The saying goes, “If you don’t know your numbers, you don’t know your business,” and they say it because tracking numbers really is an essential part of operating a successful business. Why do you think the sharks on “Shark Tank” are always asking guests for their numbers first?
If numbers aren’t really your game and you find them overwhelming, then it can be stressful to know which ones to start with. Tracking as many numbers and statistics as you can interpret and use is always great. But, some key performance indicators (KPIs) are more necessary to track than others, for the most part. Certain numbers have actionable value, while other numbers are simply good to know.
Below are 3 KPIs that Newsletter Pro tracks daily, weekly, or monthly, and they’re a great place for most businesses to start tracking their own numbers too. Naturally, not all numbers relate to all industries, so if one of these isn’t relevant to your business, then find one to replace it instead of skipping over it. Practice the habit of doing more when it comes to tracking your numbers, not finding excuses to do less.
Churn
We talk about churn a lot, but that’s because it’s so important to know. Just about every type of business can and should keep tabs on their churn. You need to know how many customers leave your business each month because this is the minimum number of new customers you need to get in the following month just to break even. By tracking this number weekly and monthly, you’ll start to see patterns of when customers leave. Then, you can take proactive steps to reduce your churn. Remember: It’s always easier to hold onto an existing customer than it is to gain a new one. You can also find holes in your systems and processes more easily when you’re tracking your churn number. It tells you if your business is growing or dying far more accurately than your sales numbers do. That’s why you should have a full understanding of your business’s churn number and churn points. I have a new book, Stop Losing Customers, that’s all about how to calculate and reduce churn. Grab a copy here.
Pipeline Revenue
This number is used for any business that gives a quote and closes business in the future. Pipeline revenue is the total sales volume you’d have if you won each and every piece of business you quoted over a given period of time. You can look at the pipeline revenue number as a leading indicator of future sales. For example, say you need to produce $100K in new pipeline revenue in order to close $30K in sales during the following month. But 20 days into the month, you’re only at $54K in new pipeline revenue when you should be at $67K. Because you are tracking this KPI, you know to change something in your operations. You must do it fast or you won’t hit your goal for the month. This means you likely won’t hit it the following month because you’ll continue to fall further and further behind. This blog post details some ways to increase your leads and close more sales.
Average Annual Revenue Per Employee
If you know your sales number and number of employees, then you can do some simple math to get the revenue per employee. Tracking this number lets you know how healthy (or unhealthy) your company is. Most companies earning over $1 million in revenue will have a minimum of $100K in revenue per employee. It’s not uncommon to see small businesses with $125K, $150K, or $200K+ depending on the industry they’re in. Most Fortune 500 companies have a minimum of $500K in revenue per employee. The more revenue per employee, the more effective your business is at maximizing its greatest resource: the people who work there. This number can skew down a bit if your business is in a stage where it’s growing fast and hiring a lot of people. If you’re not in that stage and find your revenue per employee is under $100K, then you’re likely over-staffed. This means your business is going to struggle to turn a good profit or, worst-case scenario, survive.
Newsletter Pro tracks churn and pipeline revenue on a weekly basis and average annual revenue per employee on a monthly basis. Staying on a consistent schedule of tracking these important numbers is key.
Keeping It Real
As you dive into the process of finally tracking your numbers, you must always remember: Numbers are only good if they are valid and real. That means you need to double-check, even triple-check your math. For example, if you have a 10% customer churn number (a great churn number) but don’t actively do anything to reduce churn, there’s a good chance your math is off.
Another key thing to keep in mind is that sometimes, a number that looks really good actually isn’t great. If someone boasts about that 10% churn number, but further digging reveals that they have 24-month contracts and have been in business for only 22 months, then that number doesn’t show anything good at all. On the surface, the churn number alone appears to be great. But within the context of the business’s details, that number really doesn’t tell the whole story. So be honest about your numbers because they won’t be useful to you if you’re not. If you lie to yourself, then you’re just adding insult to injury.
By tracking churn, pipeline revenue, and average annual revenue per employee, you’ll be in a much better spot to be proactive for your business. You’ll be equipped to solve minor problems before they ruin your month, quarter, or year.
