Growth Metrics for Businesses: Unlocking Success
Measuring business growth is essential for any organization aiming to thrive in today’s competitive market. Without a clear understanding of how your business is growing, it becomes challenging to make strategic decisions that drive success. In this article, we will explore the importance of measuring business growth, provide an overview of key growth metrics, and discuss how these metrics can significantly influence decision-making.
Customer demands are constantly evolving, making it challenging for 63% of businesses to understand what they want and appreciate. In fact, 61% of businesses find it challenging to change directions in response.
Users today expect a lot from companies—from quick resolution to their complaints and from data protection to the ability to access their favorite brands via their preferred channels. Aligning your efforts with such dynamic needs requires you to track and measure key growth metrics constantly.
But wait. What are these growth metrics? How do you create them? How do you measure them? Which metrics are worth tracking? Let’s find out.
What Are Growth Metrics?
A by-product of the digital era, growth metrics are the performance indicators of your business in terms of revenue, acquisition, and retention. When customers interact with your business online, they leave a trail of information.
For example, your potential customers might have discovered your brand via email. They must have checked your website, seen paid ads, and spoken to the sales team before finally purchasing. All the data generated from these touchpoints is a goldmine of insights into customer behavior and preferences.
But there’s a catch. Data isn’t accessible to teams, and most departments work in data silos.
A data silo is no good, especially when tracking growth metrics. It is imperative to consolidate and democratize data across the company in real time. Equipped with such a consolidated view, you can track growth metrics relevant to your business and focus your efforts on what works best for you.
Importance of Measuring Business Growth
Tracking and analyzing business growth metrics allows you to gauge the effectiveness of your strategies, identify areas for improvement, and align your resources accordingly. It provides crucial insights into whether your business is on the right track or requires adjustments to achieve your goals.
Overview of Key Growth Metrics for Businesses
Several key growth metrics can help measure the success of your business. These include revenue growth rate, customer acquisition cost (CAC), customer lifetime value (CLV), gross margin, customer churn rate, and market share. Each metric offers a unique perspective on different aspects of your business’s growth and performance.
How Growth Metrics Can Drive Decision-Making
By regularly monitoring growth metrics, businesses can make data-driven decisions that maximize their potential. These metrics provide actionable insights, helping you identify areas where improvements can be made, evaluate the success of marketing campaigns, optimize resource allocation, and make informed decisions about product development or expansion.
Why Are Growth Metrics Important?
For a lot of reasons. These capture trends and patterns that allow businesses to scale up operations. In today’s competitive business environment, generating profits is not enough. Predicting trends by monitoring client behavior keeps businesses agile and ahead of their competitors.
Every time you collect information, growth metrics aid in better decision-making. This helps you target the right audiences and directly impacts your service quality for higher customer satisfaction and retention.
Here are some more reasons:
1. Help Monitor Revenue Growth
Growth metrics let you keep track of the increase or decrease of revenue for specific products and services and identify lucrative growth opportunities. If a product or service costs more than the revenue it generates, you can take the appropriate actions to ensure it doesn’t impact your bottom line.
2. Create Potential Growth Channels
Identifying successful products and services is only one aspect of growth metrics. It can also highlight where and whom to target through digital ads. It is rewarding to discover an untapped market that can drive revenue and help develop marketing strategies for your company’s growth.
3. Weed out Weak Links
Growth metrics also shed light on business areas slowing down growth. It identifies the areas that need considerable improvement and provides an actionable goal to make it a channel of potential growth.
For instance, you notice a poor CSAT score due to a lack of prompt response to numerous service requests. That indicates that your customer success team needs more resources. It might also be a reason for low repeat customers or poor acquisition rate. Whatever the case, there is an actionable goal that can potentially remove the weak link.
4. Provide Status of Business Health
Like a regular check up at the doctor’s, growth metrics also keep tabs on the health of your business. It shows whether your business has increased or decreased during a particular time frame. Growth metrics are critical to diagnose any sign of a problem and address it, before it is too late.
5. Help Assess ROI
Growth metrics offer a perfect way to measure ROI and how each marketing and sales campaigns perform in its leads-to-customer conversion. The best metrics are the ones that are aligned with your business goals and can help you measure the success of your business.
10 Important Growth Metrics To Track
Growth Metrics can be clubbed into four broad categories:
- Sales Revenue
- Customer Acquisition
- Customer Churn
- Customer Engagement and Retention
Sales Revenue
The most basic and known metric of all is the sales revenue. To increase your sales revenue with every financial year, monitoring a few metrics is essential, including:
1. Annual Returning Revenue
Annual returning revenue or return on investment (ROI) is as simple as it sounds. The difference between the current value of your investment and your initial value is how the metric of annual returning revenue is determined.
