Updated: Jan 20
A successful company tracks far more than revenue. To enable them to grow sustainably, it requires a thorough analysis of the work to improve and optimise performance.
But how do we measure your organisation's health?
Metrics are tools we utilise to evaluate the health of an organisation. It lets us improve overall results and align your people with your organisation's objectives.
As the business grows, here's a summary of some common metrics we should track:
Core health metrics
Team Health: Employee Happiness (Regular pulse check)
Customer Health: Net Promoter Score / Customer Satisfaction
Financial Health: Monthly Recurring Revenue, Sales Revenue, Margin (Net Profit Margin / Gross Margin), Capital burn rate
Industry-specific: Which metrics are critical to measuring the effectiveness of businesses in your industry?
Other useful health metrics
Customer service times
Sales Growth Year-to-date
Cost of Customer Acquisition
Customer Loyalty and Retention
Qualified Leads Per Month
Lead to Client Conversion Rate
Monthly Website Traffic
Met and Overdue Milestones
Core Health Metrics:
1. Team Health: Employee Happiness
Checking the health of the team helps improve the way they work together to produce greater outcomes. By doing regular pulse checks:
It increases confidence within the team that results in better relationships,
Establish a feedback culture where they can raise issues and fix it quick
It creates a safe space to share their feelings more easily and frequently.
2. Customer Health: What is Net Promoter Score (NPS) & Customer Satisfaction (CSAT)
There are a lot of factors to see whether a company is successful or not and measuring customer satisfaction is one of those. As a business, for us to get and keep customers, we need to put in the time and energy to create positive experiences, one poor service, it can negatively impact the business and can cost us a lot of money. That is the reason why measuring customer satisfaction is crucial.
But how can we know if our customers are satisfied?
The best way? It would be to ask them. And there are two ways we can measure customer satisfaction and loyalty:
A. Net Promoter Score or NPS
The Net Promoter Score is the world’s leading metric for measuring customer satisfaction and loyalty. It goes beyond measuring how satisfied a customer is with a company; the Net Promoter Score system is designed to gauge their willingness to recommend it to others.
To determine the NPS score we should subtract the number of detractors from the number of promoters and divide by the total number of respondents and then multiply by 100. (Note: Although the NPS score is technically a percentage, it is always shown as an integer.)
NPS responses are classified into three categories:
Net Promoter Score Formula:
((# Promoters - # Detractors)) / # total respondents X 100
= # Net Promoter Score
If we have 100 responses from the survey where
20 responses range from 0-6
20 responses range from 7-8
60 responses range from 9-10
[60 Promoters – 20 Detractors] / 100 respondents x 100 = NPS score of 40
B. Customer Satisfaction (CSAT)
The CSAT metric is short for Customer Satisfaction. It asks the customers “How would you rate your overall satisfaction?” using a five-point scale. CSAT and NPS are both complementary for measuring overall customer health but they have differences:
Customer Satisfaction survey is usually used to measure for short-term while Net Promoter Score is used to measure long-term customer satisfaction.
Customer Satisfaction survey allows us to ask different types of questions whereas NPS is limited with a single question type.
Customer Satisfaction survey identifies key specific areas for improvement, while the Net Promoter Score helps us to evaluate the business as a whole which gives us a bird's-eye view of customer satisfaction and loyalty.
CSAT Responses are measured on a five-point scale of 0-5 or through these five points - Very unsatisfied, Unsatisfied, Neutral, Satisfied, and Very satisfied.
Customer Satisfaction Formula:
# Positive responses / # Total responses X 100 = (%) CSAT
If we have 48 positive responses and a total of 80 responses, our CSAT score would be 60%.
