It’s impossible to run a successful business without taking the time to track your core business metrics.
If you don’t, then good luck knowing:
- How much pure profit you’re earning
- Where costs can be cut
- Whether you’re selling enough
- How much debt you have
- Whether you’ll be bankrupt next quarter
Having said that, where do you start? There are so many metrics you could be tracking that it’s easy to get stuck tracking and recording everything rather than analyzing and acting on your data.
That’s why I’ve collected 53 core business metrics right here to get you started. Stop wasting time wondering what to track or flicking between 20 different posts going over five stats each – every metric here comes with a brief description and formula or method for easily tracking it.
You don’t have to use all 53 either – just browse through, pick the ones that are relevant, then focus on getting them ironclad before expanding your view.
It’s time to find out exactly how your business is performing, and learn precisely how to get it on the path to success.
Cash flow is the flow of cash into and out of a business, and is vital to track as part of your regular accounting processes. This includes everything from sales and services rendered to the rent for your location and employee wages.
Think of it as a scale you have to balance – if the cash flow is negative, you’ll need to make up the expenditure in the next month or risk falling further behind. It’s best to at least break even, but it’s even better to stay in the green.
Here at Process Street we also have a free cash flow report template which you can use to track this figure without fail.
- Cash flow = (Total income + Total liquid assets gained) – (Total costs + Total liabilities gained)
Remember that all of these figures should be relative to a consistent time period (eg, over the last year).
Accounts payable is the outstanding amount your company needs to pay in order to square off the purchase of any items or services from creditors.
This is useful as it’s inevitable that some months you won’t have the money to pay for something up front. Rather than relying on memory to keep track of your outstanding payments and having a nasty surprise, you can instead just buy it on credit, then track it as part of your accounts payable.
- Accounts payable = Total costs yet to pay for items or services
Accounts receivable is the opposite of accounts payable – rather than being the money you owe to others, it’s the total amount of money you’re still owed for goods and services.
Obviously this needs to be as small as possible, as it’s always better to have instant payments unless you’ve worked out some kind of interest on the deal. Having said that, some purchases may be too large to expect one bulk sum, and a deal on credit (assuming it gets paid) is better than no deal at all.
It’s also a good figure to factor against your accounts payable, as these can offset each other nicely.
- Accounts receivable = Total costs yet to be received for items or services
A company’s quick ratio monitors the liquid assets (assets which can be converted into cash) available to cover your liabilities. For example, a quick ratio of 2.4 would mean that a company has $2.4 in liquid assets to cover every $1 of their current liabilities.
The equation for this is as follows:
- Quick ratio = (Current assets + Inventory + Accounts receivable) / Current liabilities
Any result above 1 means that you currently have more value in cash and easily convertible assets than you have to pay out, which is a pretty good measure by all accounts.
Your current ratio is a general measure of whether your company should be able to pay off its debts in the coming year. Anything less than 1 (meaning you have more liabilities than assets) should cause alarm (especially if it persists) since that means you can’t afford to pay off your debts.
- Current ratio = (Current assets / Current liabilities)
In short, the current ratio is a summary of a company’s overall financial health.
The working capital figure shows how much a company has to spend in the short term while accounting for its current liabilities and the immediate ability to pay them.
It’s calculated as follows:
- Working capital = Current assets – Current liabilities
If the number is negative then you owe more than you own, meaning that in the short-term you may run into difficulties paying for everything (unless you have a solid influx of business or funds in the near future which isn’t currently accounted for).
The debt-to-equity ratio measures how much of your company is currently funded by debt relative to the value of your shareholders’ equity.
A high debt-to-equity ratio can be bad, as this means you’re funded more by debt (eg, loans) than your own money. However, a low ratio can also indicate that you’re not taking advantage of funding via debt.
For example, if you take out a loan to purchase more than you can afford, and then increase its value by 10% before selling it on and paying back your debt, you’ll earn more than if you had bought a smaller amount with your own money and increased its value by the same amount. This does, however, depend on the type of debt you’ve accrued, interest rates on loans, and so on.
