Are you still struggling to build a solid foundation for your business? Are just winging-it and don’t know for sure how your business is doing? If your answer is “Yes”, then stop listening to self-designated experts who continue to tell you that it’s all about your emotions and how you feel when it comes to building a successful business. It’s not! Sure, feelings are a part of the equation but it’s not the whole story.

This article is Part 2 of a 2-part series where I will explain to you the key metrics that you need to monitor to become successful or maintain success in your business. In this part, we will discuss revenue growth rate, customer retention rate, customer lifetime value, and budget variance. You can find Part 1 by clicking here!

Revenue Growth Rate

The revenue growth rate measures the sales of your business from one period to the next. This metrics helps to identify trends in your business. It is calculated by subtracting a past period by a current period and then dividing by the past period. It is important consider this measurement because it’s important to implement strategies to grow your business.

Factors to Consider:

  • Growing your business is important for business longevity. If you want your business to survive well into the future, implementing growth strategies is necessary.
  • Determine how much growth is reasonable at this point in your business.
  • Consider where you are personally in your life. Do you have a family? Do you have the time to invest in growing your business?
  • An annual growth rate of about 10% is good if sustained over time.

Customer Retention Rate

The customer retention rate (CRR) designates the percentage of customers your business has retained over a given time period. This data is important to know why customers are sticking with you. You can analyze and survey your repeat customers to determine why they continue to buy from you. This information helps to optimize marketing strategies to bring in new customers who have similar tastes, needs, wants, values, etc. It is calculated by dividing the number of current customers by the number of all customers in the last X amount of years.

Factors to Consider:

  • It’s cheaper to retain current customers than to acquire new customers.
  • It’s easier to sell to customers you already have a relationship with.
  • You can easily diversify your product line to sell other needs and wants to the same target market or set of customers.
  • To improve your CRR: Build your key performance indicators (KPIs) around customer service; Use customer surveys that include questions with the intentions to get feedback; Use social media to personally connect to your customers (Check out Wendy’s Twitter profile. They’ve done a great job at tapping into the minds and hearts of their customers through the use of Twitter).

Customer Lifetime Revenue

Customer lifetime value (CLV) measures the profit your business makes from any given customer. This metric helps you to understand your customers and helps to improve the decision-making process in regards to sales, marketing, product development, and customer support. It is calculated by multiplying the average value of a sale by the number of repeat transactions and then multiplying by the average retention time in months or years for a typical customer.

Factors to Consider:

  • Builds in both revenues and costs to objectively assess overall customer profit contribution.
  • Some experts consider the CLV to be the most important metric for any growing business because it helps you decided how much you will spend to acquire a customers, how you offer and tailor products and services for most of your valuable customers, and how much you should spend to service and retain customers.

Budget Variance

Budget variance is when your planned budget differs from your actuals. This data is important if you want to control costs and assess business/project goals, objectives, and strategies. It is calculated by subtracting the forecast (budgeted) amount from the actual amount incurred.

Factors to Consider:

  • Budget variance is favorable when the actual revenue is higher than the budget.
  • Budget variance is unfavorable when the actual revenue is significantly lower than the budget.
  • Small budget variances are expected.
  • Large budget variances should be investigated to determine why actuals are so far off target.

The following table is a brief overview of that must-need metrics to help test the success and failures in your business. These numbers will definitely tell you what you need to keep doing and what you need to limit or stop doing or fix for better results.

METRICSDESCRIPTIONFORMULA
Revenue Growth RateRevenue growth is calculated by comparing the current revenue (from a quarter or other time period) to that of the previous equivalent time period.(Present - Past) / Past
Customer Retention Ratethe percentage of customers the company has retained over a given time period# of Current Customers / # of All Customers Transacted in the Last X amount of Years
Customer Lifetime Revenuethe metric that indicates the total revenue a business can reasonably expect from a single customer account.Margin * [Retention Rate / (1 + Discount Rate - Retention Rate)]
Budget Variancethe difference between the budgeted or baseline amount of expense or revenue, and the actual amount.Actual - Forecast

Thank you for taking the time to read this installment of The Better Business Journal! 

Now, I would love to hear from you. Which part of this post resonated most and why? What action can you take today?

Leave a comment below sharing your thoughts and ideas and your story. Links to other posts, videos, etc. will be removed.

Establishing your business was hard. Maintaining and taking your business to the next level can prove to be even more difficult. It’s time to open up new opportunities for growth because Luck is not a Strategy!

Do you know of a business buddy looking to build a better business? Improve performance? Make decision-making easier and more simplified? Share this post!

With much love,

~Shun”

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