Doug Davidoff
In case you can’t tell, I love (good) data. The effective use of data is one of Imagine’s core values. As the owner of a growing company, I use data and metrics to assess the effectiveness of our decisions and actions; and to guide the adjustments we make. As an advisor to businesses, I use it to determine what our clients need, and to assess how well we’re delivering.
As a sales coach, trainer and executive, I’ve sought to teach sales reps that stories are great (actually, they really are) but that, at the end of the day, if you can’t demonstrate what metric you’re going to impact and how, you’re not talking about anything valuable.
While I love data and metrics, I do have to admit that the world we live in today has a tendency to provide too much data. It’s insanely easy to get lost tracking so much data that no one has any idea what to do or to assess how well they’re doing it. The key is to determine a core set of key metrics that connect your efforts to outcomes, allowing you to effectively assess your progress and make smart adjustments.
Identifying these core metrics is a passion of mine. In the past, we’ve shared:
- The 9 Metrics to Track the Effectiveness of Your Sales Process
- The 7 Metrics Inbound Marketers Should Track
- The 3 Most Important Demand Generation Metrics You Should Track
- The 8 Metrics to Assess The Health of Your Sales & Marketing Funnel
Those lists are focused more on the tactical efforts surrounding your B2B sales and marketing efforts. Today, I want to highlight a more strategic list of metrics. This list is geared to companies that are already seeing strong revenue growth, but want to ensure that their business is getting stronger as well. As Jim Collins shared in How The Mighty Fall, the first sign of impending failure is (believe it or not) previous success.
When I’m conducting a comprehensive assessment of a company’s growth, in addition to the tactical metrics, I look at five strategic metrics. This list is valuable more when viewed in the whole, rather than looking at any single number. Additionally, I’m far more concerned by the trend of these numbers than I am by the absolute number.
1. Topline Revenue
A healthy company is going to see a consistent increase in Topline Revenue.
The one thing I’ve learned working with small and mid-market (SME) businesses is that everyone has a different definition for common financial metrics. I define Topline Revenue as the money you get to keep after making a sale. Sales commissions, services costs, etc. are not accounted for in my version of this metric.
So, if you provide a pure service, then Topline Revenue is pretty close to 100% of revenue. For example, if you sell accounting services and you get paid $65,000 from a client, the fact that there’s a direct cost for the accountant serving the customer does not impact my metric. However, if you sell a $675,000 machine that costs you $425,000 to obtain (not to customize) then your Topline Revenue is $250,000.
The reason that Topline Revenue is so important is that it represents the cash we have to run our business. I’ve worked with $5 million services businesses, that are (in my opinion) larger and have more resources to run, than $35 million product businesses that operation on 12% topline margins.
2. Revenue From Your Largest Client/Customer
A healthy company is going to see this metric increase consistently over time, with a caveat. If the revenue from your largest account gets too big or there’s a huge delta between the revenue from your largest customer and the next one, it’s a sign of danger.
Much has been written about the dangers of being overly dependent on one customer. When one customer represents more than 15% of your Topline Revenue, be sure to focus on expanding your customer base.
3. Average of Your Five Largest Relationships
Dan Sullivan, founder of The Strategic Coach, calls this your “Largest Cheque.” I’ve found this to be one of the most important metrics you can look at to assess the health of growth (with the exception that this metric does not apply to some SaaS business models).
A healthy organization is going to see solid growth in this metric. When your top five average is increasing, it’s a sign that your capabilities are increasing and your “growth muscles” are strengthening. The ability to get more money from your best relationships is an indication that you are creating more value.
This metric is usually the first one to turn neutral or negative in advance of difficulties, so watch this metric closely.
4. Average Revenue per Relationship
This is a simple metric to calculate: take your Topline Revenue and divide it by the number clients/customers you have. A healthy organization sees consistent growth here as well.
5. Sales and Service Costs
Take your Topline Revenue and subtract the direct/variable costs associated with acquiring and serving that revenue. A healthy organization is going to see a consistent decline in the costs of acquiring and keeping the revenue they’ve acquired.
There you go. Five simple metrics that when tracked regularly can guide the strategy you execute to drive growth in the future.