This figure can also show when a company has been aggressively spending in order to try and increase its value. As such, it’s a measure of the present moment and does not account for predicted growth as a result of what you’ve spent.
The formula is:
- Debt-to-equity ratio = Total liabilities / Total equity
Gross vs net profit
While these are two distinct metrics, they are so interlinked and useful in comparison that they’re worth talking about in one and the same breath. Gross profit is a measure of a company’s earnings after the costs of producing your goods/services are deducted, and net profit is the remaining earnings after all costs are factored in.
- Gross profit = Total revenue – Cost of goods and services sold
- Net profit = Total revenue – Total expenses
While net profit alone is a great way of seeing whether you’re earning more than you’re spending, gross profits tells you whether the pure cost of producing your products or services is viable, and comparing the two will show whether your expenses need to be cut.
The final financial business metric we’ll be looking at today is your profit margin, which is essentially the amount of revenue your company gets to keep after factoring in all of your expenses.
For example, a 20% profit margin means that your company gets to keep $0.20 for every $1 in revenue. That $0.20 is pure profit (profit which doesn’t have any more costs to detract from it).
As you might expect, this is a rough indicator of how efficiently your business is selling its product or services. If costs are higher than they should be or you haven’t priced yourself correctly, your profit margin will probably show that through being very low.
It doesn’t, however, account for things like money you’ve invested in growing the business or setting up the infrastructure for future success. This is purely about profit vs spend.
- Profit margin (%) = (Gross profit / Total revenue) X 100
- Profit margin (%) = ([Total revenue – Cost of goods sold] / Total revenue) X 100
Human resources metrics
Employee turnover rate
This one is easy – it’s the rate at which your employees voluntarily leave your service. The key point here is that this doesn’t include those that are fired.
You can find this figure by dividing the number of employees that quit in the last year by the average number of employees in your company over the same time period.
- Employee turnover rate = No. employees that quit during the last year / Average no. employees in your company in the last year
You want to be aiming for 0.1 (10%) for your turnover rate to be acceptable, depending on your industry. Anything around 0.2 (20%) or higher should be analyzed carefully and the cause diagnosed, as having so many employees quit of their own accord is a sign of some major issues in your company, workload, employee training, processes, team dynamic, or any number of other factors.
‘Let’s take an example $40,000 marketing coordinator role and see what happens if you hire someone and they quit within 6 months… Total cost of Sally’s turnover [plus advertising, interviewing, training, etc]… = $62,800, plus the lost client hours and opportunities!!!’ – Christy Hopkins, How to Calculate (And Reduce) Employee Turnover Rate
Early turnover rate
Your employee turnover rate is another easy figure to track, as it’s similar to your employee turnover rate. The same calculation is used as the regular turnover rate (divide the number of quitters by the average no. employees in the last year), but to make it your early turnover rate you only include employees who have joined within the last year.
- Early turnover rate = Employee turnover rate (but only counting the employees who joined in the last year)
If your employees are engaged with their tasks then they will work much more efficiently and usually to a higher standard. Completing tasks that they are actually interested and engaged with will also make your employees happier about their position and more motivated to do well.
So, employee engagement is important to measure. The problem is that it’s nigh impossible to get a standardized reading for.
There isn’t some kind of magic dipstick you can use on your employees to measure their engagement – you’ll have to *gasp* talk to them!
All jokes aside, while you can send out surveys, the best way to judge employee engagement is to have a regular one-on-one session and ask how they’re feeling about their work. Combine this with some analysis of their output and you should be able to see when someone is struggling.
Alternatively, you can ditch the formal meetings and surveys altogether and bring a human touch to your workplace. It’s certainly a little more natural than essentially asking how well you’re doing at engaging them.
If in doubt, one of the best ways to improve your employee engagement is to have a set new employee onboarding process to go with your regular HR templates. This sets a high standard and makes sure that they start work with a positive mindset.
Despite the confusion around this, employee satisfaction isn’t the same as engagement. If someone is “satisfied” then they are happy with the situation (eg, it meets their needs). Being “engaged” with their work means that they enjoy doing it and are motivated to carry on.
