To a true entrepreneur, words like “growth” and “success” aren’t just related — they’re practically synonyms.
Even if you refer to the plans and activities you pursue as a business strategy, you’re really talking about a growth strategy. This encompasses getting more customers, more sales, and subsequently more resources to continue expanding the portfolio of products and services you can offer your target market.
Trying to grow a business can be an all-consuming affair, but the hardest part is not necessarily all the effort involved. It’s measuring the right key performance indicators (KPIs) to make sure your efforts are actually leading you in the right direction.
Imagine for a moment that you see a huge influx of sales. That seems like growth, right? Except that you might have priced those products too low to actually supply them to customers at a profitable rate. That means you could drain your resources on all the expenses involved in fulfillment, leaving little left for future sales.
Similarly, losing customers isn’t always an indicator that growth has plateaued or that you’re entering a period of decline. In some cases, a single customer will take so much time to sign off on a deal or require so much support that they become more expensive. Losing them may, in fact, be a good thing if it means you can spend more time and attention on customers who spend more with you.
Both of these examples point to a vital element in measuring growth, no matter which KPIs you ultimately settle upon. True growth is sustainable — meaning that you can make investments that produce consistent results over time, and which enable you to build upon your efforts in a way that leads to long-term payoff.
This can be broken down among a number of different metrics. Use all of them in a step-by-step process so you’ll know your growth strategy is the right one:
1. Customer Acquisition Cost (CAC)
The math on CAC is fairly rudimentary: divide the number of prospects you turn into customers by the amount you’ve invested to do so.
Normally this is done by looking at what was spent on marketing, which becomes a lot easier when you use tools like marketing automation to manage the process of raising awareness and generating demand.
Don’t limit yourself to marketing expenses, however. Remember the vital role that sales reps will play in this process, particularly in B2B, where acquiring a customer may involve booking multiple meetings and working through a series of procurement hurdles.
2. Lifetime Value of a Customer (LTV)
Let’s say each customer you acquire spends $10 with you. That’s all good, but what happens when three of those customers continue to spend $10 year after year, or even month after month?
“Lifetime” may not refer to decades in the case of customers, but it should reflect the ideal time frame in which you’d like to maintain the relationship and continue to add value.
Don’t just think in terms of duration, either. Some customers will not only continue investing in your flagship product, but will be more open to cross-selling and upselling opportunities that you present to them. This is sometimes referred to as the “share of wallet” you have with a customer, but it’s also an aspect of LTV that should be tracked. Sometimes you can affect LTV just by being more proactive with customers, so make a resolution to try and sell more within each account.
3. Net Promoter Score (NPS)
Although it’s not always used by small businesses, NPS is a formula in which you attempt to gauge the number of “promoters” (those who would recommend your company to others) minus the number of “detractors” (those who would actively tell others to avoid giving you business).
Measuring NPS can involve a lot of survey data, but even if you don’t use it, it’s helpful to know the extent to which you’re creating true ambassadors or fans. Some customers may stick with you because they feel there aren’t any other choices out there, but if someone loves your company enough to spread word of mouth, your cost to acquire new customers could go down considerably.
4. Qualified leads per month
You may not have a large marketing and sales team yet, but you should have some kind of mechanisms in place to help point you towards the most likely people to sign on as customers. This could be done by capturing prospect data through content marketing, or simply cold calls made to people whose business cards you gathered at a trade show.
A steady influx of good leads will mean lower costs to acquire customers as well, and is also a good indication your marketing and sales prospecting efforts are on the right track.
5. Operational productivity
High demand for your products, and even loyal customers, won’t mean much if you aren’t able to keep up with demand.
You should have a clear line of sight on how well your team is able to manage their workload, and identify any points of friction that may be costing you in any of your other growth metrics. If your reps are so busy chasing new opportunities that they aren’t upselling to existing customers, for instance, they may be affecting things like LTV and CAC.
This is why more businesses are embracing digital technology to shift away from manual processes and time-consuming tasks that hamper their growth.
You may not master all of these metrics right away. That’s fine — just attempting to implement them will likely open your eyes to what’s really going on in your business. This is where the most successful companies begin to make changes to processes and even the people they hire in order to make the most of the opportunities ahead of them. The more you keep learning and adapting, the more you’re likely to keep growing.
