It’s an exciting time to start a new business. Many of the basics of our economy are in a state of flux, creating potential opportunities that didn’t exist even a year ago.
It’s also an intimidating time if you’re just getting started. As you ramp up your new venture, you’ll be spread thin at first; you’ll probably face staffing, operational, marketing and supply-chain challenges that come out of nowhere and demand an ability to focus and think fast on your feet.
If you’re like many entrepreneurs, you’ll be reacting, putting out brush fires, with little time for proactive planning. That comes later, when the business stabilizes and settles into its own rhythm. Yet tracking from the get-go can be a major help.
As performance patterns emerge, you can get a head start on growing your business by paying close attention to several key metrics—and trends in the way they fluctuate. The data can alert you to potential problems before they become unmanageable and help you keep your business on an even keel. Home in on these key numbers:
- Operating costs: Before you decide what to charge for your product(s) and/or service(s), you’ll need to look at your costs. And while you may opt for a value-added strategy, a loss-leader strategy or some other formulation, costs are still a major factor. Start by tracking your fixed expenses, then analyze how long it takes you or staff to do your jobs relative to transactions. Remember to add in “hidden” costs like insurance, rent and other overhead. Ideally, you want to net out with two key metrics: How much it costs to open for businesses for the day (your fixed costs) and how much it costs to deliver each unit of merchandise or service you sell. Arriving at these numbers, and then tracking how they trend over time, gives you insight that can guide your pricing, sales negotiations, product decisions and more.
- Customer/client acquisition costs: The more you depend on repeat customers, the more you should look at the cost of acquiring them. If you pitch new sales via targeted channels like direct mail or email, start with the costs of creating and delivering the ads. Also include discounts, promotions and any other activities aimed at bringing new people to your business. If you depend on word-of-mouth, strike up a conversation with new customers. Ask how they heard of you and what they like and dislike about your operation. When you know what you’re spending to attract new people, you’ll have some context for what it costs to lose a customer. You’ll also have an incentive to examine alternative (i.e. cheaper) acquisition methods, like guerilla marketing tactics.
- Customer/client retention: A key tenet of Business 101 is that it’s cheaper to retain an existing customer than to acquire a new one. So whether you’re in broad retailing or specialized consulting, it’s a good idea to lavish lots of attention on keeping customers happy, just from a revenue perspective. But existing customers come with an added superpower: they’re a key element in your marketing. As brand advocates, they have credibility in their own circles; when they recommend your business, their friends listen and act. When you see social media posts requesting recommendations, it’s your brand advocates who respond most convincingly. So track your performance on this measure. Note that the reverse effect operates on your business, too. Former customers who leave dissatisfied do not hesitate to voice their opinions. With a solid base of satisfied (i.e., retained) customers/clients, you can organize a referral program, get honest feedback and keep your paid advertising expenses as low as possible.
- Prospect engagement: Who’s checking your business out? Prospects. Even if they don’t buy immediately, they’ve raised their hands in a sense, simply by visiting your website, peering in the front window, calling your phone or looking at your ads. To the extent possible, track these numbers. With most email campaigns you can monitor the rate at which recipients open, read and click through. With direct mail, using segmented response paths, you can get an approximation. Keep logs of incoming phone traffic and, if it’s a retail business, how many people walk in and how long they browse. With enough data, you can gauge what approaches this all-important segment responds to and what they’re indifferent to. You can gauge how successfully you’re converting prospects into customers/clients—and what you can do to grow your conversion rate.
- Time tracking: It’s tempting, especially if you’re in a sole proprietorship, to accomplish as much as you can without too much thought to accounting for time. But you should. Knowing what various assignments require is different from knowing what to charge. Tracking your time lets you develop a realistic “price list,” even if it stays in your head and never gets published. It can show you where your personal time-wasters are cutting into your productivity. And whether you charge by the hour or a flat rate for each project, tracking your time helps you juggle priorities. When business volume increases, as it might for a seasonal business, tracking your time helps you establish a threshold for when it’s time to call in a freelancer.
Monitoring these basic business performance metrics keeps you in the know about day-to-day operations. And by tracking how the numbers rise and fall over time, you can make decisions based on empirical knowledge, not just hunches.
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