There are two ways a business can grow and prosper in any economy: 1) through sheer luck, or 2) through conscious awareness. The problem with luck, even good luck, is that it doesn’t last forever. Sooner or later it runs out. Conscious awareness in business is a way of life with companies that grow and thrive consistently over time. The secret to their success is that they know that although anyone can get lucky some times, success that lasts is no accident. Growing a business for the long-term is the result of a way of life. Let’s take a look at two metrics that great businesses use to ensure their continued growth.
Measure what matters
The first key is that great businesses know what matters and they measure it. You may have heard the old expression – “What gets measured gets done.” Depending on your objective, there are different things that matter. For example there are certain numbers that the IRS wants to know from your business and the others aren’t important to them because the only thing the IRS is really interested in is collecting the taxes it says you owe. A banker, when you’re applying for a loan, wants to know everything the IRS does about your business, plus a lot of additional information because what the bank is really interested in is your ability to repay the loan (mortgage scandals notwithstanding). As the owner of a business, your objective is to grow your business. What numbers do you need to know and keep up with?
Determining the average customer lifetime value (CLV) of your customers is a big step toward growing your business through conscious awareness. The awareness and understanding of this number in your business will have a wide-ranging impact on your decisions regarding everything from advertising to attract new customers, to investing in ways to extend the life of the customer’s relationship with you, to the way you service your customers. Determining your average customer acquisition cost (CAC) provides great insight into the effectiveness and efficiency of your marketing efforts. Essentially once you know how much a customer is worth to you over the time that you keep them as your customer and how much it costs you to bring in a new customer, you are empowered to ask smarter questions about growing your business and make better decisions.
In a tough economy, knowing your numbers takes a lot of the stress off you because instead of the ulcer-producing approach to running your business by gut-instinct, you’re able to run it by the numbers. In a good economy, knowing your numbers allows you to make the best possible use of the opportunities that present themselves.
Don’t be intimidated by the complexity of calculating these and other metrics for your business. Doing this kind of analytical-ninja work enables you to solve tomorrow’s problems today and grow your business for the long-term. What numbers are you tracking in your business?
I’m got excited after I found this article as it made me realize that I was going about this the wrong way. I think that by focusing on figuring out and then improving my customer lifetime value and customer acquisition cost that my business will grow so much quicker! In this economy this is more important than ever. I keep reading about businesses that are closing their doors and this kind of news scares me. At least by working on my CLV and CAC I’m in a much stronger position to grow and not just react to what is happening around. This puts me in the driver’s seat. Thanks
You’re right Charline. Knowing your numbers gives you great power. The power to be in the driver’s seat and the power to steer your business rather than just react to the external forces.