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As a small business owner keeping tabs on every aspect of your business isn’t easy. From sales, inventory to employee costs, there is a lot to consider. Sure, you can use software to automate some of your tracking, but you will run your business much more efficiently if you identify and prioritise the most important tasks. As every small business owner knows, keeping your business surviving and thriving requires a lot of effort.
Australia has about 2.3 million registered businesses. However, more than 60% of small businesses will shut their doors within the first three years. To ensure that your business doesn’t become another statistic, there are some key metrics that you can track, allowing you to make adjustments to the way you run your business and avoid a downward spiral.
1. Track Acquisition Costs
Acquiring new customers can be costly. If you aren’t carefully tracking your return on investment (ROI), you might burn through your marketing budget and have nothing to show for it. Create separate landing pages for each online campaign and track click rates, the amount of time people spend on the page and how many visits result in the purchase of your product or service. You’ll be able to accurately determine which efforts are most successful and which ones fall flat.
Your goal is to learn how to acquire customers at the lowest price point possible. Determine your acquisition cost by taking the overall cost of the campaign (be sure to include employee salary costs) and divide it by the number of people who end up placing an order. This will allow you to determine the cost of acquiring each individual customer. Of course, there are many other factors to consider when determining the ROI of your campaign including the dollar point of each order and if you are able to retain customers (generate repeat orders).
2. Reduce Customer Churn
The cost of gaining a new customer is almost always higher than simply maintaining repeat customers. Attrition metrics (if the number of customers is decreasing) give you an idea of whether something is broken in your sales funnel and causing you to lose what were once loyal customers. Potential culprits could be a lengthy delivery time, limited payment options or rude customer service.
Are you following up with your customers and sending them regular emails to keep them up to date with your latest products and sales? There are so many factors that can cause you to lose customers, so be sure to track attrition metrics and take note of what point in the sales funnel you lose the most customers. This will help you target where you are going wrong and improve your numbers in the most efficient way possible, maximising your profits
3. Trim Fixed Costs
Measuring your fixed costs helps you see where you are spending and determines the overall profitability of your business. Your fixed costs are any ongoing and consistent bills, including rent, internet, electricity, employee wages, software services and more. Make a list of your fixed costs and see where you might be able to cut them down by finding a better deal. Sometimes all you have to do is ask.
For example, you can phone your internet provider and ask if they have any discounts that they can offer you – and they usually do, particularly if you say that you are considering switching providers. You can do the same with many other ongoing bills. It probably isn’t a good idea to cut employee wages as you’ll risk losing well-trained members of your team, but before you hire any new employees, make sure that you can afford the added expense.
4. Encourage Productivity
Employee productivity directly impacts your profitability. No matter what type of business you are running, well-trained, productive and happy employees will complete more work and work that little bit harder, giving your business that extra edge. So how can you measure employee productivity? You can install productivity trackers on employee computers, but be careful not to turn into a big brother figure as this is sure to breed resentment and actually drive down productivity.
Even though a recent poll showed that employee engagement is on the rise in Australia, about 71% of workers admitted to being disengaged. Tracking how productive your workers are is only part of the picture. You should also open up lines of communication and encourage collaboration as part of your company culture. Reward results and that your employees will do a good job without being micromanaged.
5. Know the Highest and Lowest Selling Products
It’s important to fully understand your products or services. You should always know your top sellers? You can use software to generate reports on which of your products you are selling most often. If it is one of your cheaper products, this might be a factor that is reducing your profitability.
However, if you then dig a little deeper, you find that a high percentage of those customers return and buy a more expensive item without any more effort on your behalf. Knowing your customer’s purchase patterns allows you to make better decisions about which products you continue to offer and which ones need to go.
6. Project Monthly Profit or Loss
Always keep track of your monthly profit or loss. Some restaurants can run in the red for years at a time before finally closing their doors. If you don’t have a handle on how much you’re making each month, it’s quite easy to overspend or jam up your cash flow.
Without a balance between money going out and coming in, it’s difficult to pay your staff or take a salary for yourself. Since the median small business owner makes $35 per hour, you will really feel the pinch if you have to cut into your own salary.
Choose your most important KPIs
Key performance indicators (KPIs) help you get a handle on the health of your business. There are dozens that you can use, so it’s important to figure out which ones have the most impact on your business’ success and track those carefully so that you don’t waste time and money tracking unhelpful KPIs
If you’re just getting started, then the metrics you choose may relate more to customer acquisition and fixed costs. If you’ve been in business for a while, then discovering customer churn and average basket price may be more helpful for your business.
Track the metrics which make the most sense to your company and apply changes as needed to ensure that you remain profitable.
“The opinions expressed by BizWitty Contributors are their own, not those of BizCover and should not be relied upon in place of appropriate professional advice. Please read our full disclaimer."
