Small Business Metrics: What Really Matters | Tory Burch Foundation

Many entrepreneurs start their companies because they have a great idea that addresses a problem. But without a plan, the spark will go out. Data, namely the information that comes from sales and customer interactions, should be a major part of your planning. The tools you use in your business, like your email service provider or ecommerce platform, automatically give you so much information in the form of graphs, it can be hard to truly understand what matters to your company. Innovation and product expert Dasanj Aberdeen led a webinar designed to help take the intimidation out of data, so founders can hone in on what matters before creating new strategies. 

Data-driven decisions vs. data-informed decisions

A data-driven founder looks at data points and uses those numbers or facts as the primary basis for making a decision about their business. But this approach can sometimes mean ignoring other critical parts of a business or industry. Aberdeen explained it is better to be data informed. “This approach means that in addition to what the numbers and hard data [are] telling you, you’re taking other things into consideration,” she said. “So, things such as your user research, your own personal experience, what you know is going to work for your business and what has worked for your business before. And even your personal insights as well.” For example, your decision making process should take into account customer survey responses as well as your observations about how they interact with products. A data-informed approach also takes into account multiple stakeholders and your future plans. 

Set your sights, or KPIs.

What does success mean for your business or product? Having a few answers to that question can help you determine your key performance indicators (KPIs), which will tell you whether you’re on track. Aberdeen recommends matching a KPI to a specific question to keep the data rooted in your business’ goals. For example, a founder may want to know, do customers like my app? The average time spent on an app gives you a better idea of customer sentiment than just the number of downloads. 

A company’s KPIs will vary by industry, product or business model, but all business owners should watch their annual revenue, which products or services get the most sales and which ones bring in the most revenue.

Your success metrics will change as your business changes.

When choosing your KPIs, it’s important to remember that the data you pay the most attention to when you launch your business may not be the same ones that you focus on as your business grows. 

Launch stage metrics

When you’re just starting out, you want to make sure your product, whether fully designed or just a prototype, solves a customer problem. 

Common questions to ask and data that answers: 

• Is there a need for my product? 
  • Use market research, customer research or competitive research to determine if your product solves a problem.

• Does my product provide enough value to use or buy?  
  • Crowdfunding campaign contributions, pre-launch sales, number of sales, number of activations and conversion rates are all good measures of customer interest at this stage. 
• What do I need to build or prioritize next?  
  • Review customer feedback surveys, and results of A/B testing. 

Startup stage metrics

At this stage, you’ve proven your product concept with customer feedback, engagement and perhaps some early sales, but you still need to prove your business’ viability. In other words, you will need to determine if you can continue growing and generating value. To do that, you’ll assess or reassess your business model and customer acquisition tactics. You may start to create marketing campaigns to reach new customers during this stage; your goal is to reach as many new people who then become customers for as little money as possible. 

Common questions to ask and data that answers:

• Who actually are my customers?  
  • Track customer demographics and develop customer persona and profiles.

• What is the size of the opportunity?
  • Calculate your total available market, serviceable addressable market and serviceable obtainable market. These numbers will be based on research on demographics of potential customers and your average customer value. 

• Are my customers engaged? 
  • Assess engagement through daily active users and session length.  

• Do I have enough capital to continue operations as I am? 
  • Tracking your working capital and burn rate will give you an understanding of how much money you will have for your current and future operations. A revenue forecast, which tools like Quickbooks can generate automatically, will help you make future decisions. 

• How happy are my customers?  
  • Your Net Promoter Score, average rating in customer satisfaction surveys and daily active users can help you gauge customer sentiment.

Growth stage metrics

Your primary concerns at this stage are becoming or remaining profitable and expanding the market in order to grow or scale. Remember, growth is a linear increase in revenue compared to resources used, while scale is an exponential increase compared to resources used. Not every company can, or wants, to scale. Expanding the market at this point may mean approaching customers in different geographic areas or who fall into different demographic categories. For example, you may have started out selling toys for elementary school-aged children and now you’re ready to market to middle grade children. 

Some founders, especially in the tech sector, may begin pitching investors at this stage. Use data that explains the scope of the problem you’re solving to show how much potential there is for your business and the cost of getting more customers.

Common questions to ask and data that answers:

• Are we gaining new customers? 
  • Monitor customer acquisitions and the number of paying users per month. Adding additional new markets will also contribute to the number of new customers.

• How much does it cost to get one customer? 
  • Calculate your customer acquisition costs.

• Is the product driving revenue growth? 
  • Products that drive revenue growth should increase your company’s average order value, average revenue per customer and customer lifetime value.

Maturity stage metrics

“As you mature, the focus here becomes more around staying profitable,” explained Aberdeen. “So, really make sure that you are stable in your business. You’re not concerned about payroll, you’re not concerned about some of the day-to-day expenses that you’ll have in terms of just the cost and operating your business.” She noted that the common key performance indicators in the growth and maturity stages can often overlap, and may inform one another. 

An important part of profitability is customer retention, since it’s always more expensive to convert a new customer than it is to retain an existing one.

Common questions to ask and metrics that answer:

• Is the product driving retention? 
  • Track churn rate, retention rate and changes in monthly active users.

• Is my product driving profitability? 
  • Monitor your sales revenue and monthly recurring revenue, as well as your gross, operating and net profit margins.
• Is my product remaining competitive? 
  • A competitive product means a high number of repeat customers and customer referrals. At this stage, many companies start loyalty programs. A robust loyalty program indicates your product stands out in the market. 

Manage the information. 

The good news is that tools you’re already using, like your point of sale system or your accounting software, are already collecting and analyzing a lot of this information for you. They may even be able to create projections to help you envision your company’s future. Aberdeen also likes dashboard programs like Geckoboard to show your KPIs in a single place. If you’re just starting out and want to keep things relatively low-tech, you could even use Excel for tracking and analyzing your data.

If you’re considering enlisting outside help with some of this analysis, make sure you’re still engaged with the information and know how you’re defining success. “It’s important as a founder to be close to the data,” Aberdeen stressed. You want to understand the real value of the information a consultant pulls for you and how it relates to your place in the market. She recommends “spending upfront time with whoever you may be bringing on to help support you, understanding the build, and maybe directing the build so that you truly get what you want.”