An engaged employee can be unsatisfied, and vice versa. You can enjoy your work, but want something more or different.
Satisfaction is measured in much the same way as engagement (looking at output, sending surveys, and having meetings) but having a lack of it isn’t always a bad thing. If people are unsatisfied with their job this can either encourage them to quit (which, if we’re honest, is sometimes the lesser of two evils) or make them want to work hard and forge a better place for themselves.
Still, don’t get complacent about low employee satisfaction – just because some people will be unsatisfied and might work harder doesn’t mean you can ignore problems in your company.
Employee absenteeism is a measure of how often your employees call in sick or don’t show up for work (aka, any unplanned absence).
To calculate this just add up the time and/or days of work missed and then divide by the average number of employees in a given time period. Alternatively, you can add up the absences of each individual employee to avoid placing blame where it isn’t due.
- Employee absenteeism = Total time or days missed / Average number of employees
HR cost per employee
Tthe HR cost per employee is precisely that; the cost of your HR team compared to the number of employees you have. This should include both the pay of your dedicated HR employees and any benefits they have.
- HR cost per employee = (HR employees total pay + HR employees full benefits packages) / Average number of employees
This can be a useful metric to see exactly what you’re spending on HR and whether you should adjust that figure by hiring, firing, or changing the available resources.
Time to hire
This is the average time taken to go from interviewing potential candidates to hiring an employee. It’s important to at least have this as a figure you can reference, since taking too long can cause any potential hires to either lose interest or accept another offer.
Either way, if your time to hire is too high, you’ll lose out on talent.
- Time to hire = Total number of hours from interviewing candidate to their hire / Total number of jobs filled
Cost per hire
Taking too long to fill a role can cause you to lose out on good talent, but pouring vast amount of money into achieving a quick hiring process can harm your existing business’ health as a whole. Thus you need to keep an eye on your cost per hire.
To do this, just add up your total recruiting expenses (including any involved employees’ pay for the time taken, software use, paid promotion, and so on) and divide that by the total number of employees you hired.
- Cost per hire = Total recruiting expenses (time, software, job adverts, etc) / Total number of hires
Training cost per employee
While it’s important to give your employees the training they need in order to successfully perform their duties, you don’t want to let it become a black hole in your wallet. Spending on training is vital, but if the training cost per employee isn’t tracked it can quickly get out of hand.
You also need to be careful of spending training funds unevenly, as without a good reason this could demoralize the rest of your employees or (at best) leave a hole in your company’s capabilities.
- Training cost per employee = Total money spent on training / Total number of participating employees
Revenue per employee
Calculating the revenue generated per employee in your company is a great way to get a solid idea of your bottom line, and how you’re performing relative to your team size. This can also show how well your team is performing on average as individuals, since higher productivity and engagement will (in theory) result in higher revenue per employee.
However, remember that the value your employees provide isn’t always expressed through increased revenue. It’s a good ballpark figure to keep in mind, but should be considered along with the total services your employees are performing.
- Revenue per employee = Total revenue / Total number of employees
Diversity (/EEOC) metrics
If you employ more than 100 employees then you’ll already have to record your diversity figures to the EEOC one per year, but it’s a good idea for everyone to at least keep track of these metrics to know where they stand, and potentially whether they need to broaden their net when looking for job candidates.
For an in-depth rundown of the assessed job positions and classifications of the people filling those roles, check out this post; How to file an EEO-1 report by Nikoletta Bika
Tracking your backlinks is vital if you care about your page rankings, organic traffic, and domain rating in general (which you should).
The more high-quality backlinks you have, the more that you’re showing Google that your content is good, reliable and deserves to rank higher in their search engine. This benefits traffic by sending extra views to the page being linked to through organic traffic and getting others to follow your link wherever it’s been posted.
Guest posting as part of your regular marketing processes is a good way to increase the number of backlinks you have, as is reaching out to writers or bloggers in your sphere who may be interested in featuring you.
Your bounce rate is the rate at which a person “bounces” away from a given page/your website. This means that they land on your website through whatever means, then leave your site instead of moving to another page.
