Sales and Marketing - Jen Jordan
|Jen Jordan brings a wealth of life and leadership experiences to her writing. After 10 years creating a variety of content for a nonprofit, Jen decided to establish her own writing business. She specializes in creating high quality blog and website content for small businesses. When she's not writing, Jen is a competitive triathlete with a goal of completing a triathlon in all 50 states.|
Essential Metrics for Small Business Success
We’ve often discussed the importance of SMART goals and KPIs to organize and track your operations. Metrics like sales revenue and net profit are standard and widely used by small businesses. Other metrics centered around understanding your customers and their buying behaviors are crucial.
Metrics for Tracking Leads:
New leads are essential for any business. These potential customers are new subscribers to your email, visited your establishment to look, or engaged with your website. Calculating how many leads become customers is a metric that helps you evaluate how effective your process is.
To calculate theLead Conversion Rate, take the (Number of leads / Total number of visitors) x 100%
The Lead-to-Sale Conversion Ratewill help you understand your customer’s journey from discovering your business to purchasing.This metric reveals how effective your business is in converting potential customers into actual customers.
To calculate theLead-to-Sale Conversion Rate, take the (converted leads / total leads) x 100%.
To determine how much each conversion costs your business, divide the total cost of your advertising and marketing by the number of conversions. ThisCost-Per-Conversionmetric will help you determine the most cost-effective marketing strategy and create quality leads.
Customer Data Metrics for Small Businesses:
TheCustomer Acquisition Cost(CAC) reveals how much your small business spends to acquire each customer. This information is essential, as your goal is to keep your acquisition costs low.
To calculate your CAC, take your total marketing budget in a specific channel (website, Instagram, events, etc.) and divide it by the number of new customers added via that channel over a particular period.
Assessing how long you keep customers can also be a helpful metric for your small business. TheCustomer Lifetime Value(CLV) helps you understand the average financial value of each customer and how long your customers typically remain engaged with your business.
There are several ways to calculate your CLV to obtain different metrics. To keep it simple and set a metric baseline, you can take an average based on your ideal customer persona.
Determine how often a customer will visit your business or website and how much they spend. Then, you want to know how long they will be a customer.
Calculate your CLV by determining the average amount each customer spends per year with your business, multiplied by the number of years you expect them to be a customer.
So, a customer who comes in twice a month and spends $25.00 each visit, over the span of five years will be worth $3000.00 to your small business. (25 x 24 x 5 = 3,000)
This information helps you determine how many customers your business will need, how frequently you need them to visit, and a sales goal per customer.
Here is the metric no business owner likes to talk about - Customer Churn. It helps to know the average customer churn rate for your industry. For instance, retail has a churn rate of about 27%, meaning that they lose about 27% of their customers each year.
The churn rate will allow you to determine if you are losing too many customers within a specific period.
To calculate your churn rate, subtract the total number of customers you have at the end of a month from the number of customers you began the month with. Then divide that figure by the number of customers you had at the beginning of the month.
Example: 2,000 customers to start - 1,500 customers at the end of the month = 500. 500 / 2,000 = 25% as a monthly churn rate.
Now that you’ve examined your leads and better understand the behaviors of your customers, let’s look at two other metrics that will help you plan.
Your small business’sSales Growth Rateis a solid metric to chart the direction things are headed.
For this metric, take your current period sales and subtract your last period sales (monthly, quarterly, etc.). Then, take that figure, divide it by the previous period’s sales, and multiply that by 100.
If a business has 250,000 in monthly sales this period and had 200,000 last period, this leaves 50,000 as our first figure. We then take the 50,000 / 200,000 x 100 to arrive at 25%.
The final metric is one where we can make qualitative data into quantitative data for a metric. TheNet Promoter Score(NPS) is one metric every small business should track. It measures the loyalty, enthusiasm, and satisfaction customers have for your business. In a marketing world where influencers and complimentary reviews steer consumer behavior, you shouldn’t ignore this metric.
You simply have your customers rate your small business on a scale of 1-10. A score between 0-6 means that person is a distractor who can harm your business. A score of 7-8 means the customer is neutral. While they aren’t going to hurt your brand, they aren’t helping it either. It takes a score of 9-10 for a net promoter ranking.
Once you have your surveys, sort them into the three categories. Take your percentage of promoters and subtract your percentage of distractors to obtain your net promoter score.
This score can range from a negative figure to a positive number. Bain & Company, the creators of the NPS metric feel that anything over 0 is good. A figure above 20 is very good, and one above 50 is fantastic.
Using these valuable metrics will help you develop KPIs that work for your small business. Charting these key metrics will help you plan, adjust your marketing and operational strategies, and spot problems before they develop further. In turn, this will boost your bottom line.