It’s no great secret that one of the keys to running a successful business is keeping track of your performance. If you don’t know how your business is performing, then it becomes practically impossible to make effective strategic decisions. In this article you’re going to learn four crucial key performance indicators (KPIs) that will help you make your start up more profitable:
- Lifetime Value – One of the most important key performance indicators for any start up or small business is lifetime value (also known as lifetime value per customer or LTV). This simple KPI measures how much the average customer will spend on your products or services. In other words, how much is each new customer worth to your business? This tool can help you work out your LTV effectively.
- Customer Acquisition Cost – This is one of the most crucial KPI metrics during the start-up phase of your business. You need customers to succeed, but in order to get those customers you’ll need to spend money on marketing and advertising. You can work out your CAC by dividing the cost of your marketing efforts by the number of customers you have. If your customer acquisition cost is too high, then it will be a struggle to reach profitability. In particular, watch out for a situation where your customer acquisition cost is higher than the lifetime value of your customers. If this occurs, then you need to take swift action to either lower your CAC or increase your LTV.
- Conversion Rate – If your business model, such as providing a service, requires you to get clients, then conversion rate is another KPI that is important to monitor. This KPI is usually measured as the number of leads you try to reach versus the amount of paying customers who sign up. For example, if you sent out 100 letters to local businesses that advertise your service and you got 5 responses to buy your service, then that would result in a conversion rate of 5%. Conversion rate is also easily measured if you sell products or services on a website; optimizing for better conversions is one of the most effective strategies for increasing the income of your business quickly.
- Revenue – For any start up business (or established enterprise for that matter) revenue is probably going to be the most important key performance indicator. Is your start up actually making any money? If not, then you need to fix this ASAP because something is wrong with your business model. You might need to add new products or services to your line up that provide a good
It’s not a difficult process to establish effective KPIs for your business. This is an essential step you need to take, as without having those performance indicators it will become all-but-impossible to monitor progress and ensure your business is headed in the right direction. Use the example KPIs you have learned today and you’ll be well on your way to more actionable data and insights.