This varies for different locations but is absolutely vital to retaining your audience. All the traffic in the world won’t result in conversions if they don’t stick around long enough to take action, and if you can get someone to visit two pages instead of one then you’ve already doubled your traffic.
- Bounce rate = Total number of visitors who leave your site after viewing a single page / Total number of visits
You probably won’t have to calculate this yourself since services like Google Analytics can give you a full rundown of the bounce rate of both your site in general and any individual page over a custom time period.
Your conversion rate is the rate at which visitors to your site become customers (by signing up for your product, buying a book, and so on).
There are many factors which contribute to your conversion rate, meaning that it’s best if you assess every element on your site for their individual figure instead of trying to get a site-wide one. This includes things like the click-through rate for your CTAs, and is influenced by everything from having a dedicated purpose to every page, to how wide the audience you’re targeting is, to how well your copy is written, and more.
Again, this can be easily tracked through Google Analytics.
Customer acquisition cost
Your customer acquisition cost is how much it takes to acquire a single customer from your marketing. Obviously an average, but it’s a good way of seeing if the amount you’re spending needs to be cut in order to be worthwhile. If you can reduce this, you’ll have a greater profit margin for every customer brought in through your marketing.
- Customer acquisition cost = Total amount spent on acquiring customers / Total number of customers acquired during the time that money was spent
Domain authority is the innate authority your website has in terms of how Google sees it. The higher your DA, the easier it will be to rank for specific keywords.
Think of it like a track record for your site which assesses everything from the number (and quality) of backlinks you have to the number of errors in your code, the number of high ranking pages you have, and how old your site is.
While not a useful metric to aim to increase by itself, it’s fantastic as a general health indicator for your site as a whole.
To measure your DA you’ll need to use a service such as Ahrefs or Moz – both are good, although we’ve found Moz to be a little more reliable for DA rankings. Also, in Ahrefs this business metric is called “domain rating” instead of “authority”.
Incremental sales is the expected overall sales generated as a result of marketing. To find this, deduct the sales you’d expect to make with no marketing from the total amount of sales you made in a given period.
- Incremental sales = Total amount of sales made – Expected amount of sales without marketing influence for the same time period
Obviously this is a rough estimate, so you need to be careful not to put too much stock into this figure by itself. Still, it’s a useful metric to measure against the amount you’re spending on marketing to see whether there’s a problem with your operation at a high level.
As long as you can get a fairly accurate prediction of your baseline sales with no marketing, it’s a useful show of marketing RoI.
Let’s tackle another easy one now – your open rate. This is exactly what it sounds like; the rate at which emails are opened. After all, you can’t market or sell to an audience if they don’t open your messages.
The easiest way to measure your open rate is to use a tool such MailChimp, which (if you haven’t already tried out) is fantastic for most of your email marketing needs.
Ideal open rates vary wildly depending on your industry, but it’s also highly variable on a case-by-case basis since you’re dealing with elements such as the copy of your subject line, the time and day you send it, and how relevant it is to the people you’re sending it to.
Organic keyword rankings
“Organic keyword rankings” is pretty much a fancy term for “the position Google puts your result for a given search term.” If you’re “rank 1” then your page will be the first result Google displays when someone types that keyword into Google. The higher you rank, the greater share of the search traffic for a given term you will get.
Traffic (both overall and for specific pages) shows you how many eyes you’re getting, but keyword ranking shows how well you’re performing against the competition for relevant terms and phrases, which will ultimately get you a far more targeted audience who are more likely to convert.
Like DA, your keyword rankings can be tracked using services like Ahrefs.
Traffic (or “pageviews”) is easily one of the most important business metrics any digital marketer will encounter, track, and try to improve. It’s the number of people who visit your website (or a particular page) – the more you have, the more people are seeing what you’re trying to push.
While traffic isn’t the same as conversions (an irrelevant audience to your product is largely useless), but can still benefit you financially if you do things like run ads on your site. It’s a good metric to see how effective your marketing is but, again, just because you’re bringing in a wide audience doesn’t mean that they’re relevant to what you’re trying to sell.
Traffic can be tracked from a massive variety of locations, including (but not limited to) WordPress, Google Analytics, and Ahrefs.
