Key Metrics to Track as You Expand Your Company
Scaling a company can be highly rewarding, but it also entails risk. Perhaps no risk is bigger than illusory growth that isn’t really going to translate into a bigger bottom line. Opening more stores looks like growth, but means little if they’re unprofitable. Adding more pages to your website and getting more visitors is no good if they don’t eventually buy anything. Here are the metrics you need to track to keep you grounded in reality while you grow.
Revenue Growth Rate
Although imperfect on its own, the revenue growth rate provides the most simple sign that things are going in the right direction when you rapidly expand your company. It is simply the percentage change between sales in the current month, quarter, or year versus the previous one. Ideally, you want to see a steady rise in revenue. Be suspicious of large leaps in revenue, as this often happens in response to promotional campaigns and cannot be sustained going forward.
Gross Profit Margin
Not all business models are as profitable at scale as they are when they are smaller, and tracking revenue growth or profit growth in isolation can cause you to overlook declining profitability in your business. As a minimum, you need to keep an eye on your gross profit margin, which is your revenue, minus the cost of goods sold, divided by the revenue. This will tell you if costs are increasing faster than sales, so that you can address them.
Customer Acquisition Cost
As your business grows, you should expect to see the cost of acquiring customers (CAC) come down. This is because more people have already heard about large businesses, or they get referred to them, so you don’t need to spend as much on getting people to notice your brand. The total CAC for your business can be calculated by dividing your marketing and sales outlay by the number of customers added during the same period.
Customer Lifetime Value
This is the net profit an average customer is expected to bring to your business in their life. It is computed by multiplying the average purchase value, frequency, and expected customer lifespan, and then adjusting it based on the profit margin we spoke about earlier. Increases in this suggest you are retaining customers and upselling well, while decreases are a warning sign that people are dissatisfied or that your competitors’ switching incentives are working.
Conclusion
There are many more metrics you can track as your business grows, but these four provide a good starting point and help you spot signs of trouble early.