48 / 80 x 100 = 60%
3. Financial Health: Monthly Recurring Revenue, Sales Revenue, Margin (Net Profit Margin / Gross Margin), Capital burn rate
Assessing Financial health helps us to know the long-term longevity of a company. This gives a better understanding of whether the company's financial health is improving or declining thus helps us analyse how can we allocate the resources and make better decisions for the organisation going forward. These are the following metrics that we should look into:
A. Monthly Recurring Revenue
Monthly Recurring Revenue (MRR) is the amount of income that the company can expect to receive on a monthly basis. Measuring MRR is vital especially in SaaS Companies, because it helps them to understand the overall growth and profitability of their business.
To calculate the Monthly Recurring Revenue, take your Average Revenue per User / ARPU on a monthly basis (this is the number of customers we have by the average of their monthly fees) and then multiply it by the total number of monthly users.
Monthly Recurring Revenue Formula:
Monthly Average Revenue per User x Total # of Monthly Users
= Monthly Recurring Revenue
If we have one hundred customers paying an average of $50/month, we would have an MRR of $5,000.
$50/average per month x 100 customers = MRR $5,000
B. Sales Revenue
Sales revenue refers to the total sales from goods and services made by the business whether in cash or in credit without deducting any expenses. Sales revenue can be listed on the income statement as either the gross sales or total revenue.
Sales Revenue Formula:
# number of units sold x the average unit price = Sales Revenue or
# number of customers x the average service price = Sales Revenue
Margin (Gross Profit Margin & Net Profit Margin)
To assess the profitability of the business, we use Gross margin and net margin where both are expressed in percentage.
C. Gross Profit Margin
Represented by net sales minus the cost of goods sold (COGS). COGS are the total cost spent by the business in acquiring the goods that are sold to the customer. This section shows the beginning inventory, purchases made and ending inventory.
Gross Profit Margin Formula:
((Total Revenue - COGS) / Total Revenue) x 100 = (%) Gross Profit Margin
D. Net Profit Margin
Net profit margin shows the amount earned by the business for the period.
It is the difference between the gross profit and operating expenses and all other expenses, such as taxes.
Net Profit Margin Formula:
Net Profit / Total Revenue x 100 = (%) Net Profit Margin
E. Burn Rate
The burn rate is used to describe the rate at which a business spends its venture capital to cover all the expenses needed before generating a positive cash flow from its operations.
Burn Rate Formula:
(Starting Cash – Ending Cash) / Number of Months = Monthly Burn Rate
Which metrics are critical to measuring the effectiveness of businesses in your industry? The range of metrics that businesses can utilise vary on the industries, though it has a similar goal - grow and improve overall results and align the team with the organisation's objectives.
By clearly establishing and measuring the right metric in your industry, we can see and refine the process to produce our desired outcome.
"If you can’t measure it, you can’t improve it." – Peter Drucker
Here are some few ideas of which metrics you use based on your industry:
Monthly Recurring Revenue
Time to Value
Customer Acquisition Cost
Cost Per Lead
NPS Customer Service
Average Handling Time
Average Speed of Answer
Website Traffic Lead Ratio
Retail & eCommerce:
Inventory to Sales Ratio
Other useful health metrics:
1. Customer Service Times
Regardless of the industry, you are in, it's no doubt that customers are the most vital part of the business. Their needs and wants impact every aspect of the business, but most importantly, without them, the business would not progress.
According to Michael LeBoeuf, an American business author "A satisfied customer is the best business strategy of all." That's why as a business, we need to consistently provide positive experiences that will results in happy and repeat customers.
But what is the most important attribute of a good customer experience for customers? According to a study, it's fast response time.
Customers want to feel valued and know their concerns are appreciated. If the business has poor response time, especially if done consistently, it will definitely leave a bad impression on them or will result in a loss of customers and revenue. The key to having loyal customers is to provide them with efficient service by a reasonable time frame.
2. Cost of Customer Acquisition
Cost of Customer Acquisition (CAC) is one of the crucial business metrics used. It helps to determine the approximate cost of acquiring a new customer. The Cost of Customer Acquisition is calculated by the Cost of Sales and Marketing (advertising costs, employee salaries, creative costs, etc.) divided by the number of new customers acquired.
