The Top 4 KPIs for Growing Your Business
As things start to open back up, businesses are being forced into a rat race to try and reinvigorate their customer base. In America, a flood gate opened when society was allowed to open back up, forcing the economy to go from zero to 60 overnight. Startups and proprietors of early-stage ventures need to pay even closer attention to their existing customer base while also really honing in on the ways to grow that base to wider perimeters.
In the following blog, we will outline the top Key Performance Indicators (KPIs) for growing your business to help you gain a competitive edge—even in the cut-throat market that is the post-pandemic economy.
Average Sales Cycle Length
The average sales cycle length measures the timeframe of initiating a sales contact to closing the deal. A sales cycle length has many determinant factors depending on your industry, type of company, prospect size, and whether your offering is a service or a product. At first, the goal is to remain as steady as possible in your sales cycle length. This helps to maintain an accurate baseline for your sales, allowing you to execute more reliable sales forecasting while also keeping track of any growth that takes place.
As your startup grows and your other metrics improve, the sales cycle will naturally shorten—showing that your business is becoming more lucrative and efficient. There is some variety in sales cycle length across industries, however. For example, E-commerce is going to have a shorter sales cycle than a SaaS business.
No matter your business, if there is dramatic waxing and waning in your sales cycle metric, it is indicative that there might be an issue with your internal sales processes—so keep an eye on this metric and adapt accordingly.
How to Calculate:
Time spent between the first contact with a prospect and sale to that prospect (for all sales) / the total number of sales= Average Sales Cycle Length
Burn Rate
Burn rate is the metric that determines how much cash is needed to run your business, stipulating the speed at which a company is spending its capital. Burn helps to decide whether to cut costs or invest more in your company.
Determining whether your business is on the positive or negative side of the ledger with burn rate can help you to better project how much cash the company needs to keep operating and growing. If your company’s cost-to-income ratio needs to be bolstered, it can help to indicate the necessity to pursue new fundraising opportunities or mitigating costs within the business. On the other hand, if you have cash left over, it can help you decide which efforts in your business you can reinvest in, such as hiring, marketing, or skill development.
Tracking burn rate is vital for startups as they do not have a steady income flow yet, and sudden increases might unearth unexpected expenses. What is more, there will most likely be variability for early-stage ventures, so the burn can also help designate the need for financial adaptation.
How to Calculate:
Total cash at the start of the month - Total cash at the end of month = Burn Rate
Cash Runway
Cash runway takes burn rate a step further and measures the length of time your business budget should last you at the current burn rate. This metric is typically measured monthly and helps businesses get a bigger picture of their financial health. Cash runway allows companies, especially startups, to balance the books and understand any fluctuations that occur between income and outcome. With this insight, a company can decide whether more efforts are needed to help extend its cash runway.
Keep an eye on both your sales pipeline and your current cash flow to have the most reliable estimation of your cash runway. It also doesn’t hurt to try and project your expected expenses, distinguishing whether costs are one-time or recurring.
How to Calculate:
Cash balance / Monthly burn rate = Cash Runway
Customer Acquisition Cost
Customer acquisition cost (CAC) is the amount of money you spend to gain one new customer. It encompasses all of your expenses, salaries, and overhead costs for needed teams involved with attracting new customers.
A metric that can vary significantly depending on company and product, CAC quantifies the sales and marketing investments needed for individual customers. However, something to note is that CAC doesn’t exactly provide all of the information you need to make overall informed financial decisions. It is much more useful to break this metric down into segments so that you can better understand what areas of your business require action to enhance the feasibility and probability of gaining new customers.
How to Calculate:
Total sales & marketing expenses / new customer acquired = Customer Acquisition Cost
To sum it up, the customers and the numbers they provide are the ones that truly matter when it comes to growing your business. Tune in next week to find out about the top metrics to help your company hit its stride as a business in 2021.