Business Metrics For Small Business

Today, it’s easier than ever to collect vast amounts of data about our customers. There are many low-cost Point Of Sale systems out there which provide you with some nice reporting features that you can take advantage of to help you grow your business and make better business decisions.

However, many small business owners aren’t aware of how important it is to track your progress and how to use metrics to make sense of it all and measure their success.

Here are three simple metrics every business owner needs to know that can provide a starting point for taking your business to a whole new level.

Average Transaction Value (ATV)

Average order value (ATV) is pretty self explanatory. It gives you the average of how much is spent on average with each transaction made. This metric is very important, as it can help you decide on whether you should be focusing on increasing your order frequency (by using more touch points in your marketing) or your average transaction value (using up-sells and cross-sells).

How to calculate Average Transaction Value

Simply divide your total sales for the day by the number of total transactions for that same day.

Example:
$5000 turnover / 100 Transactions = $50


Customer Lifetime Value (CLV)

What is every new customer worth over the lifetime of their relationship with your business? It’s a simple metric with big implications. Knowing the lifetime value of a customer is a crucial part of understanding how much is reasonable to spend on acquiring a new customer. Measuring CLV is also a good way to determine whether your business is taking full advantage of its customer relationships. In many, if not most cases, it costs less money to increase revenue from existing customers than it does to acquire new ones. Yet still, most business owners are still more focused on acquisition than retention.

How to calculate Customer Lifetime Value

CLV = Average Transaction Value * Customer Frequency * Average Customer Lifespan

Example:
$50 Average Transaction Value * 1 purchase per month * 12 months average retention = $600


Cost of Customer Acquisition (CAC)

What does it cost you to acquire a new customer? While the importance of knowing the cost of acquiring a new customer is obvious, surprisingly a lot of business owners don’t pay as much attention to this metric as you’d expect them to. Keeping customer acquisition costs top of mind can benefit a business in numerous ways.

For starters, many companies spend more than they estimate on customer acquisition and in many cases, they continue to invest in marketing channels that make little sense given the lifetime value of their customers.

How to calculate Cost of Customer Acquisition

CAC = Total Ad Spend / Number of New Customers

Example:
$500 Facebook Ad Spend / 50 New Customers = $10

If, like in the example above, your Customer Lifetime Value is $600, it makes sense to spend $10 to acquire a new customer. However, if your CLV would only be $20 you might need to look for a new strategy to acquire new customers or focus on increasing your Average Transaction Value, Purchase Frequency and Retention Rate.


Are you currently tracking any metrics that have helped you grow your business and make better decisions in your marketing? Let me know in the comments below!

10 replies
  1. Freddie Hay
    Freddie Hay says:

    I hadn’t heard of the CAC method before and after calculating it out I had been overspending a lot on things for customers that wouldn’t bring in enough payback.

    Reply
  2. William Garrett
    William Garrett says:

    My boss was talking about all three of these at a recent meeting but I just wasn’t grasping the concepts. This article has helped clear up all of my confusion so I won’t look like an idiot at the next meeting. LOL

    Reply
  3. Brenda Trey
    Brenda Trey says:

    I love how you included the easy to recognize abbreviations. I like having my team fluent in the short version of business strategies in order to save time and confusion.

    Reply
  4. Mike Fredrickson
    Mike Fredrickson says:

    I’ll be bringing these points up at my companies next business meeting. I think I can really “wow” some people with these strategies. Thanks.

    Reply
  5. Layla Gerard
    Layla Gerard says:

    The thing I struggle most with is tracking progress and changes throughout the years. I will definitely be utilizing these strategies to help me fix that.

    Reply
  6. Jeff Singer
    Jeff Singer says:

    Wonderful information on how to transform your business! I recently joined a new startup and I’ll be showing this to the other guys to boost our business.

    Reply

Trackbacks & Pingbacks

Leave a Reply

Want to join the discussion?
Feel free to contribute!

Leave a Reply

Your email address will not be published. Required fields are marked *