As a growing business, it is crucial to monitor and measure the factors that contribute to your success. Tracking the right metrics can provide valuable insights into the health and growth of your company. While revenue is often seen as the ultimate measure of success, there are other key metrics that play a significant role in driving growth. In this article, we will discuss the top 10 growth metrics that every growing business should track.
1. Customer Acquisition Cost (CAC)
Customer Acquisition Cost (CAC) is a fundamental metric for startups, as it measures the cost of acquiring new customers. It is essential to understand how much you are spending to acquire each customer and whether it is profitable in the long run. To calculate CAC, divide your marketing and sales expenses by the number of customers acquired during a specific period.
A lower CAC is desirable, but it is common for early-stage startups to have a higher CAC as they strive to gain visibility and attract their target customers. The goal is to lower your CAC over time to ensure profitability.
2. Retention Rate
While acquiring new customers is important, retaining existing customers is equally crucial. Retention rate measures the percentage of customers who continue to use your product or service over a given period. It is more cost-effective to retain customers than to acquire new ones, as loyal customers generate recurring revenue.
To calculate retention rate, subtract the number of new customers from the total number of customers and divide it by the number of customers at the start of the period. A higher retention rate indicates satisfied and engaged customers, which contributes to long-term success.
3. Customer Lifetime Revenue
Customer Lifetime Revenue (CLR) or Customer Lifetime Value (CLV) measures the total revenue generated by a customer over their entire relationship with your company. It is essential to understand the value each customer brings to your business.
To calculate CLR, multiply the average monthly revenue from a customer by the expected number of months they will stay with your company. CLR helps you assess the profitability of different customer segments and informs your marketing and sales strategies.
4. Viral Coefficient
Viral Coefficient measures the organic growth of your business through word-of-mouth referrals and social media sharing. A high viral coefficient indicates that your product or service is being shared and recommended by satisfied customers, leading to organic growth.
Calculating your viral coefficient involves tracking the number of invites sent to potential customers and the percentage of acquired customers through those invites. This metric helps you assess the effectiveness of your organic marketing efforts and the potential for future growth.
5. Return on Advertising (ROA)
Return on Advertising (ROA) measures the effectiveness of your advertising campaigns. It helps you determine the revenue generated from your advertising spending over a specific period.
To calculate ROA, divide the sales generated from your advertising by the total advertising expenses. A positive ROA indicates that your advertising efforts are generating a return on investment. It is important to track ROA to optimize your advertising budget and identify the most effective channels for promoting your business.
6. Referral Rate
Referral rate measures the percentage of customers who were referred to your business by existing customers. A higher referral rate indicates satisfied customers who are willing to recommend your product or service to others. Implementing a referral program can help incentivize customers to refer others, leading to lower customer acquisition costs and increased customer loyalty.
By tracking your referral rate, you can assess the success of your referral program and identify opportunities for improvement.
7. Monthly Recurring Revenue (MRR)
Monthly Recurring Revenue (MRR) is a vital metric for subscription-based businesses. It measures the predictable revenue generated from monthly subscriptions. MRR helps you understand the growth and stability of your revenue stream.
To determine your MRR, sum up the revenue you receive from paying customers each month. By tracking MRR, you can assess the health of your business, forecast future revenue, and make informed decisions about pricing, customer retention, and growth strategies.
8. Burn Rate
Burn Rate measures how quickly your startup is spending money. It helps you calculate your cash runway, which is the length of time your business can sustain its operations before running out of cash.
To find your Burn Rate, subtract the total amount of money you have at the end of a specific period from the total amount you had at the beginning. Monitoring your Burn Rate allows you to make informed decisions about cost-cutting measures, fundraising efforts, and investment priorities.
9. Cash Runway
Cash Runway measures how long your existing cash reserves will last based on your Burn Rate. It helps you understand the financial health of your business and plan for future expenses and investments.
Divide your cash balance by your monthly Burn Rate to get your Cash Runway. Monitoring your Cash Runway enables you to identify potential cash flow issues and make strategic decisions to ensure the long-term sustainability of your business.
10. Lead Velocity Rate (LVR)
Lead Velocity Rate (LVR) measures the month-over-month growth of high-quality leads in your sales pipeline. It indicates the potential for future growth and the conversion rate of leads into customers.
To calculate LVR, subtract the number of qualified leads from the previous month from the number of qualified leads in the current month. Divide this difference by the number of qualified leads from the previous month and multiply by 100 to get the LVR percentage.
Tracking LVR helps you understand the effectiveness of your lead generation efforts and predict future revenue growth.
A regular review of these 10 metrics is essential for keeping your business on track in order to achieve your goals. As the saying goes, “What gets measured gets improved,” and without consistent monitoring, important changes in your business could go unnoticed until it’s too late.
Daily check-ins help you catch small, granular changes that contribute to metric improvements. Weekly and monthly check-ins, on the other hand, give you a broader perspective, allowing you to understand the trajectory your business is on and make informed plans for the future.
By keeping abreast with these metrics, you gain valuable insights into how your business is performing, what areas are successful, what needs improvement, and where to focus your efforts next. Additionally, they can serve as a starting point for more in-depth customer research, helping you gain a deeper understanding of the context behind the metrics you’re analyzing. Overall, these metrics provide a clear and effective way to evaluate your business’s performance and guide your decision-making processes.