5 Important Metrics You Will Need to Always Know as an Entrepreneur

important metrics

Do you know the important metrics that can really change your entrepreneurial life? Something that can tell you many things about performances of your small business?

If you measure, you will know the performance of your company and you can make the right decisions that will bring you success.

As an entrepreneur, you will need to know and follow many important metrics and numbers in your small business. But, here I want to talk and explain the five most important metrics that you really need to know whether you want to be in a position to make the right decision for your company.

Let’s look at them.

1. Average Sale in Currency Per Customer

How much is the average sale in currency per customer?

Probably your numbers if you hypothetically have ten customers, will look something like this:

CustomerYearTotal Sale per Customer
Customer 12018$10.000,00
Customer 22018$8.000,00
Customer 32018$12.000,00
Customer 42018$6.000,00
Customer 62018$5.000,00
Customer 72018$10.000,00
Customer 82013$13.000,00
Customer 92018$8.000,00
Customer 102018$8.000,00

You see that your sale is between $5.000,00 to $13.000,00. But, this conclusion will not give you insights about how much you are allowed to spend to bring another ten customers to your company. Because of that, you will need to calculate the average sale in currency per customer,

Average Sale = Total Sale / Number of Customers

In the example above it will be:

Average Sale = $90.000,00 / 10 customers = $9.000,00 per customer

This means that your company has an average income of $9.000,00 from each customer. Now if you want to double your income for the next year, you will know that you will need at least ten more customers for your small business.

Related: 10 Tips to Create Challenging Demand for Your Products

2. Conversion Rates

How many customers you have as a percent of all potential customers who entered in your sales funnel?

The conversion rate is the ratio that will tell you how much leads was transitioned from the position of the leads in your sales funnel into the real buyers at the end of the sales funnel. These are the persons who give you the money for your products and services. This metric is expressed by percents of entires into your sales funnel. For example, 10% conversion rate means 10% of people who were at the beginning of your sales funnel become buyers who buy something from your company.

Let’s say that your marketing efforts bring 100 people into your sales funnel, and at the end of the process, you have only five customers who come to you and buy something that your company sells to them. So, your conversion rate will be 5% because only 5% of 100 potential customers become real customers.

Now, when you know that your conversion rate is 5%, and because you want to double your income for the next year, that means you will need ten more customers who will spend on average of $9.000,00 and to succeed in this your marketing efforts will need to bring 200 potential customers to become a part of your sales funnel.

Related: Real-life Organizational Decision-Making Examples

3. Customers Acquisition Costs (CAC)

How much money costs you the acquisition from a customer?

This metric, as the name tells us, indicates the costs that your business will need to make in order to acquire or activate the web/mobile platforms as an additional customer.

For example, if you spend $5.000,00 to bring 200 potential customers into your sales funnel, and only ten of them become real customers who spend money and will continue to be customers of your company, your customer acquisition costs will be $500,00 per customer.

This means that you will need to invest $500,00 to bring one customer that will spend $9.000,00 on an annual level.

Now, you simply know that if you want to succeed in doubling your income for the next year, you will need to spend $5.000,00 to bring 200 potential customers into your sales funnel, and ten of them will become customers who will spend on average $9.000,00 on your products and services next year.

✋ Warning

Juggling personal & work calls on one device? 🤹‍♂️ Discover our step-by-step guide on setting up multiple numbers on your phone! 📱

4. Customer Life Time Value (CLTV)

How much is worth an acquired customer for my company?

Until now, we have talked only about a specific period of time in the examples above is one year. Now, with these metrics, we will define the lifetime value of a customer for your company. With this metric, you simply want to know the value of your customers in a long-term relationship with them.

To calculate CLTV, you will need to know the following numbers:

  • The average sale in currency per customer. This is the first metric that I have explained here. In our example, on an annual level, it is $9.000,00.
  • Average gross margin. If your gross margin is 50%, then your average profit per customer for one year is $4.500,00.
  • Customer acquisition cost (CAC). If your customer acquisition cost is $500,00, now your customer will be worth $4.000,00 in the first year and $4.500,00 for the next years.
  • The number of years your customer will be an active customer. If, on average, your customer will make the same purchase five years after they become your customer and then it will disappear, it means that customer lifetime value for your company is $4.000,00 + 4 x $4.500,00 = $22.000,00

But this example is not so real. Often, customers can decrease their spending on your small business. You cannot expect that it will be the same year after year. Because of that, you can use something like a retention rate. For example, if the retention rate is 80% on a year-over-year basis in the second year, instead of $9.000,00 income from a customer, you will have $7.200,00 in the third year, you will have $5.760,00 in the fourth year, it will be $4.608,00, and in the fifth last year, the income will be only $3.686,00. Now, we will have the following:

YearRetention RateAverage SaleAverage Gross Margin 50%CACAnnual Worth

As you can see in such a way, your customer lifetime value (CLTV) will be $4.000,00 + $3.600,00 + $2.880,00 + $2.304,00 + $1.843,00 = $14.627,00.


Another metric that will be really helpful for you is the ratio of CLTV and CAC, which will tell you how much money you will bring back for one invested dollar in acquiring the customer. In this example, we will have the following:

$14.627,00 / $500,00 = $29,20

This means that you will receive $29,20 for each $1 invested in customer acquisition. This ratio is also important when you validate your business idea because if you have a lower ratio, it is the signal that your small business will not be as profitable as you think.

As you can see many decisions for your next entrepreneurial steps can be made because of these important metrics. You need to build your own system how you can follow them and measure the performance of your company.

Question: What type of metrics are the most important metrics on which you base your decisions on an everyday level in your small business?