Measuring The Success Of Your Business

When it comes to gauging the success of your business and its marketing efforts, too many small business owners operate on instinct or “knowing what the customer wants” without actually having any sort of performance metrics in place to see whether or not these assumptions are true. The hard fact is that business intelligence is now a core requirement for long term sustained business success and those businesses that don’t know their metrics, are getting their lunches served to them by the ones who do (and probably don’t even know it). While there are a plethora of metrics that are important, the following three metrics are applicable to and should be measured by all businesses.  

Cost To Acquire (CTA)

This is the gold standard metric that you should know across all of your marketing channels. This metric is also extremely easy to explain, how much money do you have to spend to get one customer to purchase from you? (Total Cost of Marketing Campaign) divided by (Total Number of Customers Acquired Via The Campaign), that’s your CTA. If you’re just starting out and have performed no paid advertising of any kind, your CTA is zero. Zero is great, it’s also not sustainable.

As you begin to invest into different marketing strategies, regardless of what they are, they all have an individual cost to acquire associated with them. Things start to get a bit more complicated from here as more variables come into play. While the natural reaction for most people would be to seek out any channel with the lowest CTA, in the real world, it never pans out that way. In general (not always), your lowest CTA channels will also typically bring in the fewest amount of customers per month. If you want to know the secret to the absolute lowest CTA channel ever, I’ll tell it to you right now (don’t tell anybody else), it’s existing customer referrals. Those babies cost you as close to zero dollars as it gets! They’re also typically the hardest marketing channel to acquire customers through though so it does come with some drawbacks.

Most people obviously know what branding is and a lot of people also know that it’s important when it comes to business. Most small business owners don’t invest anything in branding though and when pressed on the issue, can’t actually tell you why it’s important, just that it is...but not for their business. Unlike my last secret, this one is actually good, the reason why branding is so important to a business is because over time, it lowers your CTA.

I will give an example without giving anything away about the actual company. I recently worked with a large billion dollar a year revenue company to help ramp up their internal marketing department. This company is in a very established industry and they were still very old school with their marketing efforts because they could be. Even this stalwart industry couldn’t hold out forever and this particular company reached out to me when they saw the writing on the wall. The interesting thing about them is that they were doing about $45k a month in marketing for 5 years prior but they weren’t measuring a single thing, they just knew it was making the phones ring. When we did a deep dive into the numbers, their CTA in their home state was $200. Their CTA in the bordering 4 states was $350 and their CTA outside of that radius was $575. They were doing quite a good job of brand building in their home state without realizing it and called me in when they tried to switch their campaign to a national one and their phones stopped ringing. After identifying national growth as our key target metric and working towards it for a year, we managed to drive the company’s national CTA down to $400 and it is still dropping.

Average Sales Cycle

If you’re a cash starved business (most small businesses), this is a key metric that you want to pay very close attention to. How long is the time in between when the average person becomes a lead in your system and when they finally make a purchase? That’s your average sales cycle. The reason why this metric is so important is because with it, you can measure the future short term financial stability of your company. If you know that you have six deals in your pipeline but they are all fresh leads and your average sales cycle is two months, you know that you have to wait at least that long before you see any potential revenue. Whereas if you don’t know this exact number, you’re a lot more prone to making risky financial moves that could leave you strapped for cash even if you have massive deals in the pipeline.

Lead To Close Ratio
While almost every sales rep that I have ever met would like to think differently, not every lead turns into a sale. In fact most of the time, very few do. Knowing exactly how many leads it takes to turn into a sale gets you to extremely important data. Like all of the other metrics listed, this one is again extremely simple to get at. It is just (Number of Leads In a Given Period) divided by (Number of Closed Accounts In Same Period). If you take your Lead to Close Ratio and your Average Sales Cycle and plugin the exact number of active leads that your business is working, you can accurately forecast how much revenue the business should reasonably expect during a certain period. From there, you can make adjustments to make payroll expenses a month before it becomes a problem rather than a week after payday.