Essential Metrics Every Entrepreneur Needs to Track

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Life of entrepreneur or small business owner can be hard. Usually you have way too much to do and not enough time to sleep. Running your business eats up most of your time.

And even if you hire a person or two, maybe even three, it doesn’t feel like you have less on your plate. Sometimes it’s exactly the opposite! Cause now you have to think about other people as well.

In such case some entrepreneurs think they don’t have time to keep an eye on numbers.

“Who has time for that?” is usually what we all think. I am no different. Sometimes I am so focused on a daily business that this is the last thing I think about.

But that’s the worse approach anyone can have. It’s like running blind. You just have to know what works and what doesn’t. What brings the results and where you waste your money.

So whether you like it or not, you have to find time for that. Period.

And since I know how difficult it is to find enough time for everything, especially to figure out what metrics to look at, I have prepared this article for you.

Below you will find only the most important metrics you should track. The good news are it can be applied by entrepreneurs, small business owners, freelancers and other hustlers.

So without further ado, let’s dive in.

Cash Flow and Net Income

The first position of cash flow is not an accident. This is the lifeline of your business. In simple words it’s the difference between everything that’s coming in and coming out.

So every single dollar you have from selling goods and services minus all your costs, like bills, taxes, salaries, etc. If it’s positive then you have a healthy business, otherwise you might be in trouble.

Way too many people are focusing purely on revenue and forget to keep their cash flow positive at the same time. Net income tells how much money you actually have after subtracting all expenses.

Profit and Loss

Known also as P&L is a financial statement of a company prepared on monthly, quarterly or yearly basis. It’s all your sales and revenues minus expenses over certain period of time.

It is really good indicator of overall financial condition of your company and tells you if you made a profit or a loss. It also allows you to forecast and plan in advance.

Cost of Revenue and Cost of Acquisition

The next one on the list is the cost of revenue, which should not be confused with COGS – cost of goods sold. First of all it’s purely for businesses selling goods, not services. Second of all it’s not the same thing.

The cost of revenue includes materials, labor, marketing and shipping. Basically speaking every cost that is directly involved with creating that specific stream of revenue.

For many online businesses, especially subscription based, it would almost equal cost of acquiring new client or customer. Which is overall cost of finding new person that’s willing to pay what you have to offer.

Sales and Sales Growth

Another thing you should pay attention to is the amount of transactions or sales you and your company make. Is it stable, increasing or decreasing? These are the things you have to know.

Know and react as appropriate. Sales is the salt of the earth for your business. There is no real business without it. And ideally you want it to grow just a little bit every month.

Pay attention to sales seasonality and compare changes year over year or year to date.

Price

It might seem like the simplest thing on earth, but as a matter of fact it’s not always as straightforward. As a business owner you have to know how much will it cost to produce certain value and base your price on that adding enough margin to make a profit.

Gross Margin

Known also as gross profit. This metric represents how much money you have left after taking away all the product’s costs from the selling price.

No one will really tell you how much should it be, but It has to be enough to cover all the operational expenses. Please bare in mind, however, that in very competitive niches your margins will be rather low.

Total Inventory

This one is only valid for businesses holding inventory. If you are selling services or physical products through drop shipping, then you don’t have to worry.

So if you are holding inventory you have to monitor if you have enough. Cause you don’t want to run out of stock. But at the same you don’t want to have too much products in stock. That would freeze your capital.

Customer Retention and Churn Rate

We have already mentioned to importance of sales and sales growth. You can of course do that by finding new customers. However, it’s maybe even more important to keep your existing customers with you.

Mainly because it’s much cheaper. The customer retention rate tells you how many existing customers keep buying your products or services. You should compare that number every month.

Customer churn rate on the other hand is the opposite, so how many customers left during specific period of time.

Average Lifetime Value

This metric is pretty self-explanatory, it represents the amount of money a company is able to make from one customer during a “lifetime” of being customer.

This is especially important for businesses that are selling really cheap products. It might seem like they do not make a lot of money. But if they are able to keep that customer for years and years to come they will make a lot of money.

That’s pretty powerful approach and allows you to think much more strategically.

Employees Satisfaction and Over Hours

This is something most entrepreneurs and business owners tend to forget. We are so focused on providing best possible experience for our customers that we forget about something maybe even more important.

The overall satisfaction of our employees should be top of the list. Why? Cause like Richard Branson said “Clients do not come first. Employees come first. If you take care of your employees, they will take care of the clients.”

Apply 80/20 Rule to Everything

And the last, but not least famous Pareto principle. Identify the 20% of customers that bring 80% of your revenue. 20% of customers that generate 80% of complaints. But you can beyond that.

Analyze what tasks are responsible for majority of delays or costs. Can you eliminate any of them? And how about your employees? Maybe it’s time for a bonus for most productive ones?

To make it even more simple it doesn’t have to be 80/20, it can be 95/5. The purpose is to boost efficiency.

Hopefully you’ll find it useful 🙂

More to explore

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