Published in Business
6 minutes read

Keep your eye on the ball: How to effectively manage a small business

I’ll tell you what indicators you need to control in order to save the company afloat.

Keep your eye on the ball: How to effectively manage a small business

Business theories, which are customary to study for years, offer dozens of complex indicators, in which anyone who does not have an economic education, but rather a degree, will quickly get lost. At the same time, at the heart of each ARPU, AOV, CAC, and other abbreviations that are terrible for a non-specialist are quite simple concepts that can be dealt with in a few hours. Let’s go over the most basic key indicators, the changes of which must be responded to in time.

Average Revenue Per User (ARPU)

Everything is simple here — we take the company’s income for the period and divide by the number of customers. Someone spent more, someone less, but knowing the average indicator, we can predict, for example, how the income will change with certain events

Average Order Value (AOV)

Another simple but important indicator. We just take the revenue for the period and divide the number of sales, contracts, transactions — choose the necessary depending on the industry in which the business works.

It is not so difficult to increase AOV. The most obvious way is to expand the assortment at the expense of some related goods and services that would complement the main offer. In this case, you need to pay attention to ensuring that Arpu does not fall too much. It is best when they grow in parallel, but alas, it does not always happen.

Customer Acquisition Cost (CAC)

We take all-all marketing expenses, including direct advertising, mailing lists, etc. Have taken? Now we divide it all by the number of clients attracted during the period.

The added value of CAC is that it can be calculated for each marketing channel separately. By doing this, you will immediately see where the attraction is the most expensive, and you will be able to transfer funds from this channel to another one with the best efficiency indicator.

In a global sense, CAC answers the main question: is my business profitable?

Customer Retention Rate (CRR)

We take the number of customers at the end of the reporting period and subtract from it the number of customers attracted during the period. We divide the resulting number by the number of customers at the beginning of the period. For convenience, we multiply this result by 100 and get the CRR expressed as a percentage. After a couple of attempts, even your granny will understand everything

If CRR is less than 100%, you need to think about how to improve the company’s processes related to maintaining customer loyalty. After all, it is this parameter that determines the stability of the revenue stream and makes planning for future periods much easier. Plus, of course, you need to remember that the higher the CRR, the less you depend on acquisition costs.

Revenue Churn

When is it time for a businessman to understand that the situation with his business has become critical? We take the difference between income for the current and the previous period, after which we express it as a percentage of the first digit. Now you can see how fast the flow of money is shrinking, and how much time is left to develop and put into action an anti-crisis plan.