Often, the right question to ask as your small business expands isn’t whether it’s growing – it’s how much it’s growing. Increases in revenue, team size, and customer base all indicate growth, and knowing which of these forces is driving your growth will help you properly keep up with your expansion. And even though no two companies grow in exactly the same manner, the same set of methods for how to measure growth should prove helpful in all situations.
Follow these tips to measure and track key indicators of business health. Measuring growth will help you take advantage of growth opportunities while decreasing risk.
1. Set your business growth goals
Before you put measurements in place, nail down what your goals are.
SMART is an acronym to help you set goals. The business goals you set should be:
- Specific , meaning you can clearly define what you’re aiming for. An example might be looking to improve your sales of one product instead of the more general goal of boosting your revenue.
- Measurable , meaning you should be able to numerically track and analyze your goal. To continue the above example, improving your sales shouldn’t be abstract – you should be aiming for a certain value or range. You should also make sure your data analytics tools can properly measure the appropriate metrics.
- Achievable , meaning your goals are within reach given your resources. Going for a $5,000 increase in sales of your one product might be unrealistic if you’ve historically only sold hundreds worth of that product.
- Relevant , meaning your goals are pertinent to your business. An example could be choosing to strengthen your sales of a product you’ve already introduced instead of boosting sales through a new product with no sales history.
- Time-Based , meaning your goals are tied to a preset period. If you’re looking to increase sales, you’ll need a start value and an end value, and time is the most obvious way to connect the two. In other words, don’t just set out to make a specific, measurable, achievable, relevant change – do so over the course of a month, a quarter, or a year.
Businesses typically want to measure growth in the following areas:
- Revenue (sales, net profit, etc.)
- Subscriptions (monthly or annual recurring revenue)
- Units (total units sold or processed, customer base numbers, new contract signed, social media followers, etc.)
You may also want to measure growth based on specific objectives. These could be short-term objectives such as retaining a certain number of customers this month. They could also be long-term goals such as increasing your market share by at least a certain number during a given period, perhaps a year. The type of goal that you choose determines how you approach business growth measurement.
2. Choose your KPIs (and their values) carefully
To track your progress toward your goals, you’ll need to quantify your work through key performance indicators (KPIs). These metrics measure how well your team is working to meet those goals. For example, if you want to grow your company by selling more products, you should push your team to move a certain number of leads per month closer to the end of your sales pipeline. The more employees who do so, the closer you get to your goal.
3. Look at your workforce
KPIs are a great way to understand what your employees bring to the table, but they only paint part of the picture – employees are the other half. A company with low employee satisfaction, performance, and retention rates is setting itself up for failure.
If you see that your employees are unmotivated or stressed, invest in initiatives to make them happier. Employees with clearer minds don’t just make for a better work environment – happier, less stressed employees can also more easily reach your KPIs.
4. Review your business plan
Do you have a business plan in place? Hopefully, you didn’t write it and file it away never to be seen again. A business plan is an organized roadmap of your business objectives and ways you can achieve them. Reasons for creating a business plan include defining new business, outlining an agreement between partners, setting a value if selling your business, and to help you manage and track business planning.
One reason many business owners dig in and craft a business plan is to present to lenders when applying for funding. (NOTE: SmartBiz does not require a business plan during the application process) Lenders want to know if you’re a good business to fund with a solid foundation and plans for expansion. If you don’t have a business plan, use our handy guide from the SmartBiz Loans Resource Center to help you get started.
5. Benchmark against competitors
Competitive benchmarking is when you compare your company against competitors. It’s an apples-to-apples comparison using set metrics to measure company performance and compare it to others over time.
Of course, this strategy fares best if you have unobstructed access to your competitors’ KPIs. The thing is, you’ll never have a complete insider scoop on what goes on in your competitors’ offices, but you can find some clues in publicly available materials. Industry publications, annual reports, and even basic internet searches can all turn up valuable competitor metrics you can use for benchmarking.
