BY Brad Sugars
One of my main business mantras is "Know Your Numbers," and because numbers are the language of business, it is numbers that will ultimately determine your success.
Business is literally a numbers game, but what numbers should you know?
Here are seven metrics that will give you predictive results you can measure and manage for more sales and bigger profits:
1) The lifetime value of each customer. While there are more complicated formulas to determine this value, this simple version will give you a start:
If your average customer spends $20 per purchase, buys three times a year and stays with your business for five years, the customer's lifetime value to your business is $300.
$20 x 3 sales = $60
$60 x 5 years = $300
Now you have a working understanding of the worth of each customer and the types of resources you need to acquire and retain them.
2) How much it costs to acquire a new customer. I call this your Cost Per Acquisition, or CPA, and it can help determine how much you spend on any marketing or ad campaign.
Let's say you've placed an ad in your local paper for $200. You get 20 responses and 10 sales. The acquisition cost for each customer is $20 ($200/ 10 = $20).
If your offer results in at least $20 in profits on every sale, you've run a successful campaign. But if your CPA is $20 and you have little or no profit, or are acquiring customers at a loss, it's time to re-evaluate your marketing.
3) Conversion rates. Let's say you hand out flyers to people on the street. The campaign generates 1000 leads over a two-week period, and 100 of those leads buy. Your conversion rate is 10 percent (1000 leads / 100 new customers = 10 percent conversion rate).
Too low? Nowhere to go but up. Tweak flaws in your sales process, increase customer service, narrow your target or create a better offer.
Knowing where you are is half the battle in getting to where you need to be.
Related: The 5 Rules for Silicon Valley Businesses That Can Work Anywhere
4) Your average dollar sale. The value of each sale is important if you are looking to generate repeat business or up-sell -- in other words, the "Would you like fries with that?" strategy.
Simple "add-ons" can add-up quickly. For example, a deli offering premium sides and bottled drinks increased average sale from $5.42 to $13.11 with a simple "up sell" script that increased overall revenue 144 percent within a few weeks' time.
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