KPIs To Pay Attention To As You Scale To Seven Figures

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We always want to go up, up, and up, but the truth is that it’s just not possible. Everything ebbs and flows and has it’s natural cycles… Yes, even business included!

If you are a creative entrepreneur on your journey to seven figures you are inevitably going to face challenges and experience MANY ebbs and flows on your path. No matter what is going on in your business there is always one thing that you can turn to for information and guidance on what your next best move will be.

And that is… (drumroll please) You guessed it! Your numbers. As your business starts to grow, along with it your financial complexity grows, your numbers grow, and there’s A LOT of numbers and metrics that you can be tracking, but what should you really be paying attention to if you’re on a mission to scale to seven figures? We’re going to answer that and make all of this make sense for you in today’s blog!

In this week’s blog, we’re covering:

• Revenue Growth Rate

• Customer Acquisition Cost (CAC)

• Customer Lifetime Value (LTV)

• Profit Margin

• Cash Flow

Revenue Growth Rate

Your revenue growth rate is super important, especially if you are scaling in any capacity. Understanding this will allow you to understand how well you are growing in the company. Revenue growth rate looks at what percentage are you either increasing or decreasing revenue in the company. It indicates how fast a company's revenue is increasing over a specific period, typically measured annually or quarterly, but can also be looked at monthly. It is often expressed as a percentage and is calculated by comparing the revenue from one period to the revenue from a previous period. In short, your revenue growth rate basically tells you if you are going backwards or forwards… Ebbing or flowing!

For example, let’s say you are making $20,000 this month and last month you made $15,000 then your revenue growth rate this month would be 33%. If we look at the opposite where this month you made $15,000 and last month you made $20,000 then your revenue growth rate would be negative.

In order to truly sustain a good revenue growth rate, it’s important to actually take a step back. When you take this step back you have to really see and understand what is going right, what is working right now? We like to look at the good, the bad, and the ugly. You might be wondering why would you look at the bad and the ugly? Looking at the good, the bad, AND the ugly gives us a really holistic viewpoint of the business where we get a super clear understanding of what is actually going on BTS.

We look at it like this - What is going so well that your revenue is increasing? Or if you have a decreasing month, what is the bad? We have to look at what did you change? What decisions did you make? Did you get rid of that Facebook group or those marketing ads? Or are you launching and that is having an impact on this? We have to really look at EVERYTHING to get this clear picture and understand what decisions are affecting your finances in what way.

Here’s how you can calculate your revenue growth rate:

(Current period revenue) - (previous period revenue) / (previous period revenue) x 100 = Revenue Growth Rate

For the example we used above, saying you made $20,000 this month and $15,000 last month here’s how we would calculate the revenue growth rate:

(20,000 - 15,000) / 15,000 x 100 = 33.33% Revenue Growth Rate

The Revenue Growth Rate is going to tell you if you are actually going up or going down over time.

Customer Acquisition Cost

A lot of business owners get overwhelmed by customer acquisition cost, but it can be pretty straightforward and easy to understand when it is broken down in a way that makes sense. You are going to look at the total cost of your sales and marketing strategies that you are implementing divided by the number of customers acquired.

A great example of this that you might be able to relate to is Facebook Ads. Let’s say that you spend $10,000 in marketing for Facebook Ads and you acquire two clients. So we would take the total cost of strategies which is $10,000 divided by the two acquired clients to get a client acquisition cost of $5,000. Looking at this example, it would cost $5,000 to acquire each client.

Another example of this would be if your company sponsors an event, you would take the total cost of sponsoring the event and divide it by the number of clients acquired from that sponsorship opportunity to get your client acquisition cost. If you are working with an ads agency you could look at how much are you spending on ad costs and then how many clients are you retaining from those ads to get your customer acquisition cost. If you are a course creator, this would look at how much are you spending in total to acquire each of your clients or students?

This is one of those things that you can segment out for each sales and marketing strategy or you can take a holistic view and look at it all together. Understanding your customer acquisition cost will help you pivot when the time is necessary. You will be able to ask yourself, what do I need to do in order to keep acquiring clients for a smaller amount?

Customer Lifetime Value

For all of you creatives, course creators, and marketing rockstars out there, this is a super important metric to understand. When we are calculating Customer Lifetime Value, we are looking at the total value that a customer brings to your business over the entire duration of their relationship with you. This will help you understand how much revenue you can reasonably expect to generate from a single client throughout their journey with the company.

