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As business owners, the foundation of your finances revolves around the balance sheet and income statement. However, the most telling numbers in your business are not necessarily on the monthly reports.
There are a few numbers that, when known and tracked, can make a huge impact on your business decision-making. Here are five such numbers: |
Revenue Per Employee
Revenue per employee can be an interesting number. It is easy to compute: take total revenue for the year and divide by the number of employees you had during the year. (This applies even if you are a solo business owner.)
You may need to average the number in case you had turnover or adjust it for part-time employees.
Whether your number is good or bad depends on the industry you are in as well as a host of other factors. Compare it to prior years; is the number increasing (good) or decreasing (not so good)?
If it is decreasing you might want to investigate why. It could be you have many new employees who need training so that your productivity has slipped. It could also be that revenue has declined.
Customer Acquisition Cost
If you have ever watched Shark Tank®, you know that CAC is one of the most important numbers for investors. This is how much it costs you in marketing and selling costs to acquire a new client.
Factors such as annual revenue or the lifetime value of a client will affect how low or high you can allow this number to go.
Cash Burn Rate
How fast do you go through cash? The cash burn rate calculates this for you.
Compute the difference between your starting and ending cash balances and divide that number by the number of months it covers. The result is a monthly value.
This is especially important for startups that have not shown a profit yet so they can figure out how much cash they need to borrow or raise to fund their venture.
Revenue Per Client
Revenue per client is a good measure to compare from year to year. Are clients spending more or less with you, on average, than last year?
Customer Retention
If you are curious as to how many customers return year after year, you can compute your client retention percentage.
Make a list of all the customers who paid you money last year. Then create a list of customers who have paid you this year. (You will need to two full years to be accurate.)
Merge the two lists. Count how many customers you had in the first year. Then count the customers who paid you money in both years.
The formula is:
Number of customer who paid you in both years / Number of customers in the first or prior year * 100 = Customer retention rate as a percentage
New customers do not count in this formula.
You will be able to see what percentage of customers came back in a year. You can also modify this formula for any length of time you wish to measure.
Try any of these five metrics to gain richer financial information about your business’s performance.
Revenue per employee can be an interesting number. It is easy to compute: take total revenue for the year and divide by the number of employees you had during the year. (This applies even if you are a solo business owner.)
You may need to average the number in case you had turnover or adjust it for part-time employees.
Whether your number is good or bad depends on the industry you are in as well as a host of other factors. Compare it to prior years; is the number increasing (good) or decreasing (not so good)?
If it is decreasing you might want to investigate why. It could be you have many new employees who need training so that your productivity has slipped. It could also be that revenue has declined.
Customer Acquisition Cost
If you have ever watched Shark Tank®, you know that CAC is one of the most important numbers for investors. This is how much it costs you in marketing and selling costs to acquire a new client.
Factors such as annual revenue or the lifetime value of a client will affect how low or high you can allow this number to go.
Cash Burn Rate
How fast do you go through cash? The cash burn rate calculates this for you.
Compute the difference between your starting and ending cash balances and divide that number by the number of months it covers. The result is a monthly value.
This is especially important for startups that have not shown a profit yet so they can figure out how much cash they need to borrow or raise to fund their venture.
Revenue Per Client
Revenue per client is a good measure to compare from year to year. Are clients spending more or less with you, on average, than last year?
Customer Retention
If you are curious as to how many customers return year after year, you can compute your client retention percentage.
Make a list of all the customers who paid you money last year. Then create a list of customers who have paid you this year. (You will need to two full years to be accurate.)
Merge the two lists. Count how many customers you had in the first year. Then count the customers who paid you money in both years.
The formula is:
Number of customer who paid you in both years / Number of customers in the first or prior year * 100 = Customer retention rate as a percentage
New customers do not count in this formula.
You will be able to see what percentage of customers came back in a year. You can also modify this formula for any length of time you wish to measure.
Try any of these five metrics to gain richer financial information about your business’s performance.
This is general information and should not be acted upon without first determining its application to your specific situation. Please contact your CPA or tax advisor for additional details.
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