Business success can be defined by many factors. Finding the right metrics to measure the success of your organization is key to monitoring and evaluating its performance...
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Business success can be defined by many factors. Finding the right metrics to measure the success of your organization is key to monitoring and evaluating its performance. With the right resources, you can bring new focus to your workforce and optimize for the long-term well-being of your company. In this article, we take a look at several types of metrics your business might use to measure success.
What are success metrics?
Success metrics, often used with “key performance indicators” (KPIs), are measurable data used to determine the achievements of your business efforts. While these metrics may differ depending on business priorities, effective metrics are actionable, measurable and drive successful behavior. Once your organization has identified its goals, the corresponding metrics should be simple and easy to communicate to people outside your line of work without much context.
Types of success metrics
Here's a list of common metrics used for measuring success across a variety of business platforms:
1. Break-even point
The break-even point accounts for the amount of money a company must earn in a given period—monthly or quarterly—to cover its costs and sustain itself. Tracking whether your company is meeting, exceeding or falling short of this number is key to measuring success and creating actionable next steps. For experienced companies, the break-even point may be the minimum expectation while newer companies may aim simply to meet this goal consistently.
2. Net income ratio
The net income ratio, or profit, is the money left over when a company subtracts its expenses from its revenue. Businesses have traditionally viewed this metric for measuring value and it can be a quick indicator of whether your company is thriving.
While most companies prioritize the growth of profit, new companies may take some time to see consistent numbers in this area. You should provide context with historical data to measure growing trends in your company's success over time.
3. Monthly recurring revenue
If your business runs on a subscription-based model, you might benefit from measuring your monthly recurring revenue (MMR). This metric refers to the company's total revenue during a specific period—usually a month—distinguished by particular products or services, how many customers bought them and how many downgraded their monthly purchases. Individually, these sales indicators allow businesses to monitor specific changes in customer behavior and make adjustments accordingly. When combined, these measured indicators help businesses track overall growth in both customer numbers and individual spending over time.
4. Leads, conversion and bounce rate
If your business relies heavily on marketing and advertising to generate sales, tracking the metrics for those efforts can be crucial to ensuring their success. Follow these steps to track the data related to your marketing leads:
Measure the leads generated: Tally the total instances of contact with a potential customer.
Assess your leads converted: Tally how many of the leads generated resulted in a sale.
Calculate your conversion rate: The percentage of leads converted from leads generated is your conversion rate. It can demonstrate how effective you are at both reaching and retaining a customer.
The inverse of your conversion rate is your bounce rate, which measures the number of visitors who navigate to your company's webpage but leave immediately without interacting. This triggers only a single request to the analytics server, resulting in a bounce. The number of bounces as a percentage of your leads generated can be used to identify gaps in your marketing, advertising and user experience.
Related: How To Measure the Success of a Marketing Campaign With Metrics
5. ROI and ROAS
Return on investment (ROI) is the ratio between income and investment. It is measured by subtracting your company's cost of goods or services from your overall revenue, and then, dividing that number by the cost of goods or services sold.
Depending on your ROI, you'll be able to evaluate whether your investment was financially worth it. If your company's ROI is high or positive, it's generally a worthy investment. If it's low or negative, it's typically not.
In marketing, ROI is the specific return on investment a company receives from the funds they spend on marketing and advertising. ROI compares the revenue benefits of a marketing campaign to its overall cost to identify the most cost-effective ways to increase earnings. Using this metric in conjunction with lead generation and conversion rates allows a company to track the precise value of the average customer. This is calculated by dividing the revenue generated from each lead into the amount you invested in the advertising that produced the lead.
Return on ad spend (ROAS) is another useful metric if you invest heavily in advertising to generate sales. ROAS measures the exact amount of revenue your ads have generated for your business. This number is separate from your overall profit but offers a clear indicator that your ads are working to your advantage.