2. Monthly Recurring Revenue
Monthly recurring revenue is calculated by multiplying the average revenue per customer with the total number of accounts for a given month. This constitutes the expected revenue each month. Based on this figure, you can predict future revenue and keep an eye on the future revenue gains.
3. Average Revenue Per User
This metric helps investors and stakeholders determine the revenue-generating capacity of the company at the individual customer level and allows them to compare their performance with their rivals.
It is determined by dividing the total revenue generated over a given time period by the number of users during the same period.
4. Revenue Churn
Revenue churn, also known as monthly recurring revenue (MRR) churn, measures the lost revenue of a business over a given timeframe. It is natural for companies to lose some clients over time due to lost contracts and cancellations, downgrades, competitive losses, and bankruptcies. But the loss of clientele needs to be tracked. And revenue churn gives the company that lens, providing insights into the health of its customer base.
Ideally, the acceptable churn rate for a SaaS business is 5-7% annually.
Customer Acquisition
As the name suggests, this metric measures the amount spent on a customer to convince them to join your brand. Most companies use different tactics to acquire customers. These include search engine marketing, social media advertisement, telesales or telemarketing, and partnerships. To truly understand customer acquisition, you need to measure the following metrics:
5. Customer Acquisition Costs
It is calculated by dividing the total cost invested in acquiring customers by the total number of new customers acquired. Lower the customer acquisition cost (CAC), higher the returns in profit. Lower CAC also indicates that the business is utilizing its budget more effectively.
6. Customer Lifetime Value
Customer lifetime value (CLV) is a metric that measures the average revenue generated by customers over their entire relationship with an organization. Typically, your CLV should be three times greater than your CAC.
CLV is used to determine customer segments valuable to a business. You can calculate CLV by multiplying the customer value by the average customer lifespan. This means you have to compute the average purchase value of a customer and multiply it by the average number of purchases.
Customer Churn
Also known as customer attrition, customer churn is when your clients or subscribers stop doing business with your company. Metrics under this category show the percentage of clients who are no longer in business with you. The top two indicators in this category that you must measure are:
7. Churn Rate
Churn rate is the percentage of those subscribers/customers who do not renew their subscriptions or cancel them after a given time. This is an essential metric for companies that have customers paying repeatedly. It is also one of the most crucial metrics concerning the health and success of your product or service. A higher churn rate indicates that your business is losing more customers than it is bringing in.
For benchmarking, the average monthly churn rate in the SaaS industry is 3-8%, while the average annual churn rate is between 32 and 50%.
8. Customer Conversion Rate
Also known as the Lead to Customer Conversion rate, it measures the efficiency of your sales effort in converting sales-qualified leads into paying customers. A high customer conversion rate indicates that your team generates high-quality leads and has an effective sales strategy.
You can measure this by dividing total conversions by the total number of leads and multiplying that value with 100.
Customer Engagement and Retention
Customer engagement and retention methods are the way to turn around customer churn. One way is to monitor how your customers use your product, ask for their feedback, and then use it to shape your product’s future releases. The other way is to increase the number of active users every day, which is the default expectation from a successful business. The two critical metrics to measure these include:
9. Activation Rate
A nebulous metric, activation rate has a different meaning for different businesses. Activation rate is the point when your customers start realizing the value of your product or have an “Aha” moment.
It is perhaps the most crucial growth metric that you should track. If activation is the action that a user must perform to obtain your product’s value, then without activation, there will not be any step. In other words, no product value, no money.
Every business has its activation rate, which it can operationalize by monitoring key activation events. It could be achieving a particular milestone in your onboarding or using a coupon code. An excellent way to measure this metric is by looking at the total number of users engaged in a particular action/feature of the product over a specific time.
10. Customer Retention Rate
This metric is the opposite of churn rate, as it shows the percentage of your existing clients who have continued using your product for some time. Tracking this growth metric gives you an idea about critical things in your product that help retain customers and indicate opportunities to improve.
To calculate customer retention rate, you need three numbers:
- The number of users at the start of a specified period
- The number of users at the end of that period
- New customers acquired during that period
The formula to calculate the retention rate is:
Users you end with during the given period- new users/users you started with. Multiply your answer by 100 to express it in percentage.
Customer retention rates in IT and professional services are 81% and 84%, respectively, while it is 63% in retail.
Conclusion
The actions of your past determine the course of your future. That is a sentence that sums up the role of growth metrics in today’s business environment. It is always helpful to know your business’s potential areas of growth and the expectations from a growing company. Evaluating and developing the right strategies puts your business on the road to success.
Learn more about growth metrics with Growth Natives. Sign up for a free audit and let us help you find the right course of action and empower you with strategy and tools to accelerate your business.