This is essentially the average revenue per client times by the client’s lifespan. So for example, let’s say that you have clients that are on recurring revenue. If you are in marketing or a business with a lot of recurring monthly clients that are fairly consistent you will be able to relate to this example. Let’s say that you have clients on at $500 per month and they are with you for two years. Your average monthly fee for clients is $8.95. So your customer lifetime value would be $8.95 (client average cost) times the number of months that they are with you. So for this example, it would be the $8.95 x 24 months = client lifetime value of $21,880.

Here’s the thing with Customer Lifetime Value… That number is going to change every time that you gain or lose a client. It will fluctuate and start to change as your clients change. For this example, you can think that for every client that you gain, you are on average going to gain that $21,880. Understanding your client's lifetime value is going to help you identify what is happening with your clients. You can ask things like; Why is a client leaving after 6 months or why aren't clients staying with us for two to three years?

Businesses use CLV to make informed decisions regarding customer acquisition, retention, and overall marketing strategies. A higher CLV typically indicates more valuable clients who are likely to generate more revenue over time. If you know that these clients are going to have a high value over time, you might make decisions to invest more resources in acquiring and retaining those high-value clients.

Understanding CLV allows businesses to allocate resources more efficiently, personalize marketing efforts, and prioritize your client experience to have loyal, satisfied clients who become valuable and stay with your company long-term. This is where you can really see the importance and impact of your client experience. It also helps in setting realistic customer acquisition costs and evaluating the return on investment (ROI) of marketing campaigns and customer retention.

Profit Margin

You probably have at least some level of understanding around profit margin and what it is since it is pretty straightforward, but we’re going to break it down and make it make more sense anyway. Your Profit Margin is your Net Income divided by your Revenue. Your Net Income is your bottom line, which is your income minus expenses. From there, you would take your net income, divide it by your revenue, then times that by 100 and you have your profit margin percentage.

When it comes to your profit margin, the higher the percentage the better. This means that you are keeping more money in your pocket. Profit margin is an essential metric for investors, analysts, and management because it provides insights into your operational efficiency, pricing strategies, and overall financial health. It is important to consider industry benchmarks and trends when looking at profit margins, as they can vary significantly across industries.

Cash Flow

Last but not least, you need to have a good grip on your cash flow. There is not a one-size-fits all formula for calculating your cash flow because it is really dependent on your business. Understanding your cash flow is just knowing overall how much cash you have on hand. We’re not talking about credit cards or loans, we’re talking about cash. How much money do you have available in the business? Cash flow is looking at the movement of money in and out of the business over a period of time.

Positive cash flow indicates that your company is generating more cash than it is spending, which is generally a sign of financial stability, sustainability, and scalability. On the other hand, negative cash flow shows that the business is spending more cash than it is generating, which means you are going to need to make some adjustments and something has got to change!

Cash flow analysis is essential for understanding your ability to cover costs, pay yourself and your team, invest in growth opportunities, and pay off debt. It is also crucial in helping you make the best decisions for your business, feel confident in your budget, look at things like investment planning, and evaluate your overall financial performance.

If you’re on your way to that seven-figure mark in scaling your business, embracing the ebbs and flows inherent in the journey becomes essential. Regardless of the challenges you encounter, there's always clarity amidst the chaos to be found in your numbers. Everything evolves as your business grows, so let your KPIs become a cornerstone in measuring your success and guiding you to reach for that next milestone.

From understanding your revenue growth rates to your customer acquisition costs, each metric will give you invaluable insights into the health and trajectory of your business. By understanding these KPIs, you not only gain a holistic view of your business but also empower yourself to make informed decisions that drive sustainable growth. So, as you navigate the twists and turns of the scaling process, let your numbers guide you toward your version of success, whatever it looks and feels like for you. If you’re ready to dive even deeper into what numbers you should be paying attention to for your specific situation, you can take our free Money Mastery Quiz, where you will receive a custom Money Mastery Plan that caters specifically to your business needs.

Our plan will provide you with all the information and tools you need to succeed, including Recommended tech, a step-by-step process on what to expect when working with a bookkeeper, tips for finding the right financial team, key financial metrics to pay attention to in your business to move the needle forward, and whole lot more essential information and insights. You can get started and take the quiz here.

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