Do you run a service based business and wonder what metrics are the most important to your scaling business? In this post I'm sharing the 10 metrics that we will be tracking monthly at numbercrunch in 2019 as we scale our four year old service business. Every business is unique but if your business is a service business this list may be right for you too.
New customer sales growth - You want to scale right? If so you must be focused on systematically adding new customers. Compare new customer revenues this month to how you did last month, last quarter, and last year. Note where these new customers are coming from. How they did hear about you? For better insights we tag customers in a variety of ways to spot opportunities to focus marketing efforts further to drive cost effective customer acquisition programs to other like minded prospects.
Average monthly revenue per customer - As you mature your business consider introducing more value-adding services that can benefit your existing clients driving increased revenue per client contributing to overall revenue growth. In 2018 we added complimentary services including: invoice collections support, hiring support, foreign exchange and employee benefits administration to name a few.
Employee turnover - It is harder than ever for smaller businesses to retain top talent but you have to fully appreciate and accept the massive financial impact turnover can have on your business. Do your pricing models afford you realistic turnover expectations? Most employers appreciate the importance of this yet most businesses are not actually tracking retention and turnover rates.
Customer churn - From a financial perspective, it is not always best to retain every client (some are too expensive to feasible support). In my experience, however, there are very valuable learnings from each and every churned customer that are worth paying attention to no matter the situation and become key to fixing cracks in the foundation of our business. We will be tracking churn, as well as lessons learned and we will continue to strive for continuous improvement.
Gross margin % - Keep an eye on your gross margin trend to ensure you are maintaining your revenues and costs per employee. If you start to increase employee salaries without increasing pricing you'll see your margin drop. You'll also see it drop if employees start taking longer to deliver these services. Essentially every troubled service business I encounter has experienced a downward trend in their gross margin.
EBITDA (earning before interest, taxes, depreciation and amortization) - This is essentially your operating profit. When it comes to keeping your bank happy, you can't let your EBITDA go red or else you'll eventually see an unfavourable impact in the relationship with your banker. If you need to borrow money to hire staff have a preemptive conversation with your banker about how this may impact your EBITDA in the near term to avoid any negative surprises.
% Billable hours per employee - Nobody enjoys enforcing time sheets but I believe they are necessary if you want to scale and sustain a profitable service business. If you think you are sparing your employees the pain, they'll prefer time sheets over job uncertainty. Use an app to make it as painless as possible for your staff. We use tsheetswhich works well and integrates with QBO and Xero. If your revenue is more project based than ongoing collecting time data is even more important to your business.
Days to hire - A service business cannot grow if it can't efficiently find and hire new talent. Because of the importance of a positive EBITDA (mentioned earlier) service businesses need to understand with certainty how long it will take them to hire or replace talent. Track from job posting to start date so that you can manage resourcing as you take on more business.
Year over year revenue growth - The single most influential metric for most businesses to external stakeholders is revenue growth. Be it investors, potential acquirers, bankers, and even future and present employees and customers, all are more attracted to businesses that have year over year revenue growth. Each month compare YTD (year to date) revenues to your previous year and stay current on your YTD growth rate. I bet you are starting 2019 with a target growth rate in mind so keep yourself accountable to achieving it.
Days in cash - Last, but certainly not least, is cash. Every business dies when it runs out of cash. Cash is to business what oxygen is to humans and it's important to know how much you have left in the tank. Do you know what your daily burn rate is? If not, run the numbers and divide it by your cash balance to confirm how many days you've got in the bank.
I kept the above descriptions short to appeal to our 2019 attention spans, but if you want more guidance on any of these metrics you can subscribe to tracking tips for service businesses here. And if you would rather just outsource the whole thing (because I know you likely don't have the spare time) just let me know as we've got a great team ready to serve.
Do you have a favourite metric that is missing from my list? Did you find this post helpful? I'd love to hear from you so please share your thoughts in the feedback.