This is the amount of traffic you’re receiving from a particular source. That way can see which avenues are doing well (and so probably have a good approach in place or high suitability) and what needs rethinking in order to improve.
At the very least you can see the value that different avenues are generating and judge your investment accordingly. Just remember (once again) that traffic doesn’t necessarily mean conversions.
Social media engagement
First things first; “social media engagement” actually covers several separate metrics, but all are so similar when giving a general overview (such as in this business metrics post) that we thought it best to group them.
This is the term for any kind of engagement your audience has with your content on social media. Depending on the social platform you’re looking at, this can include likes, shares, retweets, comments, and so on.
The more people that engage with your content, the more visibility and greater return you’re getting on your efforts. In terms of which are more important, however, it really depends on your focus and intent.
Comments and shares are usually seen as the most valuable interactions since the former means that the person viewing it is engaged enough to leave a reply, while a share means that you’re getting free exposure. For a full rundown, I’d advise checking out Hootsuite‘s Guide to Social Media Metrics: Engagement.
Also, if you aren’t already, I’d recommend looking into process automation for your regular social media tasks, such as scheduling tweets. This will let you automatically carry out tasks with services such as Zapier to save you time and money. Check out our free business process automation guide for more information.
Tracking the number of people who have in some way subscribed to your content on social media is a great shorthand to see how well your efforts are paying off. The more likes you have on Facebook, followers on Twitter, and so on, the more people will regularly be exposed to your content.
Your follower counts are easy to track, and getting a summary usually just requires logging into the social platform you want to assess and examining your profile or page.
Tracking this number over time to see your follower growth rate is also a great way to see when you’re doing well, and when you might need to change your tactics.
Qualified leads (per month)
Qualified leads are your lifeblood – they are the number of prospects who have expressed interest in your product and (depending on the type of qualification) have been assessed by your team.
In short, qualified leads are prospects who have been identified as a potential customer in some form. Think of them as the people your marketing attracts who your sales team have a chance to actually convert.
This can mean anything from your marketing team having passed a good prospect onto your sales team, to those that sales have assessed and marked with a high potential value.
By tracking this figure (and making sure that it’s always rising) you’re able to assess how effective your marketing is at targeting an audience relevant to your product, and how many leads your sales team has to work on in an effort to increase your customer base.
Open opportunities are qualified leads who your sales team have started working with. As such, this makes it a great measure of how many people each of your sales reps are processing and thus how much their attention is split between prospects.
There’s no set number of open opportunities your reps should be working on, as this depends on the ability, experience, and even employment status of your team. However, if there aren’t enough open opportunities in your pipeline then this is a sign that you need to qualify (or attract) more leads or have your reps working with more people at once.
You shouldn’t ignore the size and value of each opportunity either, since large, high-value leads should be given more attention. This will naturally reduce the number of open opportunities your reps are working on.
Closed opportunities are exactly what you’d expect – the number of opportunities that have been closed (both in total and per sales rep).
While this figure doesn’t account for the value of each opportunity (much like your open opportunities) it can be a good measure of seeing how many prospects your reps have interacted with and reached a stage where either the prospect converts or they don’t.
The only difficult part of measuring the number of closed opportunities is to remember to track wins and losses in this figure.
Your win rate is the success rate of your sales team for the opportunities they pursue. Engaging with 100 opportunities and winning 30 of them would give you a 30% win rate, and so on.
- Win rate (%) = (No. pursued opportunities won / No. pursued opportunities in total) X 100
The main thing to remember with your win rate is that you need to have a definitive point to where you consider an opportunity “pursued” or “engaged” (and so are thus eligible to be in your win rate). While this is entirely up to you, one option is to use only “sales ready” leads in this business metric (leads which ask for a full explanation of your product and request a full demo).
If your win rate isn’t good in the early stages it’s probably a result of needing extra lead qualification or needing to train basic skills like building a rapport, the sales rep’s knowledge of the product, and so on. If it’s low in later stages your reps might need help with managing objections, negotiating, growing commitment, or closing.
