What are Business Metrics? (+ 6 That Matter Most for SMBs)

After small business owners establish their companies and reach their first few major milestones, it’s time to think about how to consistently grow and maximize long-term potential.

Often, an entrepreneur’s initial goal is to get customers. Beyond that, business owners should prioritize securing a regular customer base. Then small businesses need to reach profitability and recoup startup costs. 

Growth and long-term success don’t happen by chance, though. Generally, leaders need to take stock of the most important metrics for their businesses and devise plans to progressively improve them and increase their bottom lines. That way, managers can focus on aspects of the organization beyond quarterly profits and losses and annual financial reviews.

Six business metrics that matter for small and midsize business (SMB) include:

• Customer acquisition cost
• Average deal size
• Margins per product line
• Customer or client retention rate
• Pipeline cycle length
• Employee turnover rate

Keep reading to understand what business metrics are and explore these six business metrics. Then find out why each metric is crucial to your success.

Business performance metrics measure various aspects of an organization’s productivity. They provide a quantified sense of a company’s potential. Positive performance in one area can be a leading indicator of growth in other areas if the organization manages its resources strategically.

A growing business should improve these six metrics to enhance their overall performance.

You probably know the general rule of doing business that you should earn more than you spend. This maxim is also true for customer acquisition. Between advertising costs, sales commissions, and labor, companies pour a lot of resources into courting customers. But many leads never convert.

The cost of customer acquisition is one of the most crucial business performance metrics to track. Once you know how much you spend on each new customer, you should make a constant effort to minimize it.

To lower the cost of acquiring new customers, take measures to increase your sales team’s win rates, curb marketing and sales efforts with low-performing channels, and fix leaks within your overall funnel. Also, scale channels within your marketing and sales stack that consistently generate quality leads and profitable sales.

From start to finish, you need to invest a lot of resources to close a sale. Your existing customers are the buyers most receptive to purchasing from you. When a customer commits to a purchase, find ways to offer them premium upgrades or cross-sell them other products or services in your catalog. You’ll drive more revenue with each deal and provide your clients with solutions they may have overlooked during the sales process.

If you own a business that sells products, you can negotiate with vendors and optimize your supply chain to reduce your line-item costs. If your business offers services, you can license software and tools or outsource labor-intensive functions to increase your team’s efficiency and output.

Sales reps should also focus on cross-selling high-margin products and services to capture more value from each client. When you improve your margins on each product line, you’ll grow your bottom line. Then you can invest more funds in customer service, research and development, and sales and marketing efforts.

In a 2000 study published by Harvard Business School in partnership with management consultancy Bain & Company, researchers found that a 5% improvement in customer retention can lead to a 25% to 95% increase in profits. In some cases, customer loyalty builds empires, and customer churn kills companies.

Prioritize customer satisfaction to ensure your existing buyers return regularly to make repeat purchases. When you build a base of loyal repeat customers, you’ll receive more positive customer reviews and inspire word-of-mouth recommendations, which will lead to higher volume referrals and organic sales growth.

Customers tend to buy some products and services on impulse. But they may spend months researching and evaluating higher-end purchases. Your sales reps may feel it’s up to potential customers to decide when to commit, but your company can help influence faster, positive purchasing decisions.

Salespeople can shorten the sales cycle by responding quickly when a potential customer requests more information and proactively sending sales collateral and competitive comparison data. By tracking and shortening the sales cycle, your company can reduce the risk of customers selecting competitors and free up more time for your sales team to pursue other prospects.

Employee turnover may be one of the least obvious business performance metrics, but it’s crucial. Research from the Work Institute estimates companies stand to lose approximately $15,000 when an employee resigns from a post. That’s because when you lose an employee, you must recruit, train, and onboard a new hire, which costs time and money.

The most successful businesses maintain high employee retention rates. You’ll have greater long-term success when you can consistently rely on your staff to execute the tasks you assign them. And you’ll also have an easier time adding to your headcount to scale your business when you’re not scrambling to replace departing team members.

When you prioritize your key business metrics, you and your management team will be able to spot and capitalize on hidden opportunities for growth.

Make sure to communicate your performance priorities to your staff so they can operate with the same goals in mind. Also, regularly rethink your business metrics to determine which ones your team should focus on. Compare how many resources you’ll need to improve different metrics with their relative impact on your bottom line.

To evaluate your organization’s performance, use dashboards to monitor progress. Work with your team to update your targets and reach for bigger goals as new data comes in. That way, everyone can adjust their expectations based on recent progress and the team’s overall trajectory. Revamp your action plans as needed to correct performance shortfalls and produce new strategies to shift your focus toward high-growth efforts.

Although small business owners should pay attention to each of the six examples of business metrics listed above, not every company has the resources to tackle all six at once. You may want to focus on just one or two metrics at once.

When you apply discipline and focus to reduce the cost of customer acquisition, increase average order values, improve product margins, reduce customer attrition, expedite the sales cycle, and minimize employee turnover, you give your business a competitive advantage that facilitates faster sales growth and improves your bottom line.