessively high CPC could indicate a non-optimised advertising campaign. It could also just indicate highly competitive keywords.
Ad impressions are the number of times your ad was shown to people. This metric is most important in visual advertising, i.e., things like banner ads on a website. If your ad is not being shown to people, there is no way you will attain any brand awareness or website visitors.
But impressions are also relevant in search advertising, i.e., ads (usually text) that are shown to people when they look for something on a search engine such as Google.
The formula for CTR is:
CTR = Total Clicks / Total Impressions
This gives the number of times people clicked on your ad compared to the total times your ad was shown. The higher the CTR, the more effective your ad is. If you have a really low CTR, then you might need to tweak the ad so it more closely matches what people are searching for, or so that it attracts their attention better.
Every platform and industry sector has its own numbers for what it considers “good” CTR but it is rarely higher than 1% or 2%. So, if your CTR is 1% or 2%, you can usually pat yourself on the back.
To know for sure if your CTR is good or bad for a particular industry sector or platform, read the help pages of that advertising platform.
A “conversion” is when a visitor takes a predetermined action on your website that you consider valuable. This could be filling in a contact form, buying something, or spending a certain amount of time on your website.
The formula to determine conversion rate is:
Conversion Rate = Total Conversions / Total Clicks
As with CTR (Click-Through Rate), what is considered “good” or “bad” is different depending on the platform or industry sector. Check out the help documentation of whatever advertising platform you’re using to understand what is considered a good or poor conversion rate.
If your advertising is not directly bringing in revenue, it’s time to roll up your sleeves and figure out why. Advertising for the sake of advertising might be part of a major corporation’s larger “brand awareness” strategy, but most small UK businesses can’t afford such a strategy.
The formula for ROAS is:
ROAS = Total Revenue from Ads / Total Ad Spend
If the value is less than 1, then you are getting less revenue from your ads than you are spending on the ads. That means you are losing money.
To debug problems with ROAS, you can look at the quality of your ad—does the ad communicate clearly? Does it hit the right pain points for your target market? Is the wording aimed at the correct demographic?
You can also look at the ad’s targeting—are you advertising a product that is intended for a younger crowd, to an older market?
Finally, you can also look at the platform itself. Does your target market hang out on that platform? If they do, then do they actually buy from ads they see on that platform? For example, it is a very different target market that hangs out at LinkedIn than hangs out at TikTok.
The Win Rate metric’s formula is:
Win Rate = Won Opportunities / (Opportunities Won + Opportunities Lost)
An “opportunity” is another word for a “lead”.
The Win Rate can indicate many things. Ineffective sales training programs can lead to a weak win rate. But so can poor sales organisation. For example, if you don’t have a proper CRM at your business where each opportunity is tracked from beginning to end, follow-ups might be delayed and the lead loses interest. Or follow-ups are done too frequently, causing the lead to become irritated and leave. Having your sales funnel smoothly organised, which includes using a good CRM, is vital to increasing Win Rate.
This metric is a two-edged sword. Driving quota attainment without the appropriate sales training that must accompany it is foolish and will only lead to a high sales rep turnover.
Sales has one of the largest HR turnover metrics than any other profession. A large reason for this is the high pressure associated with sales. Blindly driving quotas without focusing on sales enablement is a surefire way to burn out sales reps and end up with a smaller, less effective team. If you really want to improve sales, build an effective sales training and coaching program that helps reps get better at what they do.
You’ve probably gathered by now that sales training is a crucial element of any business that wants to succeed. There are numerous sales training and enablement programs around, and it is well worth the time of any UK executive to look at the different options available. Some programs tend to be very long-winded. The best programs offer JIT (“Just in Time”) learning modules where sales reps can get the information they need when they need it.
This is usually done via a special sales training app on their phones.
These apps usually come with their own modules, but the best apps allow the sales manager to create his or her own training modules.
This extremely important metric can be an indicator of future sales. If Sales Training Modules are not being completed, then sales are likely to go down in the future.
Of course, if this metric is high but sales remain low, then the quality of the modules needs to be overhauled.
The longer it takes for sales reps to finish off a sales cycle, the fewer sales cycles they can complete in a given period. That means lost revenue.
Sales cycles can be speeded up by:
To calculate the average length of a sales cycle, take the total time from the moment the lead was first acquired to when the deal was closed successfully. Then divide that by the total number of successfully closed deals. The formula is:
Avg Length of Sales Cycle = Length of All Successfully Closed Cycles / Total Number of Successfully Closed Cycles
This is one of the most important metrics to measure. Many of the metrics we have already covered add up to this metric.
Leads can come from many sources—social media, advertising, word of mouth, direct contact. It is vital to measure all those sub-metrics to ensure you will have a steady stream of leads coming in.
Leads are the lifeblood of any organisation. Without leads, all of the later sales metrics fall flat. If your New Leads metric ever lags, quickly look at all the sub-metrics that add up to this one and handle them immediately.
Even for small businesses, social media metrics are vital to monitor. Social Media can be a powerful driver of traffic if it is done properly. It requires an excellent social media content strategy that is planned out several weeks in advance. It also requires people who can react to topical news and jump quickly on trends and generate interest.
When done properly, social media can generate a boom in the number of visitors your website receives.
One of the simplest social media metrics to measure is the number of posts per day or week. Each platform has its “sweet spot”. LinkedIn pros often recommend no more than one post a day, and sometimes not even on Friday, Saturday, and Sunday.
But some Twitter gurus suggest that tweets should be sent several times a day.
Posting blindly into the aether and hoping for the best won’t bring you sales. Your post needs to get views and engagement (likes and comments) for it to have an impact on your bottom line.
Every business and target market is different, so there is no silver bullet to getting that engagement. Ideally, you should hire someone who is au fait with that particular platform, and then get them to work out a strategy for it.
The number of followers you are getting on your various social media accounts is one of the most important metrics to measure your social media campaign’s effectiveness. New followers not only show that your posts are hitting the right spot, but they also mean you will have a much wider audience in the future if you ever want to run something more promotional.
If you run a newsletter, a similar metric to this one is newsletter subscribers.
Social Media is a tricky business. One can get all wrapped up in followers and engagement and forget the bottom line—how many people actually turned into leads and finally bought something from your company. The nebulous “brand awareness” might be great for Big Cos but it’s pretty useless for tiny businesses just trying to get some more sales.
This all comes under the heading of a Sales Funnel. Social Media should be fun, yes, but it’s the top of the funnel. And if you’re not getting any leads into that funnel from social media after a few months, despite other metrics looking good, then your social media campaign is not improving your business’s revenue, period.
There are tremendous amounts of business metrics available and it seems that new ones are being added every day. Try not to get too crazy about measuring metrics. Pick those most essential to your business, and that don’t take forever to measure. Spending half the week finding the numbers and plotting them on a chart instead of selling defeats the purpose of metrics.
The core aspect to understand is that, if the metric goes up compared to the same time last week or month, you’re doing something right. If it goes down, you’re either doing something wrong or failing to do something right. Find out which it is and handle it to get the metric rising again.
Total Revenue is a metric made of many, many sub-metrics. Focus on the sub-metrics, and the revenue takes care of itself.