This should be put into context with deal size and lead source as these will no doubt affect overall win rate. Highly curated leads and referrals will usually have a higher win rate, and if the deal size is larger then they will have probably taken a longer time to convert (thus their win rate might be lower or disproportionate).
Average purchase value (or deal size)
A nice easy metric to track for you now – your average purchase value (or deal size) is exactly what it sounds like. By measuring the average value of purchases and/or deals made with you, you can see roughly how many customers you’ll need to break even.
One thing to note, however, is that this figure is best measured when segmenting your customers. This is because one unusually large (or small) deal can completely skew your average deal size figure to an unreasonable degree.
For example, rather than measuring an average of every purchase made from you, you could split purchases either by product type or the customer buying them (eg, companies with less than 10 employees). This would let you get a more accurate average for each category, and thus a more accurate picture overall.
- Average purchase value or deal size = Total value of purchases or deals in a given segment / Total no. purchases or deals in that segment
Your sales cycle is the average amount of time it takes to win a deal. This is usually measured in days and is a great way to see both where your bottlenecks are and when it’s better to cut your losses and focus on other customers rather than sinking further resources into a holdout.
Once customers have passed the average sales cycle time they’re much less likely to convert, so it’s better to focus resources on another area than continue to sink time and money into a lead who’s still not sure (even if they are high-value).
- Sales cycle = Total time spent on won deals / Total number of won deals
Net promoter score (NPS)
Your net promoter score (NPS) is a measure of how many of your customers are likely to recommend your product to someone else. This shows the general health of your company in the eyes of the people who matter most; your audience. Not to mention that recommendations are a fantastic way to get free promotion, as referrals are a great way to get free exposure to a relevant audience.
NPS is calculated using a customer survey asking how likely they are to refer you, then subtracting the % of “detractors” from the % of “promoters”.
If you were to give your customers a 0-10 scale answer for “would you recommend our product?”, anyone scoring 0-6 would be a “detractor” and anyone scoring 9-10 would be a “promoter”.
Lead response time
Lead response time is the average amount of time taken to respond to a lead. The smaller the time gap between your lead reaching out and you responding the better, since you can capitalize on interest at any given time or solve a problem before it becomes a bigger issue.
- Lead response time = Total time taken to respond to leads / No. leads
Your year-over-year growth is a great way to get a summary of how much you’ve sold compared to the previous year of business, and of the rate at which your sales are increasing. Since you’re assessing the whole year it’s also a good way to avoid the skew that season differences (eg, the Christmas rush) can bring to your sales numbers.
To calculate this, subtract last year’s sales numbers from the current year’s, then divide the final number by the previous year’s figures. So, if you sold 100 dolls last year and 120 this year, your year-over-year growth rate would be (120-100)/100 = 20/100 = 0.2, which as a percentage shows that your sales have increased by 20%.
- Year-over-year-growth = (Current year’s total sales – Last year’s total sales) / Last year’s total sales
Total number of customers
Everyone wants a healthy customer base, so it’s only natural that it’s important for any business to track the number of customers you have.
While it doesn’t tell you the overall worth of your business (your customers could all be low value or your costs too high to maintain), making sure that this number grows year upon year is a great starting point to increase your profits and value overall.
Cost per acquisition and conversion
Getting new customers is worth nothing if you’re spending more on getting them than you’re earning in added value. Thus you should be measuring the cost of your acquisitions and conversions.
Note that these aren’t the same figure:
- Cost per conversion (CPC) is the average amount you spend to convert an audience member into a lead
- Cost per acquisition (CPA) is the average amount you spend to turn a conversion into a sale
By adding these figures together and comparing them to your average deal size you can get a rough idea of how much you earn per sale. Equally, each of these figures help to show areas where you might be able to save money.
If your CPC and CPA are well above your average deal size you either need to focus on attracting and closing deals with more valuable customers or reduce costs where you can.
Customer retention rate
Your customer retention rate (CRR) is how many of your existing customers stick around and continue to use your product. Higher is better, as all of the effort you put into attracting customers is wasted if you can’t retain them.
