Metrics matter. In fact, as the owner of a cloud-based software company, you recognize why metrics matter and why you need to measure them on a regular basis: the health of your company depends on them. In this brief article, we will examine the six crucial metrics that define the performance of your company and we’ll offer suggestions for improvement when the metrics indicate change is needed.
As you make an assessment regarding each of the following metrics, you’ll want to include them in your business plan. If you don’t currently have a completed plan then click here to learn how to start a software company.
1. Average Amount of Revenue
The first essential metric is that of the average amount of revenue each customer generates. This metric indicates the viability of the customer-company relationships and indicates where revenue can be increased.
A second metric is that of “customer lifetime value” (CLV). It measures how much revenue will be generated over the lifetime of the company/customer relationship. This metric is a forecast; however, it can be used to measure past and present sales, as well.
3. Retention Rate
Calculating the retention rate of customers is another key metric. In this calculation, the percentage of customers retained during a period of time are forecast into projected retention rates. This metric indicates the number of customers who find value in your company.
4. Customer Acquisition Process
An examination of the customer acquisition process measures the length of time it took between the introduction of your company to the potential customer and the time a sale closed. This marker either indicates personnel are closing sales in a timely manner or need improvement in the process.
The “customer churn rate” metric is another specific identifier of the company-customer relationship. The measurement notes the percentage of order cancellations or failed acquisition attempts. A high percentage rate indicates the need for immediate improvements.
Finally, the NRS or “net recommend score” is a measurement of how many customers would recommend your software business after the business relationship has concluded. A low percentage would indicate that processes should be examined and retooled for better results.
Each of these six essential metrics are invaluable in reviewing, measuring and assessing the strength of your software company. With continued attention to these metrics and consistent monitoring of the results, you’ll be positioned to make informed decisions that maximize success.