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:
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.)
The type of goal that you choose determines how you approach business growth measurement.
2. Review your business plan
Do you have a business plan in place? Hopefully, you didn’t write it and file 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:
3. 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.
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.
4. 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.
5. 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.
6. 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.
7. 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.
8. 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.