7 Key Factors Business Owners Should Be Tracking (but don’t)

Written by: Find My Company   Austin, Texas

Posted on: May 30, 2016


With everyone hoping that the 2016 will be a better year than last year – even if 2015 was a great year for you – it’s important that you base your measurement of success on the right factors.

If you want to get a clear idea of how well your business is doing, here are seven key factors you should be tracking. This will not only help you see how you are doing, it will help you identify the best opportunities to make big leaps in profit.

#1: Number of New Customers Each Month

The first thing you need to measure is the number of new customers you are bringing in every month. This is crucial because you always need to be feeding the funnel with new customers. Your customer base is one of your most valuable assets and the key to your success is a steady flow of customers coming in your door, then staying and building a relationship with your business.

One of the major benefits of bringing in new customers is that you’ll find the people who are newer to your customer base are going to be more responsive to your offers. If someone has been with your business for ten years and you’ve never sent them a customer newsletter or asked for a referral – even though they’ve been a good customer who buys from you on a regular basis – they’re not likely to respond to your new offers.

On the other hand, someone who joined your business more recently – after you started sending out newsletters – has always been asked for referrals and is more likely to respond.

So, the new blood in your business is very, very important. While it’s important to put a lot of effort into marketing to existing customers, you need to keep getting new blood into your business.

The first key to measure is how many new customers are you are bringing in a month and what’s your goal?

#2: Cost of Acquiring a New Customer

The second thing you need to know is what it costs you to acquire that new customer. This is also called cost of acquisition. Acquiring a client/customer is usually viewed as an expense but you need to shift your thinking to start seeing that new customer as an asset to you.

A lot of people look for the cheapest way to acquire new customers. But this is not the best place to be cheap. The way you dominate a market is to be able to spend more than your competition on acquiring customers. It might cost $50 or $150 to acquire a new customer. But if that customer is worth $500.00 in the first six months or $1,500 in the first year, what is that person worth to you?

If you count how many referrals they send to you and how much they spend with you on their own, they could easily be worth between $3,000 and $5,500 in a three to five year period.

Sometimes the value is higher and other times lower. But where else in the world can you spend $50 to $150 on acquiring an asset that can bring you back $500 to $1,500 in less than a year?

That’s a 7 to 10 times return on investment within a 12 month period. You can’t get that anywhere else. So, when you’re in the growth mode, you should be investing as much as you can in growing your existing business. Once you know the cost of acquisition, you understand how much money you’ll need to get to your new customer goal.

Then, as we’ll cover in a moment, when you start bumping up the referrals, the cost of acquisition gets cut in half. To start measuring your cost of acquisition, simply total your marketing expenses over the last month or three months. Then just divide that figure by the number of new customers.

So, if you brought in 50 new customers and spent $1,000, that’s 1,000 divided by 50 or just $20 per new customer. If that’s your cost of acquisition, you can be a lot more aggressive on a referral rewards program or sending out offers to your existing customer base. You could be a lot more aggressive with some other strategies. $20 per new customer is low, and I would suggest you’re either not marketing aggressively enough or you’ve got a great referral program going on.

As well as looking at the average cost of acquiring a customer, you should look at cost of acquisition by source. You need to know if it costs more via direct mail or the internet so you want to know the cost for each method.

#3: Referral Ratio

Many business owners say they’re getting a lot of referrals but often they don’t know exactly how many or they’ll say they’re getting about 10 a month, for example. Now, 10 a month might sound great to some and it might not be great to others so you need to figure it out from your own perspective.

If you’ve got 1,000 active customers and you’re getting 5 referrals a month, you’re looking at 60 referrals a year from an active customer base of 1,000.

That’s a 6% referral ratio. That’s not very good but can easily be improved. For example, here are some quick ideas that you can apply right away for improving the referral ratio.

  • Have a ‘Care to Share’ program in your office.
  • Send out a customer newsletter monthly.
  • Hold at least one customer appreciation event a year.

So, start by measuring your referral ratio. If you’re at 6% now, set a goal with the team to get to 15% or 20%. You’ll notice that new customer flow and cost of acquisition get affected positively by what we do with the referral ratio.

#4: Conversion Ratio

Your conversion ratio is the proportion of the customers who come in and buy from you. If it’s 50%, for example, that suggests your new customer experience is not working properly.

Your system should identify the problem for the customer, agitate the problem and then your team should adequately educate the customer so that you just wrap up the presentation and see how the customer wants to proceed. If product/service presentation is done properly, 80 to 90% of customers should be be purchasing from you.

#5: Sale-To-Cash Cycle

The next key factor you need to track is your “sale to cash cycle.” When you are doing a lot of marketing, you can be hitting your acquisition goals but the problem is that your overall cost of acquisition is going way up. Even if it’s only $50 to acquire a customer, if you double the amount of new customers, you could be spending an extra $6,000 a month acquiring new customers.

So clearly you need to know your referral ratio and your conversion ratio. But you also need to know your sale to cash cycle. This is the amount of time it takes between that person coming in as a new customer and you having positive cash flow in the bank.

If you’re spending $12,000 in marketing and its taking 60 days to get that money in your bank account, you go negative $12,000. If you do that two months in a row, you are negative $24,000. Then, what happens if it’s a 90 day cycle? What if it’s one of those cycles where you have a really bad conversion ratio?

You’re left hoping that in six months you’re going to have enough money in the bank. So you need to look at how much money you are putting in the bank after six months with every new customer who walks through your door.

For example, in July of every year, pull up all the clients or customers who bought with you in January. Have someone open up every person’s record (if you keep records on your clients/customers) and how much cash was actually paid. Then just create it as an Excel sheet with name, cash and treatment plan. You can do the same in January for new customers from the previous July.

This tells you how much money is actually in the bank account based on what was planned. Many business owners inflate these numbers unless they are actually holding themselves accountable.

#6: Percentage of Customers Keeping Regular Appointments

Another important metric is the number of customers keeping regular appointments. This is important as it will show you the reality of how customers are responding to you. It’s about accountability. It measures how well you’re doing at the front desk and how you’re doing at getting customers back in.

#7: Daily Production

Last but not least, you should be tracking how much each area of your business is producing per month and per day. You SHOULD do this for your core product/service. This can be a great leverage point for your business. If this is working well, it opens up a lot of opportunities. You should also be tracking how much you are producing per hour and how much each salesperson in your business is producing per hour. It’s really important for you to understand what your own time’s worth. And when you know what your salespeople are producing, you can look at what you need to do to bump their numbers up.

So, that gives you the seven key metrics you should be tracking in 2016. The key to all these metrics is that just making 5% or 10% improvements in a few of them leads to monumental overall growth in your business. By knowing exactly what to measure and how to improve the results, you could make sure this is your best year yet.

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