When you’ve been running a small business for a while, it’s pretty easy to feel the ups and downs. You know when you are having a slow week, because you find yourself with way more free time than you’re comfortable with and worries about whether or not you are going to be able to pay your bills. You know when it’s a busy week because you are running around like a crazy person and can’t seem to catch your breath.
But these are just ebbs and flows, not true indicators of your business’s health or growth. How are you supposed to know if it’s time to take that next step? Or if perhaps you’ve already stumbled forward without realizing it.
Granted, there are times when business growth is crystal clear. You’ve made some new hires. You’ve received a massive order. You’ve started a partnership with a large manufacturer.
Other times though, the signs might not be quite as knock-you-over-the-head clear. For these times, we need data.
Tracking the right business metrics can be an invaluable tool for understanding what is really going on with your company, and whether or not things are headed the way you want them to. Your business is like a great ship, sailing forward with the wind at her back – and metrics are the compass. Or maybe the sextant. I’m not great with sailing metaphors.
Revenue is very simply, all of the money that your business is bringing in. Whether it is through sales, subscriptions, contract-based services, etc. – any dollar that comes into your business is considered revenue.
Revenue growth should also be fairly easy to track. Either in a spreadsheet or in accounting software of your choice, compare revenue figures from week to week and month to month. If the numbers are going up consistently, great. That is growth!
The basic formula for profit is Revenue – Costs = Profit.
If revenue is all of the money that your business brings in, profit is the money that you get to keep (or re-invest in your business). Start-ups frequently undervalue profitability, and you’ll often hear bigger, Silicon Valley, venture-backed type start-ups tout that new businesses shouldn’t be profitable for their first several years, and if they are it means they aren’t growing aggressively enough.
Opinions vary on profitability, and the truth is that the importance varies depending on what type of business you have and what your business model is, but generally speaking, profitability is going to be a good thing. It means your business is viable and can be successful long-term.
If your business is profitable, and especially if you find those profits increasing, this is a great indicator that it’s time to use that profit to re-invest in your business and grow.
If you aren’t profitable, it’s probably time to find ways to cut costs or operate more efficiently.
Whether you call them customers, subscribers or clients, the number of people you do business with is also an important metric to track.
Your business model will affect what these numbers look like (for instance, subscribers are going to provide steady revenue, as opposed to single-transaction customers). Generally speaking though, if your customers, or customers over a certain period of time (day/week/month) are consistently increasing, this is another great sign of growth.
The number of customers you have will also usually correlate directly with your revenue.
Revenue, profit and number of customers are some of the most simple but important metrics to track for the growth of your business. If you're focused on growth, it can be extremely helpful to focus on just one of these categories. While that may lead to growth across the board, it may also be difficult to grow all three at once. If you start tracking these numbers and see that they are all consistently growing – congratulations. You have a healthy, growing business.
Need help strategizing around your business growth and overall marketing strategy? Contact the team at 10twelve!