In the crazy rush of running your business, it is easy to get lost in the smaller things. However, it is extremely important to often step back and evaluate how you’ve done so far. This post is about getting that yardstick in place by which you can measure yourself.
Many retailers out there might have this idea in mind that an increase in revenue could be taken as a solid indication towards a growing business.
Unfortunately, that’s not the case. An increase in revenue might not necessarily mean an increase in profit. Apart from these financial aspects, there are some other exciting factors that tell you that you are doing a good job.
We’ve divided your metrics into three key sections:
- Operational Metrics
- Financial Metrics
- Customer Metrics
Inventory Turnover Ratio
This ratio tells you how many times your inventory was ‘turned’ or sold in a particular period of time. This tells you where you stand compared to your competitors.
Inventory turnover ratio is calculated by dividing COGS/Avg.Inventory in a particular time period (like a year). This ratio tells you how you are managing your inventory, whether you are overstocked or understocked, whether you are using the right techniques to make sales or not, etc.
This is a pretty straightforward metric. One has to calculate both the gross profit margin and the net profit margin to analyse where more money is being invested at the particular moment.
2. COGS(Cost of Goods Sold)
Having an idea of the total production cost of your company, will tell you what you have to exactly do to increase your profit margin. In case your costs fluctuate over time, use batches to separate items or use a stanrdard accounting policies like FIFO to evaluate profits basis costs of items.
3. Expenses Vs Budget
Comparing your operational costs with your planned budget will show you the direction you are travelling in.This is a very important metric that will remind you if you are deviated from your actual plan.
Revenue is an actual indication of growth. If you are growing revenues along with profits, then you are growing a scalable business. If you feel that your revenue is growing but profits are shrinking, then you need to re-evaluate your unit-economics to figure out how to scale your business.
1. CLV(Customer Lifetime Value)
Some customers matter much more than the others. As stated by the Pareto principle, 80% of the effects comes from 20% of the causes. In business, this means that 80% of your success comes from 20% of your customers.
CLV(Customer Lifetime Value) is the total value that your business acquires from a customer for the entire time that he/she remains your client.
Having a knowledge about the CLV will tell you where exactly to invest your time and money so that you acquire more customers who will be ready to maintain a long-term relationship with your company, which will eventually improve your market value.
2. CAC(Customer Acquisition Cost)
CAC is the cost that you spend to win a customer. This cost involves all your marketing and sales campaigns.
A good ratio between your CLV and CAC should be 3:1. This shows that you are running a healthy business and is bound to stay for a longer time in the market.
To calculate CAC, divide the total acquisition cost by the number of new customers you acquired in the time frame you are considering.
CAC will help you analyse 2 things:
- Whether you are on the right track with your business
- Whether you are doing useful marketing and sales campaigns or not
3. NPS(Net Promoter Score)
NPS is considered as one of the important growth indicators. It is important to send out quarterly surveys to your customers and analyse their responses. This way you will get a clear idea of what your customers really expect from you and where you have disappointed them.
4. Repeat buyers
To understand if you are delivering the right service to customers, check the percentage of buyers who buy repeatedly from you. Log into your CRM or order processing software and use a simple excel pivot table to get the frequency of orders by customers. A strong retail business makes atleast 30% of it’s business from repeat customers every year.
5. You get a strong social media presence
Social media is undoubtedly one of the strongest platforms for reaching out to potential customers. Be it Facebook, Twitter or LinkedIn, as and when people start noticing your brand, your traffic and hence, conversions increase.
A regular deep analysis is extremely important to evaluate your performance. You can’t improve what you can’t measure. So get down today on those spreadsheets and start measuring.