February 7, 2012

Major Constraints for decision making in a startup / new business:
Business Success Measurement, Analysis Tracking Metrics
  • In the early days of a startup, sometimes there isn’t much to measure. 
  • A comparison of this year’s sales compared to last year’s isn’t all that helpful if you’ve only been around for eight months. 
Right Metrics to Measure & Analyse Sartup Business
Following three metrics can give startups can help analyse the success & potential of a business giving insights into current business operations and help with some short-term forecasting for business success.
  • Pipeline coverage Metrics Analysis
    • The sales pipeline is a listing of all your sales prospects. 
    • Typically, you’d include the projected sales amount and estimate the probability of success for each account. You’d update the information regularly.
    • Sales pipeline coverage is a fraction. The total amount in your pipeline is the numerator, and the sales goal is the denominator. 
    • 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.
  • Sales per employee Metrics Analysis
    • This metric is simple and good for businesses of all sizes. 
    • Take the gross sales number and divide it by the number of employees. 
    • Since small businesses typically scale too fast ahead of their prospects – the optimism of entrepreneurs is both their blessing and their curse – sales per employee is a critical measure within growing companies. 
    • Note: Once you start focusing on this number, there may be a bias of hiring salespeople over other personnel.
  • Customer payback period Metrics Analysis
    • The very best metric for evaluating your business, customer acquisition cost, takes a while to assess. Ultimately, everything your business does will either make sense or not depending on how much it costs you to acquire a customer. If you can acquire customers cheaply or profitably, you will do well.  
    • At first, customer acquisition cost is just a rough guess. But once you have that in hand, you can start thinking about the customer payback period. If the cost to acquire a customer is known, the logical question is how many months it will take to recover that cost. 
    • The value of this metric lies in its ability to help you figure out how much money you need to grow and how profitable your company is likely to be. Put another way, how many customers can you afford to acquire with your existing capital or operating profits?  How much growth can you support? Growth is more capital-intensive than failure. The length of your customer payback period gives you a window into your growth potential.
Advantages of the above business analysis & success measurement metrics:
  • Universal Applicability of these metrics for business analysis
  • Business CEOs can use these metrics to better track what’s working and analyse what needs to be changed in order to meet short and long-term business goals.
  • These metrics can help investors (in case of external funding) understand the business and potential.
Recommended reading: Web & Social Media Analytics

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