If your startup is in its infancy, you are probably juggling all of the balls at once. How do you know what to parse out in order to streamline your decision-making? If you put a priority on the three numbers below, you’re off to a good start.
Entrepreneurs who just launch a startup are faced with the challenges of filling all business roles personally, until their business grows and they can bring on employees. With such limited time, you need to make sure you are focusing on collecting the proper data that will help you make the most informed decisions when it comes to growing your business.
If you pay attention to any metrics, make sure it’s these three:
1. Pipeline coverage
Your sales prospects make up your pipeline. What you can do is forecast the sales amount and estimate the likelihood of closing the deal for each account. This is information you should update regularly.
Entrepreneur clarifies this formula: “Sales pipeline coverage is a fraction. The total amount in your pipeline is the numerator, and the sales goal is the denominator. So sales pipeline coverage measures everything in the sales pipeline against the sales goal. As the business matures, you’ll get better at estimating closure rates, and you’ll be able to tie closure rates to milestones. If you’ve only had one meeting with a particular customer, you might assign that deal a 20% chance of closing. Once the customer has agreed to pricing, you might bump that up to 50%.
In practice, you want your pipeline coverage to be over 2.5x. That should virtually assure you make your target, as long as you’ve got a reasonably competent sales effort and have done a good job qualifying your customers.”
2. Employee sales
This is a simple metric that works across the board for a variety of different businesses. Entrepreneurs are notoriously ambitious and tend to overshoot their sales numbers. To prevent your company from expanding too quickly without a foundation, use the following formula:
Gross Sales Number (divided by) Number Of Employees
Sidenote: this number will show you the value of hiring salespeople over other personnel first
3. Customer payback period
Do you know how much it costs you to acquire a customer? This formula will show if what you’re doing is making sense for your business. Obviously, the cheaper you can acquire customers, the better.
There is no real way to measure this cost initially without making an educated guess. Once you have that estimate, the question you want to ask is: how many months will it take to recover that cost?
The reason you need to pay attention to this metric is because it shows you how much money you will need to grow and how profitable you are likely to become. So, on your existing capital, how many more customers can you afford to acquire? It’s all about being able to support your growth. Growth costs more capital than failure does, so the length of your customer payback period is a good indication of your growth potential.
Knowing these numbers will help you not only from a startup growth perspective, but also if you plan on seeking investors in the future. Who of you already has a system down that lets you keep track of this data?