Now…let’s sit down and be honest for one minute. Haven’t we made running our startups way too complicated over the years?
I mean software has made our lives so much easier in many ways. And in my opinion there has never been a better time to start- or run a business then in our current era.
Software applications are plug and play readily available to get any business idea on-air in literally no time.
Beautiful videos are shot, edited and shared within minutes through the power of AI. Any and all kinds of business deals are closed faster than ever through online video-conferencing.
Or keeping your books is simple through automation and a range of API connections available on speed dial. And- the list goes on and on.
Now, I am not saying that running a business is easy or simple.
No! I do say that we founders tend to over complicate the process.
Let’s talk about a great example: our metrics and data.
Nowadays we can distract endless streams of data from our systems and dashboards, that we really seem to get lost with the result that we forget what business is actually all about.
I already started my journey to help you simplify business by introducing to you the North Star Metric or…in other words. “The metrics that matter the most” will support you and your team with the necessary focus and clarity.
These are the metrics that help you actually grow your business. But.. more about that shortly.
What are the practical 5 elements that make up any “successful business?”
- Leads, new & active clients
- Profitable product stacks
- Sales & revenues
- Managing and controlling costs
- Processes, automations & efficiency
Now let’s dive a bit deeper and simplify why each of these elements are important.
1. You need a product or service that solves a big problem that is valued significantly by your target audience. In short they love to pay you and day and every day to solve it. (leads)
2. In order to deliver this big bang value to the world, you would need a team to wrap your offering into a scalable product (product)
3. To cope with the costs that come along with the production and delivery of this value you need customers and sales that helps your startup spit revenue. (managing cost & revenue)
4. And because you are hungry for change, impact and on a mission to deliver exponential value to the full world and aren’t disgusted by the thought of living a great lifestyle and delivering a return to your investors, you are in the game to make a profit as well. (process & efficiency).
5. To sustain your business, you’d need sustainability by offering a comprehensive product line, onboard regular new clients and keeping existing clients within your door to guarantee you are in business for the years to come. (product, managing cost, leads, new & active clients)
Are you with me? That this sounds like the right approach? Yes, well easy right?
Then shoot me. Why are so many founders, perhaps even you, tracking other and the least important metrics that do not really move the needle in your business?
Instead focus on 5 core-metrics and design your business activities around them.
I’ll promise you…when you track, master and analyse the five metrics that I’m about to show you, you will be on track in building a great business.
Ready? The first one..
Customer Acquisition Cost (CAC): the cost you make to onboard your paying customers.
Controlling customer acquisition cost allows you to estimate, plan and carve out marketing budgets, based on the amount of customers you desire and want in your business.
Designing and implementing activities that push these costs down will translate into improved efficiency and more, hopefully raving new customers.
Customer Lifetime Value (CLV): this is the monetary value that you receive from one customer as an exchange of using your product or service over a period of 6 to 12 months.
Simple: when your customer lifetime value exceeds your customer acquisition cost you don’t have a business.
If that is the case it requires you to evaluate your total offering or add additional products to your suite, used by a similar customer.
Churn Rate: the amount of customers that you lost LAST quarter, divided by the total customers that you STARTED with last quarter.
Monitoring and mastering this number will help you discover the startup activities that can reduce this number, so that you are on your way to sustain the revenue and business.
Total Revenue (R) & Revenue Per Team Member: this is the total monetary value of products that you sold in a time period of a month, quarter or year.
Divide your revenue by the total amount of team members and you land up with the revenue per team member. Superfluous to share, it’s your target to lift your revenue numbers up each and other month.
Finding the revenue per team member and hunting for methods to increase that number will translate into company efficiency. E.g you can consider to improve and automate processes by levaraging software.
Gross Profit Ratio: will help you determine the operational performance of the company. This number takes into account your revenue and your cost of goods sold (cogs).
Deduct your cogs from your revenue and you arrive at your gross profit. Dividing your gross profit through your revenue, multiplied by 100 and you have your gross profit ratio.
It’s your goal to design a variety of team activities around this number that will help you lower cost, grow revenue so your outcome will be a better profit ratio and eventually as well a better exit price.
Well here you have it, the 5 metrics to track and grow your business.
Don’t make the time consuming mistake to get lost in a dictionary of metrics that will move you instead of closer, further away from running a successful business.
When you believe this post has delivered value to you or can bring value to others, share it with the world.
I have set-up a library of interesting free downloadable content that will help you move the needle. Interested? Go check it out at www.thestartupchef.com.
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