From the increasing popularity of cloud infrastructure and in-app purchases to the booming healthcare and construction industries–businesses of all types and sizes are continuing to grow, bringing an increased focus on revenue operations and measuring its success.
In this article, we’ll cast an eye over the key performance indicators that companies hoping to compete in their lucrative industry should monitor to maximize their chances of achieving solid revenue growth.
Why measuring revenue metrics matters
In the realm of Revenue Operations, the integration of advanced invoicing software stands as a key performance indicator, directly impacting the efficiency of billing processes and the accuracy of revenue tracking, thereby playing a pivotal role in overall financial success.
All businesses, from the specialized B2B SEO agencies to the multinational giants of ecommerce, need to monitor revenue-related metrics to have any chance of remaining in good financial health. After all, the primary objective of a commercial organization is to make money.
Business models vary, but the same basic rules apply regardless of whether a company produces a physical product or a digital service. Monitoring this on an ongoing basis is crucial to growing revenue over time.
It’s about more than simply tracking the numbers, though. Reviewing metrics regularly over some time generates actionable insights you can apply to your everyday operations. The figures have a story to tell, in other words.
For instance, if you find your conversion rates have dropped, there could be multiple reasons why. Maybe it’s time to consider more competitive pricing or perhaps look at ways of boosting team collaboration to streamline your sales pipeline.
With this in mind, let’s take a look at seven of the most important key performance indicators to track to ensure long-term success.
Seven performance metrics to track for successful revenue growth
As you’ll see, some of these indicators are directly related to revenue, while others are more obliquely connected. Whilst sales and revenue are important to measure, retaining customers and high customer satisfaction are much better indicators of long-term revenue operations success.
We’ve therefore included a variety of key performance indicators that, combined, will provide you with the best possible insights into your business.
1. Revenue
To kick off, we’ll start with the obvious one. There’s no big mystery around why tracking this is important. Monitoring ongoing revenue, including capital contribution, gives you direct feedback about the health of your business in real-time.
There are two specific indicators to track here: annual and monthly revenue. It’s important to track both, however, depending on your business, you might decide that one is more important than the other.
For example, if you’re likely to see revenue spikes at certain points in the year, such as at Christmas or the summer holiday season, you’ll want to monitor these months carefully to gain more accurate insights into how your business is performing or changing at crucial points.
2. Revenue growth rate
Once overall revenue figures are known, the next step is to calculate the revenue growth rate. Aiming at continued growth is a business basic, and measuring how growth accelerates and decelerates over time is a fundamental element of assessing current performance and ensuring good financial management.
Although some factors, such as a recession, will always be out of your control, tracking revenue growth, and spotting signs of stagnation early can be hugely beneficial. It can be one of the first signs that something might need to change.
For example, say you have a small software company where revenue growth has started to slow. After looking further into your business data, you notice it’s because you’re not attracting as many new customers. So, you decide to invest in some specialized SaaS marketing to give a boost to your SEO. Soon you’re seeing lots of new sign-ups, and your revenue begins to grow again, assuring you that your business continues to be in good financial health.
3. Customer acquisition cost
Looking at the amount of money coming in will only tell you part of the story. Every business needs to consider cost and expense management too. In particular, it’s crucial to measure how much it costs to acquire each client or customer.
This is fairly straightforward to work out. Simply divide the total amount spent on sales and marketing campaigns by the total number of new customers acquired during a given period. Working to reduce customer acquisition costs can boost profitability.
In addition, some companies also explore financial options like fast business loans to support their customer acquisition efforts. These loans can provide the necessary capital for marketing campaigns and expansion strategies, helping companies acquire new clients more effectively.
4. Customer lifetime value
By looking into customer lifetime value, you’ll be able to determine what you can reasonably expect each customer to spend throughout their relationship with your business. Armed with this information, companies can discover who their ideal customers are, improve acquisition costs, and ultimately increase revenue.
There are two models used to calculate customer lifetime value: historic and predictive. The former uses actual customer data from the past to forecast future trends, while the latter uses statistical techniques like regression. Neither is perfect, but the important thing is to track them over time to see how they change.
A basic formula is:
Customer lifetime value = Average annual revenue from one customer x average length of the customer relationship
5. Customer churn rate
Measuring customer churn is essential for businesses, as it reflects the overall health of the business and indicates customer satisfaction. Minimizing your customer churn rate will also have a big impact on your revenue, as it can cost roughly between 5 and 7 times more to acquire a new customer than to retain an existing one.
That said, many factors contribute to customer churn rate, and it’s not possible to eliminate it completely.
High churn rates indicate a problem that needs to be addressed, although it’s not always simple to establish what’s causing it. It could be an issue with the product or delivery, or it could be due to external factors such as a competitor launching or client cost-cutting affecting the reputation attached to your business name.
Listening to customer feedback, improving the product continuously, and boosting brand authority can all go some way toward reducing churn.
6. Sales cycle length
Sales cycle lengths depend on various factors, such as the industry, type of products, or company size. Generally, B2C sales cycles tend to be shorter than B2B as consumers are able to make decisions more quickly. However, high-value B2C purchases such as cars or real estate will also likely involve a lengthy decision-making process.
A sales cycle starts with the first contact with a lead or customer and finishes with a purchase. As such, it can be calculated by adding the number of days it took to close every sale and then dividing that number by the total amount of sales made in that period.
A long sales cycle length is often more costly, as it usually requires more collaboration and teamwork across multiple teams to produce a sale. On top of this, the more time it takes for a purchase to be made also means more time for a customer or client to reconsider.
Although attempting to reduce the length of the sales cycle is unlikely to bear much fruit, tracking it is important for making accurate revenue forecasts. Without a firm grasp of how long it takes to onboard new clients, it’s tricky to predict how quickly conversions will turn into hard cash.
7. Customer satisfaction score
All of the other key performance indicators mentioned here, from churn to revenue growth, are downstream of one particular factor: customer satisfaction. In this sense, it’s the most important metric of all. So, it’s vital to measure and monitor how happy clients are. Not all customers express their thoughts openly and unsolicited, meaning a proactive approach is necessary.
To calculate your CSAT score, you’ll need to send out a short survey. This will use a basic Likert scale and ask clients to rate their satisfaction with your business, typically by selecting one of these responses:
- Very dissatisfied
- Dissatisfied
- Neutral
- Satisfied
- Very satisfied
It’s simple stuff, but it works. Businesses can track this over time to alert them to where their service is going well and where there’s room for improvement—all of which is vital for maximizing revenue in the long term.
Final thoughts on revenue metrics
In business, as in life, there are no guarantees. Having the best outbound sales team in the world won’t help boost revenue operations if the product itself isn’t up to scratch.
There is also more to consider than just sales, knowing your customer and ensuring that they continue to receive the best possible service can go a long way to increasing revenue. By keeping on top of tracking the key performance indicators mentioned here, you’ll be able to develop a deeper understanding of your business and customer relationships, helping you make better decisions and create long-term growth.
