As a small business owner, it is exhilarating to see your business gaining more sales and customers by the day. While that is a good way for a venture to grow, I would suggest putting your business performance on a measurable roadmap. This is because 50% of small businesses fail within the first five years, and the major problem they face is cash flows.
Charting the performance of your business acts as a vital compass, offering tangible evidence of growth and operational efficacy. With each sale, purchase of an asset, or reinvestment of profits, you’re able to witness the dynamic progression of your venture through concrete data.
In this article, we’ll explore several metrics that help you measure business success for a small business owner. It will help you to understand where you are excelling and where you might need to adjust your strategies to stay on course for long-term growth and sustainability.
Business Metrics for Measuring Small Business Growth
Small businesses are different from larger organizations, and as such, the kind of metrics you need to track also slightly differ.
For a small business, the crucial metrics to monitor are often concentrated in several core operational areas:
- Sales and marketing
- Customer service and satisfaction
- Administration
- Finances
Let’s take a look at them in detail:
7 Metrics that every small business owner must track
I strongly advise every small business owner to keep track of the following essential metrics rigorously:
1. Revenue
Revenue is the total amount of money your business makes after selling its goods. There are three revenues you can calculate:
1. Total revenue = unit cost x number of units sold
2. Sales revenue = units sold x sales price
3. Net revenue = (unit cost – cost of goods sold) x number of units sold
You can measure your business performance by measuring your revenue against business expenses.
In addition to tracking your revenues, its also crucial to have a goal of revenue growth for your industry. I have a conslidated case study presented here.
2. Number of Customers Added
The number of customers added is the metric that indicates the growth in your customer base calculated over a specified period of time. It is useful to get software like Power BI or Tableau to do the math for you.
You can use the following handy formula to get a close estimate:
Number of Customers = Sales revenue / Average revenue per customer
You can use this formula each month and observe the difference to arrive at the figure of new customers added each month.
3. Unit sales
Unit sales is the metric that signifies the number of individual items your business has sold within a selected time period. The formula to calculate this is simple:
1. Unit sales = variable costs + fixed costs + net income
2. Unit sales = units sold x unit price
4. Profits
Profit – the word every business loves – is what you take home at the end of the day. There are several ways to calculate profit for small businesses since the operations are uncomplicated:
1. Profit = Selling price – cost price
2. Profit = Total revenue – total expenses
5. Gross margins
Gross margin is the revenue that your business keeps after expenses and labor. It is a key metric for measuring the operational efficiency and profitability of your small business. The formula is simple:
1. Absolute gross margin = Net sales – cost of goods sold
2. Percentage gross margin = Net sales – (COGS x (100/net sales))
6. Net Profit After Tax
Net profit after tax is the profit your business is left with after removing interest, operating expenses, and taxes for a specified period of time. You can calculate it thus:
PAT = Net profit before tax – total tax expense
The higher the PAT, the more profits you take home.
7. Amount Reinvested in The Business
This metric is an indicator of how well your business is reusing its profits because it signifies that your business is making additional income through investments. The formula is as follows:
Cash flow from operations – dividends = Net income + depreciation – decrease in fixed assets – increase in working capital
4 Metrics small business owners must track to measure success
The metrics discussed below are a reflection of how successful your small business is:
1. Market Share Growth
Market share is expressed as a percentage of the total sales that your business generates in the particular industry and niche of your operation.
For example, Google’s market share in the search engine industry was 83.49% – a stellar achievement. It reflects how many customers prefer your product over your competitors.
You can get an estimate using this formula:
Market share = Total revenue of your company / Total revenue of the industry
2. Working Capital Days
Working capital days is a metric that indicates the number of days it took your business to convert working capital into revenue. The company that is able to achieve revenue inflow in fewer days has a better chance of success.
3. Customer Satisfaction Metrics
There are several customer satisfaction metrics that indicate how happy customers are with your services, products, and brand overall:
1. Net promoter score = Percentage promoters – percentage detractors.
2. CSAT score = (Number of positive responses / Number of total responses) x 100
4. Customer Retention Metrics
Customer retention metrics indicate how well your business is catering to its existing customers. Several KPIs can be tracked for this insight:
1. Customer retention rate = (Customers at the end of a period – New customers)/Customers at the start of the period
2. Customer churn = (Customers at the start of the period – customers at the end of the year)/Customers at the start of the period
3. Customer lifetime value = customer value x average customer lifespan
Retaining an existing customer customer is much for profitable for a small business. You can read about the various strategies that small businesses use to retain customers here.
2 Internal Metrics that small business owners must track
Internal metrics serve as vital indicators for evaluating, comparing, and tracking the performance and efficacy of various business operations within an organization.
1. Performance Reviews of Sales & Marketing
If you are planning to grow your small business, it is important to take regular sales and marketing performance reviews. At this point, it is best to install a capable Customer Relationship Management solution that will provide you with the relevant metrics you need to track, such as:
- Number of leads contacted
- Lead to opportunity conversion rate
- Quote-to-close ratio
- Number of deals closed
- Sales cycle length
And many more. You should have periodic meetings with your stakeholders to ensure that your business is meeting its short-term goals and is aligned with its long-term ones.
2. Measuring Business Success through Category Team Performance
Category teams are the group of professionals in your business who manage brand strategy, sales promotions, advertising, and marketing for a product line. Periodic review with your category teams helps you understand how your business is performing on progressing towards its sales goals.
Viewed in the context of CAC (Customer Acquisition Cost) and CLV (Customer Lifetime Value), this exercise helps you understand how your marketing efforts are reducing CAC and improving CLV while at the same time helping boost sales.
Small business growth is more than just putting in the hard yards and going the extra mile – if you ask me, it is also about knowing your numbers well. The owner who knows where his next penny is coming from and is going will make smart growth decisions.
Drawing from the breadth of studies and research I have conducted, it has become clear to me that the cornerstones of small business resilience are grounded in rigorous financial management, robust customer engagement, and dynamic marketing approaches.
By focusing on these foundational aspects, small business owners can navigate the commercial seas with confidence—here’s to charting a course toward prosperity and success.