Customer Acquisition Formula:
(Cost of Sales + Marketing) / # of New Customers Acquired = CAC
The Cost of Customer Acquisition should always be assessed in relation to Customer Lifetime Value which is the predicted total revenue you can expect to generate in your customer.
3. Customer loyalty and retention
Our customers are the lifeblood of business. Having happy and loyal customers helps the business in generating continuing revenue. For us to know if we are keeping our customers happy and retain them, we can determine this by Customer Retention Rate or CRR.
Customer Retention Rate Formula:
((CE-CN) / CS)) X 100 = (%) Retention Rate
CE = the number of customers at the end of a period
CN = the number of new customers acquired during the same period
CS = the number of clients at the start of the time period
4. Sales Growth Year-to-date
Sales Growth determines the increase in revenue over a period of time. It is an essential and strategic factor that gives the executive a better understanding of where does the company stand. We can monitor the growth of sales over various time periods – monthly, yearly, and long-term.
Sales Growth Rate Formula:
((Current Period Sales — Prior Period Sales) / Prior Period Sales) x 100
= (%) Sales Growth Rate
5. Qualified Leads Per Month
As the business grows, you’re going to have hundreds of new prospects each month, but not all of these leads have the potential to become a customer.
Which gives us a reason why we need to evaluate the number of qualified leads per month that the business has.
There are different types of leads based on how they are qualified and what lifecycle stage they're in. You can categorise these leads into three categories:
Marketing Qualified Leads (MQL) – these are leads that express an interest in your product or service and are captured through your marketing efforts or assets but aren't ready to purchase.
Sales Accepted Leads (SAL) – these are leads that are forwarded to the sales team to be qualified.
Sales Qualified Leads (SQL) – these are leads that are qualified by the sales team into becoming a paying customer in your product and service.
6. Lead to Client Conversion Rate
The Lead-to-Conversion or simply conversion rate is a business metric rate that shows which leads convert into paying customers. This metric is typically used by the business' sales team that determines if the business marketing efforts and channels are effective.
Conversion Rate Formula:
# of Qualified Leads that Resulted in Sales /
Total Number of Qualified Leads x 100 = (%) Conversion Rate
7. Monthly website traffic
One of the factors that show your business is growing its reach is through your website traffic. The more people know about the product or service through various marketing efforts, the more likely they are to check your website. By measuring your website traffic, it gives you insights of what works best and what doesn't - whether it's through content or your offers.
How to measure:
You can use Google Analytics to track your website's performance. It's free and all you have to do is put the Google Analytics code on your website to start tracking.
8. Met and Overdue Milestones
Whether it’s getting more sales revenue or hiring your first employee, every business has goals and milestones they want to achieve. Milestones are commonly used as KPIs or performance measures. This divides your big goals into project milestones which helps you to make progress and be able to track projects whether they’re met or already overdue.
How to measure:
You can track milestones using a paper better yet an online management system.
9. Pirate Metrics
Is a framework used for online startups created by Dave McClure — the successful entrepreneur and co-founder of 500 Startups. These metrics help the business determine what they should focus on when optimizing their marketing funnel so that they can make the most of their time.
Awareness - "Do your potential customers know about your product or service?" This stage is focused on building your brand by introducing your product and offering to potential customers through various channels.
Acquisition – "Where do our customers come from? From what channels?" This would be your first transaction with your customer that has resulted in success with your awareness or marketing offers.
Activation – "How satisfied are the customers with their initial experience?" This is the stage in which your customers actually try your product or service.
Retention – "Will they stick around?" This stage main goal is to retain customers locked into your product or service.
Referral – "Do they enjoy or like the product or service enough to recommend it to their friends?" This stage is focused on the number of people who are likely to recommend the product or service to their friends and drive growth.
Revenue – "Can we monetize the product?" This stage starts when a customer buys your product or service.