Every CEO needs to keep a finger on the pulse of her business. It can be challenging to know what data to track, how to measure it, and what actions to take. Having limited resources means you must ruthlessly prioritize and be selective with what is analyzed. Choosing what to focus on will depend upon not only your particular type of business but also upon the stage of your company.
"At the beginning, it's important to focus on 'value creation' metrics before 'value capture' metrics," says Andrew D'Souza, President of Bionym. "This means understanding how much incremental benefit your customers derive from your product over what they would have otherwise used."
Assessing "value creation" can be tough. The metrics can be much more difficult to derive and measure than clear metrics like revenue, page views, or downloads. How do you assess customer sentiment?
"Although it has its flaws, Net Promoter Score is a good way to wrap up a lot of feedback into a hard metric that can be tracked over time and compared with other players in the industry," says Dan Shapiro, founder and CEO of Robot Turtles. "If I had to recommend one number to an early stage CEO, that would be the one. This is the number that can tell you if your product is working at a fundamental level and ready to scale."
Your Net Promoter Score is gleaned by asking customers one simple question that they answer on a 1-10 scale: How likely would you be to refer us to a family member or friend? Each response is categorized into three rankings: Promoters (9-10 rating), Passives (7-8 rating), and Detractors (0-6 rating). The score is calculated by taking the percentage of Promoters and subtracting the percentage of Detractors. Comparative data is required to understand how you fit within your market.
While your Net Promoter Score gives you the pulse of customer engagement, getting a full picture means going beyond survey data. As CEO, you need to get out of the office and talk directly to customers. The onus is on you to have a clear understanding of market perception--to know what's working and what could be improved upon in the eyes of potential buyers.
"Measuring value-creation metrics (e.g., dollars or time saved, customer engagement, etc.) will force you to talk to your early customers frequently and will ensure you're spending time with the customers who truly value your product, instead of those who just jump on the next shiny, new thing," D'Souza says.
Outside of customer sentiment, there are more tangible metrics for companies to track. Beyond knowing current cash on-hand and what revenue is committed, it's essential for you to understand what's in the pipeline. Ensuring detailed and accurate sales forecasting is important for being able to spot potential problems early.
"Too many metrics look in the rearview mirror rather than the road ahead," says Catherine Graham, founder and CEO of commonsku. "You need good visibility into pipeline activity to know if you're going to hit your numbers."
To understand your customer pipeline, you need to have a thorough understanding of the sales cycle. Sales processes differ from company to company. Look at your prior numbers to assess and establish precedent on ratios for the number of sales calls to the number of closed deals, as well as the average order amount and time between repeat purchases. Have your salespeople list current potential customers in their pipeline, detail the expected order volume, explain where they are in the contact cycle, and rate the likelihood of closing a sale. (Most sales tools will easily enable this kind of funnel management.) Furthermore, if salespeople know that the probabilities they suggest are going to be used to set their individual commission targets, there is a higher likelihood of accurate reporting.
Understanding your sales process is important to uncovering the hidden costs of your business. "You might have a high-margin product, but if it has high sales overhead, then it could be making less money for the business than a lower-margin, lower-touch product," Graham warns.
Getting to the true cost of customer acquisition means understanding your sales channels and process. It's not merely a percentage of your ad budget--it requires aggregating all associated costs, including fielding inquiries, marketing spend, and sales team overhead.
Knowing the cost of acquiring new customers isn't particularly helpful unless you know the value of each customer secured. Calculating customer lifetime value is as simple as knowing the average spend per customer over the course of their engagement with you. If the cost of acquiring new customers outweighs the average spend per customer, then there is a significant issue that needs solving.
Though not exhaustive, these metrics will give you insight into the general health of your business. Ongoing measurement, experimentation, and refinement of approach will help you uncover issues early, highlight areas of opportunity, and keep you focused on continuous improvement.