10 metrics to start with if you want to improve your business
“Measure is knowledge” as my Dutch friends say (“Meten is weten,” in the original version). Improvement cannot be without a baseline and comparisons to it.
Here is a list of insightful indicators you might follow. There is no need to track them all at the same time. Pick several on them, focus on them. Once improved, repeat the process with others.
#1 Sales Growth: this is the quickest way to know if the business is in good shape. Growth to last year, to the previous month, to the average. Growing in sales is the main focus a CEO should have.
#2 Average Monthly Sales: more than the number, the trend is especially important here. Make sure it’s going up, month after month. I like to have it based on the last 12 months. And I rather have it monthly recomputed. A trend going down for two months in a row should be your first signal; something terrible is happening.
#3 Sales from New: as businesses are not eternal, make sure your customer base is continuously evolving, and nurtured by new incoming resources. New can be various (totally depending on your structure): customers, products, distribution channels, etc.
#4 Customer Churn: as necessary it is to make more sales, it’s even more important to make sure customers are not flying away. Everyone knows the proverb saying, “Retaining a customer is hard. Acquiring a new customer is even harder”. Knowing your churn helps you to make sure new revenue is not wasted by the existing one leaving the boat.
#5 Overdue: cash is king. You know it. Credit collection is a difficult task for some companies. But remember: that money you still not have, you earned it! Keeping overdue under control prevents your business from unnecessary treasury issues.
#6 Percentage of late payments — even in the same idea, I like to assess the credit collection process. When some action has been performed to manage credit collection, it’s crucial to measure the impact it has over time. A downing trend is critical. Should it go up? (Re-)Act immediately.
#7 Customer Aged Balance: Customer relationship is hard to maintain. Especially when cash is concerned. Fast invoice management is critical:
- it costs you to track invoices: having unpaid invoice reduce your ability to invest. Moreover, think about the additional costs of having it paid: reminders, phone calls, emails, lawyers, and all the stress it can generate.
- It reinforces your professional standing: what’s that company claiming a payment about six months ago? Or they have sooo much cash not to claim the money (and I pay too much for sure), or there is shitty management over there (and I may have confidence issue).
# 8 End of Year Sales Forecast: Every pilot knows where he goes. In case of deviation, he fixes the direction immediately. What about you? I personally strong belief in forecasts. No need to be rocket science ! Start small, then refine it. A good start can be, let’s take what we already earned this year, and let’s imagine we are going to do the same results as last year for the remaining time.
#9 Customer Dependency: As people buy different shares to reduce the risk of their investment portfolio, the same principle applies to your business. The more your sales are split, the less impact the loss of a client has. Knowing the percentage of sales each of your customer represents allows you to focus on retaining the most important ones.
#10 Customer Lifetime Value: how worthy is a client on average? This information helps you to estimate the earnings you are going to make over time each time you sign a new customer. Put efforts to make the trend going up; the business will be healthier!
The measure is not everything. It’s only the start point. Once done, it is vital to track your actions and verify the impact it has on your business.
Thank you for reading!
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