It is essential for business, especially in their early stages, to keep a regular check on its various performance indicators. A start-up should have a clear understanding of various KPIs or Key Performance Indicators that measure the quantitative aspect of business activities. These metrics or indicators not only tell the current status of business but are also helpful in predicting the future of the enterprise. A wise entrepreneur always takes into account key business metrics while taking any decision related to business.
Business Metrics or Key Performance Indicators are nothing but data pertaining to various business activities like production, customer retention, return on investment, daily turnover, and self-generated goodwill among others. A careful analysis of all the data helps the start-up owner to evaluate his business’ day to day activities as well. It helps in identifying the loopholes as well. Here are 5 Key Performance Indicators Every Start-Up Owner should know and track –
Cost Of Acquisition (CoA) –
The first metric is the cost of acquisition, it measures the cost incurred to acquire each customer. So it tells a firm how much money goes in getting a customer. Every business needs customers to survive. It is important for an entrepreneur to increasingly acquire new customers and retain the old ones. To attract the customers, firms make lot of investment in marketing and advertising. It is therefore important to know whether the expenditure is worth it or not.
Here is how to calculate Cost of Acquisition for your business –
Cost of Customer Acquisition = Total Sales & Marketing Cost / Number of New Customers Added
Return on Advertising Spending –
For a firm to establish it in the market, it needs to reach the masses and creates its brand presence. An upfront way to do this by going for promotional activities. Advertising is the main component of a promotional and marketing plan. A huge chunk on firm’s funds goes into advertisement, it is therefore important for any entrepreneur to keep a track on the returns received by investing a particular amount in advertising.
Here is how to calculate Return on Advertising Spending for your business –
Return on Advertising Spending = Total Sales/ Advertising Spending
Customer Loyalty and Retention Rate –
According to a study a firm incurs 70 per cent more expenditure to acquire new customers than to retain the old ones. It is important to know that how many customers are willing to avail the products and services of the firm again. It also is a direct measure of customer satisfaction. In the initial years, loyal customers are important for start-up to deepen its roots in the market. Therefore, an entrepreneur should keep a check on this ratio as well.
Here is how to calculate Customer Retention Rate for your business —
Retention Rate = (No. Of Customers at end of Period- No. Of Customers acquired during Period)/No. Of Customers at beginning of Period
Rate of Return –
One of the most popular business metric and important business performance indicator is the rate of return. It is the net gain or loss of an investment over a specified time period, expressed as a percentage of the investment’s initial cost. All the stake holders have a special interest in knowing the RoR. It also signifies the level of growth of a firm. For a start-up it is important, especially those dependent on external funds, it is crucial to keep a tab as to how much return is being earned. Prolonged negative rate of return leads to the winding up of the firm.
Here is how to calculate the Rate of Return for your business –
Rate of Return = {(Current value of Investment – Initial Value of Investment)/ Initial value of Investment } X 100
A regular track of these metrics helps entrepreneur in figuring out whether the business is on right track or not. It helps in taking quick corrective measures as well. Proper analysis of the KPIs helps in ensuring long term growth of the start-up as well as help to decide upon future course of actions.
