3 Mission-Critical Metrics Every Small Business Needs to Pay Attention to
I assume you know how much you’re spending on advertising. It’s an easy metric to compute even if you’ve only been in business for a month.
There are other very important metrics most business owners and managers will follow once they have some sales history, such as lifetime value, inventory turnover, and other traditional business measurements. Further, with an online presence being so important for most businesses today, a wide range of website and social media statistics have become increasingly important.
However, there are metrics critical to the long-term success of companies that many business leaders overlook, or fail to follow closely enough. They may believe that they don’t impact the bottom line directly, or perhaps they’re too difficult to measure. Here are three of them:
1. Cash conversion cycle (CCC)
The cash conversion cycle (CCC) is an important key to the success of many of the biggest movers and shakers in business today; Amazon is a notable standout. From the very beginning, Amazon founder Jeff Bezos has worked to optimize the company’s cash conversion cycle.
CCC basically rates your cash flow, and is relatively easy to compute:
- Take the number of days of inventory you hold on average;
- To that number, add how many days it takes your customers to pay you;
- Finally, subtract the number of days you take to pay your suppliers.
The result you’ll want to see should be a low number. Back in 2013, Amazon had a CCC of negative 30.6 days, and that’s how the company has been able to fund so many investments, according to Justin Fox in the Harvard Business Review. What this means is Amazon enjoys a huge mound of free cash—its customers pay the company well before it pays its suppliers.
Driving down your CCC into the single digits should be your goal. It requires just-in-time inventory systems, quick payment from your customers, and lenient terms with your suppliers.
2. Employee satisfaction
Employee satisfaction may be a bit more difficult to measure than your CCC, but it may be even more important. In his blog, sales/marketing/growth expert Jonathan Furman observes and recommends, “A happy employee is bound to be more productive, which will bring down your costs in the long term. For example, you can avoid spending resources on hiring new ones all the time. This will eventually reflect on your profits. So, keep engaging with your employees and track their satisfaction levels.”
Along with tracking employee satisfaction via surveys and informal means, I suggest you also compute the costs of employee turnover. Recruiting, hiring, and training are tangible costs that should be made readily available. When your employee satisfaction levels go up, you should see your turnover costs go down.
I should also mention that there is another metric associated with employee satisfaction—or lack of satisfaction—that is more difficult to measure. Dissatisfied employees cause you to pay a price with customers. This is due to lost sales, a slower pace of sales, and in some cases, lost customers.