This strategy will help you get an organized overview of your business and how it performs to help you stay competitive. Benchmarking means you can determine when a competitor is doing well or when they aren’t doing so well. Benchmarking can help you steer your business in the right direction.
6. Track revenue growth
Divide the total revenue growth by the revenue from the previous year. Then multiply the result by 100 to calculate the total revenue growth as a percentage. By calculating the revenue growth rate on a regular basis, you can determine if growth is increasing, decreasing, or staying flat, and by how much.
7. Analyze workforce growth
The team members you’ve hired should be well-trained, experienced, and invested in the success of your business. It’s expensive to hire and train employees so you should strive for low workforce turnover. Calculating this rate helps you determine how well you’re doing at employee retention.
To calculate workforce turnover rate, divide the number of employees replaced by the total number of employees in the company. Example: If a business replaced 20 people and has a total workforce of 124 people, divide 20 by 124 to get 0.1613.
8. Explore market share growth
Investopedia describes market share as the percentage of an industry, or a market's total sales, that is earned by a particular business over a specified time period.
Market share is calculated by taking the company's sales over the period and dividing it by the total sales of the industry over the same period. This metric is used to give a general idea of the size of a company in relation to its market and its competitors. There are strategies you can use to increase your small business market share. Here are a few:
- Win market share from the businesses you’re actually losing customers to today.
- Make a list of the companies you wish you were running with.
- Consider whether changing competitive levels is advantageous.
For in-depth information about these strategies and more, read Increase Your Small Business Market Share.
9. Look at cash flow growth
Cash flow is simply the money that is moving (flowing) in and out of your business on a monthly basis. Positive cash flow indicates that a business is successfully managing revenue and costs. With positive cash flow, a business owner should be able to reinvest in the business and handle financial emergencies. On the other hand, negative cash flow indicates that a business is incurring more costs than profits.
If you haven’t already, the first step to managing cash flow is to create a cash flow statement. As you complete the steps, you can see the elements that make the strongest impact on cash flow. Whether it be your cash balance, operations, or investing, you’ll notice which activities bring your cash flow up or down. Then, with a solid understanding of the metric, be sure to calculate it regularly to monitor your business finances.
If you’re having trouble managing your cash flow, review our article Cash Flow Problems That Hurt Your Business and How to Solve Them. You’ll learn how debts, spending, and even growth can impact cash flow.
10. Get to know your expenses
Understanding your expenses goes hand in hand with analyzing your cash flow. That’s because revenue growth is only part of the puzzle – your revenue could be sky-high, but if your expenses are high too, your profit could be minimal or even negative. Additionally, understanding your expenses makes for better financial forecasting and thus firmer plans for revenue growth. Learn how via the SmartBiz Loans blog Financial Forecasting: How to Prepare Your Budget.
11. Review customer acquisition costs
To compute the cost to acquire a customer, take the entire cost of your sales and marketing over a given period, including salaries and other related expenses, and divide it by the number of customers you successfully acquired in that period. If these costs can be reduced, the company’s profit margin improves and it makes a larger profit.
There are many different tactics you use to reduce the cost of gaining new customers. For strategies that work, review this article from Inc: 3 Ways to Reduce Your Customer Acquisition Cost.
12. Audit your marketing strategies
Marketing is a tried and true way to achieve revenue growth, but some marketing strategies will fare better for your revenue growth than others. After any marketing campaign, look for changes in your volume of sales inquiries, customer service requests, purchases, and other vital data. You should look especially closely at your changes in your sales market share to measure growth after a campaign. Use what you learn to set up your next marketing campaign.
13. Get outside help
No successful small business owner goes it alone. If revenue growth is key to keeping your business afloat but you just can’t make it happen, there’s no shame in hiring a growth consultant. Sure, consultants charge for their work, but if you follow their advice, your revenue might grow more than enough to quickly recoup their costs. And if you keep following their advice, your growth might continue – and that’s the ultimate goal.
