"Know your numbers" they say. Heck, I say that all the time too. What doesn't get a lot of airtime, though, is what numbers you should know.
The all-encompassing-far-too-generic-answer is "the most important ones for your business". While that is totally true, it won't help you start diving into your data - that process will still seem like this far away ideal that you'll figure out later.
So, let's dive into some specifics for service-based small businesses (or more accurately micro businesses with 10 employees or less) to help your journey to be data-driven!
Operational metrics to track for your service-based small business
When you're in business for yourself, or a small team, your "inventory" is your time.
1) Hourly Rate
For every hour that you work, how much money comes in to the business?
We could spike this out lots of ways - billable vs non-billable time, time spent on marketing initiatives that will eventually lead to revenue, etc. but we'll focus on billable time here.
If your hourly rate is $50/hr and you want to make $100k per year (about $2,000 per week), that means you have to have 40 billable hours per week. That's tough. That probably means no marketing time, and just a few hours of admin time and networking.
Keeping a close eye on your billable hourly rate sets the pace for the rest of your activities. Doubling that rate means you would only have to bill 20 hours a week instead...
2) Hours by service
To complete a project for a client, you have to do X, Y and Z. How long does each take?
If you can get this to a pretty specific amount of time, your estimates for new clients can become incredibly accurate (and we all know how nice that would be), and your hourly rate is sure to reflect it positively.
This also allows you to manage your capacity throughout the week, or even throughout the year!
Hours tracking might be annoying, but the payoff and impact it has on planning is certainly worth it!
Financial metrics to track for your service-based small business
Let's start with the big two: Revenue and Net Profit.
How much money did you bring in? How does that compare to last month? How about vs last year?
This is an obvious one, but it's arguably the most important. Revenue sets the tone for the rest of your business' profit & loss so this is one of those metrics that you can check to gauge the health of your business at a glance.
One layer deeper: where did that revenue come from? Getting the revenue amount by revenue source can point you in the right direction of where to spend your time.
4) Net Profit Margin
Off all that money that you brought in, how much was left after all expenses? That amount can be used to actually pay yourself, buy a new software, invest in a new marketing effort, etc.
This is still a fairly obvious one and should also be something that's compared to other time periods so you can measure your trend.
A net profit margin of 20% essentially says, for every $100 I bring in, I'll have $20 to re-invest in the business. Keeping an eye profit dollar amount can look great when your revenue increases, but if your margin decreases, it could be cause for concern.
5) Marketing Expense
"You gotta spend money to make money!" Where did you spend it? Did it get the word out successfully?
This is often one of the top expenses for service-based businesses so it can really impact your bottom line. If you bring on someone to do SEO for you, or manage your ads, or be your agent, all of that counts. Also, if you spend money on networking, social media posts, email newsletters, etc. that counts too.
You can quickly run up a huge tab in the marketing department - keep an eye on that number and make sure it correlates to your revenue. A higher marketing expense isn't a bad thing... as long as it lead to higher revenue.
That thinking should be applied to each line item in your marketing budget and can help you focus your efforts and cut out the losers.
Marketing metrics to track for your service-based small business
Let's dive a little deeper on marketing and focus on conversions.
Who became a client? Who bought your training package? The people that gave you the revenue... let's dive into that.
Again, this one isn't groundbreaking, but it's the important one. Conversions pay the bills. Leads don't.
Conversions open the door to some good discussion in your business. How many conversions vs last month? How many were repeat customers? Where did they come from? How many calls did it take?
This one is a great health check for your marketing effectiveness.
7) Conversion Source
This is worth spiking out on it's own. Where did the conversions come from? Networking? Referral? Social media?
This opens up the door to the "average revenue from a conversion" and dissecting that by conversion source.
If you're spending money on ads, make sure people are buying from them, not just seeing them. For the ones that buy, how much did they spend with you? Did you have to put a cheap price out so people would click and buy?
Same thought process goes for the other marketing avenues you have too. How many people are paying you from each marketing source and how much are they paying you, on average?
This ties back into that marketing expense nicely - making sure you're getting the best bang for your buck, everywhere your buck is spent, and potentially finding areas that pay you the most and account for the most clients... what should be your target market, ideally.
Why Leads might not matter
In the world of small and micro businesses, leads can be tough to track. I say that as a data-loving nerd who wants to track everything.
When half of your business comes from referrals and networking, it's tough to say whether or not someone is truly a lead. Sometimes a one on one from a networking call turns out to be an unexpected waste of time and sometimes it turns into business out of the blue and they've skipped the whole funnel!
That's just one example, but getting bogged down by "who was truly a lead" and it's impact on conversion rate/where to focus your efforts can be misleading and a time suck. At the end of the day, leads don't pay the bills. Conversions do. Track your metrics on deals closed, not doors opened.
I know lead and conversion rate tracking has a place in many different marketing channels and it can be very valuable. If we're talking about just the most important metrics though, conversions beat leads in the micro business world.
Tracking small business metrics... make sure to hit the important ones!
Knowing your numbers is a big piece of the small business puzzle. Knowing the right numbers can make this an easy process that actually helps make you data-driven instead of a monthly hassle.