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Most small business owners start their journey with nothing more than a dream and the willingness to work hard. But to run a successful business, there are a number of financial metrics that owners need to follow. Profit and loss and equity are obvious places to start, but there are plenty of other options that can give a business owner a more complete picture of how their business is really doing. The less obvious financial metrics listed below can not only point out areas where your business can improve, but also put you ahead of your competition.
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Cost of acquiring new customers
If you’ve ever watched an episode of the popular “Shark Tank” show, you’ll recognize this metric as the one sharks ask entrepreneurs quite frequently – and for good reason. Without understanding how much it costs you to acquire a new customer, you can’t really assess the success of your sales and marketing efforts, or even the profitability of your business. To calculate it, divide your total sales and marketing expenses by the number of new customers you generated.
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Monthly burn rate
No matter how good your business idea is, your business cannot survive without cash. While some businesses may be able to repeatedly raise funds from investors, many small businesses have to survive on the money they initially put on the table. Either way, measuring your monthly usage rate will tell you how fast you’re going through your fundraising and how long your business can survive – or at least when it’s time to raise funds again.
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Customer loyalty and satisfaction
The key to any business’s long-term success is customer loyalty and satisfaction. If you fail to attract paying customers – or if they only buy from you once and never come back – then your business is doomed. Satisfied customers are not only loyal customers, but also a source of referrals. This is why it is so important to measure the rate at which you retain your customers and their level of satisfaction. Ideally, this metric will show that not only are you attracting more and more customers, but that they become partners with your business, support you regularly, and bring you even more customers.
Age of accounts receivable
Sales are big, but fewer customers than ever are paying cash. This means that you typically won’t receive payment for your goods and services for 30 days or more after you make a sale. Statistically speaking, the longer you take to collect your accounts receivable, the more likely it is that you will never get paid. It can be easy for a busy owner to focus on current sales and attract new customers, but if you don’t actively track the age of your accounts receivable, you will inevitably end up working hard to make sales that never translate into reality. income for your business. It’s a losing game in the long run.
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Social media penetration
Social media penetration is a metric that didn’t even exist in the not-so-distant past. However, it is becoming a more important criterion than ever for the success of a business. Most people now use mobile apps, websites, and social media to learn about businesses. Therefore, if you are not active in these areas, you are almost certainly losing ground against your competition. If your social media engagement is on the decline, that means you’ll need to build a more engaging online presence to drive future sales.
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No small business should expect to be immediately profitable. In most industries, as a new business owner, you should expect not to make a profit for a few years. In fact, even some of the biggest companies in the world, like Amazon, were publicly traded companies for years before they became profitable. So, while making profit is the goal of any business, as long as your business can survive on the basis of cash flow, your business’s profitability trend can be an even more important metric. It is one thing to lose money if there is a path to future profitability, but if you spend money and suffer larger losses each year, it can be a sign that your business is failing. will not survive.
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