The formula for calculating CRR is:
- Customer retention rate (%) = ([No. customers at the end of a period – No. customers acquired during that period] / No. customers at the start of the period) X 100
Remember; it’s almost always more expensive to attract new customers than to keep your existing ones.
Churn is the opposite business metric to CRR, in that it measures the % of your customer base that you have lost in a given time period.
As you might have already guessed, tracking churn is absolutely vital in any business and especially those like SaaS which run on a subscription-based model. Even small reductions in your churn rate can help to cause an exponential growth in your customer base over time.
Churn is calculated by dividing the number of customers who did not convert or renew after their first purchase by the total number of customers you had during a given period. So:
- Churn (%) = (No. customers who didn’t convert or renew / No. customers at the start of the period) X 100
Or, if you’ve already calculated your CRR:
- Churn (%) = 100 – Customer retention rate (CRR)
Average revenue per customer
There’s a bit of contention over just how useful it is to track your average revenue per customer. While it’s useful as a general metric for showing how much your average customers are currently paying, some have pointed out that it can both change drastically with each new deal and doesn’t show the lifetime value of your customers.
So, rather than just taking the total revenue from your customers and dividing it by the number you have, it may be more useful to segment this value depending on the customer involved.
For example, rather than having a general average revenue figure per customer, you could have an average revenue for companies of various sizes to judge where your highest value single deals tend to lie.
Average lifetime value (LTV) of customers
This is the average amount of money your customers will spend during their “lifetime” with you.
LTV is gives some context on the value you receive (on average) from each customer, letting you judge whether the amount you’re spending to acquire them is worth it.
- LTV = Average customer yearly spend X Average customer lifespan
In other words:
- LTV = (Average customer spend per visit X Average number of yearly visits) X Average customer lifespan
- LTV = 52(Average customer spend per visit X Average number of weekly visits) X Average customer lifespan
The latter equation can be a little easier to deal with, since you only have to calculate the average number of weekly visits instead of yearly. There are a couple of alternate equations which you can use also, and I’d recommend seeing this infographic by Kissmetrics for the full rundown.
Monthly recurring revenue (MRR)
Monthly recurring revenue (MRR) is a metric showing the predictable income your company gains each month from your subscription base. As such it’s by far one of the most important figures to track for a SaaS company.
Thankfully (aside from segmenting your MRR), it’s also easy to calculate:
- Monthly recurring revenue = Total earned from returning customers in the last month
Since this can easily change if a large client joins or leaves, it’s also worth measuring this on a month-by-month basis and plotting out your MRR rate over time.
Speaking of which…
Net MRR / net MRR growth rate
The net MRR growth rate of a company shows how much their MRR has grown compared to the previous month. Plotted over enough time, this will show the overall growth rate of your company’s reliable recurring revenue.
To figure this out, you’ll first need to calculate your net MRR for the last two months:
- Net MRR = (MRR from new customers + MRR gained from existing customers upgrading) – Lost MRR from downgraded or canceled subscriptions
Once you have this figure for the last two months, you can calculate your net MRR growth rate by doing the following:
- Net MRR growth rate (%) = ([Net MRR for most recent month – Net MRR for last month] / Net MRR for last month) X 100
Annual recurring revenue (ARR)
Annual recurring revenue (ARR) is exactly what it says on the tin – it’s the annual recurring revenue your business earns from ongoing customer subscriptions.
- Annual recurring revenue = Total earned from returning customers in the last year
These aren’t all the metrics you need, but they’re a solid start to a successful business
Congratulations on making it through! It’s been a long ride, but better to have all the basics in one place than string them out and make you flick between posts.
Having said that, these aren’t all of the business metrics you can (or necessarily should) track. The key is identifying the most important for your type of business, then expanding on them to know exactly what’s going on and how to constantly improve your results.
Speaking of which, do you have any suggestions for other vital metrics I should have included? If so, I’d love to hear from you in the comments below!
Until then, happy hunting.
Ben – this is invaluable. Thanks!!
its very interesting blog i really like this and learned much from this good job and keep it up.
Good post. You have obviously mastered the skill of positioning your photographs in WordPress where you want them to be!