5 Overlooked Metrics to Improve Your Business Strategy
Make sure you aren’t losing money by missing out on these metrics!
Ever worry that you could be missing out on making your business better by missing some important metrics? We assure you that you’re not alone!
While advising business owners on their commercial real estate goals, we’ve discovered there are some often overlooked metrics that can help business owners better measure business productivity and revenue. Choosing the best metrics comes down to what’s important for your business, so keep that in mind and let’s get started!
What Gets Measured Gets Done
When business metrics aren’t measured, it’s almost impossible to determine how your business is doing. Tracking, measuring, and reporting is how businesses succeed. Metrics keep you focused on your goals and help you improve processes. If you’re not measuring, then the opportunity to improve your business processes is lost.
However, just measuring something will not get it done completely. Ensure you’re measuring the right metric for your business by understanding metric types and common overlooked metrics.
Types of Metrics
Common metrics tracked by business owners and executives are financial, operations, sales, and marketing. While metrics track processes, key performance indicators (KPI) track whether you’re meeting goals and objectives. Examples of KPIs are leading and lagging indicators. Lagging indicators show where you’ve been, whereas leading indicators show where you’re going.
There are also specific metrics that relate to certain businesses. For example, technology businesses use metrics to track project delivery and cost, while retail owners track inventory and footfalls metrics.
Five Overlooked, Valuable Metrics
Now, let’s take a look at the five metrics that could help your bottom line:
- Customer Acquisition Cost (CAC) is the cost of acquiring a new customer. To calculate CAC, divide the costs spent to get the new customer by the number of customers acquired in the period your evaluating. The benefit to the CAC metric is to help you determine how much of your business’s budget can be spent on a new customer and still make a profit. Generally, starter companies see high costs allocated to obtaining new customers, because they’re building their brand awareness in a new market. However, mature companies may experience increased CAC when they’re introducing new a service or product or moving into a new geographical area.
- Revenue (& Gross Profit) Per Employee ratio calculates the company’s revenue divided by the current number of employees. The metric is used to track productivity and use of resources. A company with high revenue per employee shows higher productivity, making effective use of resources.
- Revenue (& Gross Profit) Per Square Foot averages revenue a business creates for every square foot of space. The metric measures business managers’ ability to create revenues with the amount of sales within their space. This is a popular metric for retailers. Higher sales per square foot indicates management is marketing and displaying products effectively.
- Days Sales Outstanding (DSO) is used to determine how quickly a company can collect payment from sales. Dividing accounts receivable by the total value of sales in the same period, and then multiplying the result by the number of days in the same period gives you DSO. Companies with low DSO rates take less time to collect money which allows them to quickly put cash back into the business. High DSOs are more prominent in companies who deal in credit cards, which takes longer to process.
- Interest Expense is borrowed funds by a business. It shows up as a non-operating expense on the income statement and represents interest is be paid on all borrowings. Calculate the interest rate times the outstanding principal amount of the debt to obtain your interest expense. Interest expense tends to be higher when inflation increases dramatically since the business-acquired debt is carrying a higher interest rate. Conversely, flat inflation will produce low interest expense. The amount of interest expense has a direct impact on business profitability since it can either free up or take away money.
Tracking metrics will improve sales, profits, productivity, and operations. Our clients who use metrics in commercial real estate adjust more quickly to changing market conditions and make better decisions faster.
Regardless of whether these specific metrics fit with your business strategy, it’s important to determine what metrics work well for you. There is no one right set of metrics for a business; only what works for you. Choosing metrics is a complex process which requires ongoing adjustments as new market conditions emerge.
What to know if your real estate metrics work into your overall business strategy? Contact Verity to speak with an experienced real estate advisor.