Related: How To Calculate ROI: A Guide To Calculating Return On Investment
6. Customers
Customers are often the clearest reflection of a company's success. Many companies find valuable insight in measuring customer experience as a key metric for long-term success, relying heavily on the data around brand-customer relationships to monitor trends and form sustainable practices. Increased focus on the customer experience has led to a rise in metrics that quantify these relationships from every angle.
Here are some customer-focused metrics you can measure for your organization:
Conversion rate: This metric looks at the percentage of customers that complete a desired action like making a purchase, registering on a site, submitting a form or subscribing to a plan or mailing list. The calculation depends on how you define conversion. If you want to calculate the conversion rate for a website, for example, divide the number of conversions for a period by the total number of visits to your website for the same period and then multiple it by 100%.
Customer health score: Tracking the number of new customers, repeat customers and typical customer spending patterns can indicate whether customers are satisfied with your product. These metrics together form your customer health score, which provides foundational data for more specific measures of success such as your net promoter score, customer lifetime value and customer retention cost.
Net promoter score (NPS): This is the measure of how likely your customers are to recommend your business to someone else. NPS is one of the most common measurements of customer loyalty and satisfaction. It is typically measured by customer feedback to provide an idea of how people feel about your brand.
Customer satisfaction score (CSAT): CSAT is another metric to determine how satisfied customers are with a specific action, product or service. While NPS measures customer loyalty, the CSAT measures customer satisfaction. It typically is a short-term measurement while the NPS can be more beneficial over a longer time. A customer satisfaction survey generates a rating for each interaction and can be reviewed in different percentages based on that rating.
First contact resolution rate: If you're looking to improve how customers are feeling about your brand, it may help to consider your first contact resolution rate. This measures how efficiently customer service inquiries are resolved. People like to know that their issues aren’t ignored and resolving their concerns at the first interaction can turn a frustrated customer into a lifelong subscriber.
Customer lifetime value (CLV): CLV shows the profit can expect to earn from a single customer over the average lifetime—how long they stay your customer—of their relationship with your business. This is measured by multiplying the average value of a purchase by a customer's average frequency of purchase. Multiply that number by the average lifespan of your customer. The total is your CLV.
Customer retention cost: Often reviewed alongside CLV, this metric measures your total cost of customer success efforts against your total number of customers to determine the average cost of retaining each customer through their projected CLV. If your CLV outweighs your customer retention cost, that's a sign that your customer success efforts are worth the investment.
Customer churn rate: This metric, sometimes referred to “customer attrition rate,” is used to measure how often customers stop doing business with your company. It gives you the percentage of customers who no longer use your product or service through, for example, canceled subscriptions, unrenewed contracts or closed accounts. To determine churn rate, take the total number of lost—churned—customers over a period and divide it by the total number of all customers in that period.
7. Employee satisfaction
Employee satisfaction is the level of contentment your employees feel for their position. Often overlooked as a critical metric, employee satisfaction correlates directly to customer satisfaction, making it essential to business success. Satisfied employees can lower rates of employee turnover and the need to redistribute resources.
Take the time to make sure your employees have a positive and supportive work environment equipped with the tools and resources needed to be successful. Happy employees are more likely to spread that feeling when communicating with a customer who then will be likely to remember the interaction as a pleasant experience.
Tips for setting success metrics
Here are some tips to keep in mind when setting success metrics for your organization.
-Keep your list of success metrics concise. Aim to prioritize roughly five measures of success to maximize clarity and ensure your organization is working toward the same goals.
-Present your data with transparency. Give your audience enough information to interpret trends over time, examining historical data from any angle that might help drive successful behaviors.
-Use the data to promote actionable change. Many of these metrics—including customer satisfaction, leads generated and first contact resolution rate—can be linked back to direct employee responsibilities. Use the measurements you collect to start a conversation about actionable goals that are specific to different segments of your business.
Link to original article: https://www.indeed.com/career-advice/career-development/success-metrics