Written by Joe Hinton on .
Every business owner dreams of rapid growth and expansion. But how exactly can you determine if your company is on track for long-term success? Measuring key metrics provides insights into your growth trajectory.
This article will explore essential ways to quantify your business growth using key performance indicators (KPIs). With proper measurement, you can set your company up for sustained expansion.
How is Growth Measured
Carly Fiorini, ex-CEO of Hewlett Packard said “The goal is to turn data into information, and information into insight” and that is so true when measuring business growth.
To gauge your business's growth, you need to rely on a set of key performance indicators (KPIs) that provide an accurate picture of its financial health.
The most commonly used metric would be sales or revenue growth, i.e. by what percentage has your sales increased over a previous period. Here's a basic formula to calculate revenue growth rate:
Revenue growth rate (%) = (Current period revenue - Previous period revenue) / Previous period revenue x 100 For example, if you would like to compare your revenue growth rate in Q3 2023 to Q4 2023, we can create some hypothetical numbers. If in Q3 your revenue was £10,000 and in Q4 your revenue was £15,000 we can do this calculation.
(15,000-10,000)/10,000x100=50% revenue growth between Q3 2023 and Q4 2023
This is an extremely useful measure of business growth although it can be a bit of a blunt instrument if not looked at in conjunction with other measures. For example, it’s great to see sales growing but is your gross profit margin stable or is it declining?
There are many other indicators of business growth that could be monitored, some of these may be specific to your particular industry but could include such areas as:
- Gross profit margin % - the true income figure for your business as it is calculated after deducting the actual costs relating to that sale i.e. materials/labour, etc.
- Staff salaries/wages as a percentage of sales – useful for assessing the productivity of your staff and determining if there is too much or too little work per head.
- Number of enquiries – a guide to how well your marketing and sales functions are operating and if you are getting value from your spend.
- Enquiry conversion rate % - a great but underused measurement – how well your team, website, digital marketing or whatever you use to convert enquiries into sales is working. This is worth reviewing regularly, as upskilling or bringing in different expertise to your team can dramatically affect how many leads are converted.
These metrics collectively provide a comprehensive view of your business's financial and operational well-being.
How Often Should You Check Your Progress?
The frequency of measurement depends on your business's size, industry, and stage of development.
For established businesses, quarterly reviews are common, but smaller businesses will need more frequent assessments, possibly weekly or monthly. It's crucial to strike a balance between tracking progress regularly and avoiding analysis paralysis.
Frequent check-ins can help detect short-term trends, while longer-term evaluations provide a more holistic view.
Should You Compare Your Growth to Competitors?
Benchmarking your growth against competitors is a valuable practice. It offers insights into your own performance and market dynamics.
By comparing your growth to that of industry peers, you can identify areas where you excel or lag behind, revealing opportunities for improvement. Tracking competitors' growth can also help you understand market trends, customer preferences, and potential threats to your business.
How Can You Use Your Growth Insights?
The data/management information you collect about your business's growth is not just for tracking; it's for actionable insights. Here's how you can use this information:
- Identify Strengths and Weaknesses: Pinpoint areas where your business excels and those where it needs improvement.
- Set Realistic Goals: Based on your growth data, establish achievable objectives to keep your business on track.
- Resource Allocation: Allocate resources wisely by focusing on areas of high growth potential.
- Risk Mitigation: Recognise potential threats early and take proactive measures to address them.
- Market Expansion: Use growth insights to identify new markets or product lines that align with your business's strengths.
- Operational Efficiency: Streamline your operations and cost management based on profitability and demand data.
In conclusion, measuring business growth is an essential practice for every company. It allows you to track success, plan for expansion, and stay competitive in your industry. By using the right metrics, monitoring regularly, comparing to competitors, and leveraging growth insights, you can position your business for sustainable growth and long-term success.
Work with a business mentor and grow your business
To make the most of your business growth metrics, it's beneficial to collaborate with a business mentor. A mentor can provide guidance, share their experiences, and help you navigate the challenges of expansion. Their expertise can be invaluable in identifying growth opportunities and devising strategies for long-term success. A mentor can also help you connect with industry peers, fostering collaboration and benchmarking against competitors.
If you would like a complimentary, no obligation discussion about how best to grow or measure the growth of your business then please get in touch:
Joe Hinton
Managing Director
UK Business Mentoring Group
07739 041044
0845 680 3634
This email address is being protected from spambots. You need JavaScript enabled to view it.
