2 key metrics every business owner should know

Here is a recording of a part of a presentation I made a while ago talking about 2 key metrics every business owner should know

Transcript

There are couple of key KPI’s that every business in this country and the world should have.

Let’s start with monthly contribution. Now I have talked here about contribution, not gross margin. What does a customer contribute to you every month? So, it’s the revenue less direct cost of sales; any retention costs; an appropriate share of applicable fixed overhead.

You need to know that number.

But you will also need to know how long you keep customer for. The average life of your customer.

When you know those two things guess what you can work out! You know the lifetime value of a customer.

Who here agrees that if you are a business owner it is a really good idea to know what the value of your customer is?

That is a really important metric. Then onto the other half of this equation. Let’s look at the other

side. One of the reasons why the buckets works and you have your acquisition cost bucket, you know what it costs you to acquire customers.

And if you know how many customers you get, guess what, you get what it costs you to acquire a customer.

Now these are 2 key metrics every business owner should know.

Because it gets down to really simple maths. If the lifetime value of your customer is higher than the acquisition cost per customer, guess what, you have profitable growth.

But if it the other way round, you have unprofitable growth.

And unfortunately, I see this, time and time again. People don’t understand what it costs them to get a customer and what that customer is worth. And remember the slide I had where turnover is vanity, I have seen plenty of businesses that are focused on turnover to grow the headline number and all they are doing is turbocharging the cash drain. They are putting on unprofitable customers. Unprofitable customers means cash goes out your door.

And if cash goes out your door too much, what happens? You end up broke, you end up closing. You end up being that 1 in 8 businesses that close each year

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