6 Best Indicators of Business Growth
- Demand
- Profit
- Revenue
- Sales
- Personnel
- Market share
Small businesses, like people, don’t necessarily grow all at once. Just as we use many measures to show a person’s growth—in height, weight, age, and accomplishments—we evaluate business growth using both external factors like customer demand and sales trends, in addition to financial records, and more qualitative inputs like employee headcount and company culture. There are a few different indicators of business growth, all of which provide an individual snapshot of one aspect of your business. Together, these business growth indicators provide a composite view of how your company is doing, and where it’s projected to go.
Determining how much your business is growing, either at an annual or quarterly rate, is crucial. For one thing, it’ll improve the accuracy of your financial projections, and inform your business budget. And a firm understanding of your growth to-date can help you set goals for future growth, and better allocate resources and spending to areas that need more attention.
Here, we’ll go over six of the best indicators for business growth: demand, profit, revenue, sales, market share, and personnel.
How to Accurately Estimate Growth
Before you can start measuring your business’ growth as a comprehensive whole, it’s important to determine how you’re measuring your growth. That’s where KPIs, or key performance indicators, come into play—they’re specific, measurable values that indicate how well, or poorly, your business is achieving its goals. By honing in on your business’s KPIs, you can more effectively track each quarter, and chart your progress using consistent metrics.
Your business’s KPIs are dependent upon your company’s specific goals, and you should set several KPIs for all aspects of your business—like sales, marketing, and finances. To give you a clearer picture of what we mean, though, here are some common KPI examples:
- Monthly sign-ups
- New accounts created
- Deals finalized by your sales team
- Leads generated
- New customers per month
- Debt to equity ratio
- Organic search traffic
Ultimately, your profits and losses alone can’t tell the whole story—keeping track of targets specific to your industry and business helps contextualize your growth.
And don’t base your growth projections on inference alone. If you or someone on your team has accounting experience, this is the perfect time to flex your analyst muscles. Depending on your purposes for evaluating your company’s growth, consulting a professional might be a worthwhile investment. That’s especially true if you’re presenting this information to lenders or potential investors.
6 Reliable Indicators of Business Growth
Tracking KPIs on a monthly and quarterly basis will help you identify where you’re growing, and any areas that need work, in addition to creating a consistent reporting structure. There are many quantifiable indicators of growth worth evaluating, even though they don’t correlate directly to profit and revenue, like social media engagement, website traffic, and search rankings. The most relevant indicators of growth will vary depending on what kind of business you own, so take the time to assess which factors are the most crucial to your success.
Once you establish your growth priorities and KPIs, you’ll be able to apply these general principles to your business and its growth.
1. Demand
The foundational law of “supply and demand” is foundational for a reason: Your growth potential depends in large part on how much demand there is for your business—whether that’s a service, product, or experience. Assessing your business’s demand is crucial if you’re thinking about expanding your business, or making a hiring plan.
Here are three key indicators of business growth for demand:
1. Your customer base is loyal—and growing. If you focus on serving your clientele, you know what your customers expect, and can anticipate what they’ll want next. As a result, you’ve cultivated a dedicated, diverse customer base that is loyal to your business, and vocal about their support.
Not quite there yet with your customers? One way to boost customer engagement is to include clients or customers in your business strategy planning. Try creating opportunities for customers to leave comments and feedback. If you have a brick-and-mortar storefront, you can provide feedback opportunities with written comment cards. Create an online survey—you can even just use Google Forms—and add the links to a user survey to your website, and email signature for salespeople and customer service representatives. You can also record sales and service calls, and provide a voluntary short survey at the end of calls.
2. Inventory is turning over rapidly. If you literally can’t keep your shelves stocked, it might be time to expand your business—one of the most demonstrable ways to measure your growth is by looking at turnover rate for inventory.
3. The team is busy. Not selling goods or holding inventory? For demand growth indicators in the service industry, look at how full your bookings are, how busy your salespeople and account managers are, and how much people are working overtime.
4. You’re attracting outside attention. Whether it’s an investor showing interest, or an enthusiastic customer base begging you to expand your business, listen to the feedback you get from clients, friends, and advisors as an indicator of your popularity.
2. Profit and Losses
“Profit” is your net income after essential expenses, like payroll, equipment, and inventory; and “losses” are the costs that exceed revenue. Obviously, a healthy business needs to have more profits than losses—a business with less of the former and more of the latter runs the risk of untenable debt and, potentially, bankruptcy. To determine your business’s profits and losses, you’ll need to collect a few crucial financial records, including income statements, a cash flow statement, and a balance sheet.
Then, check your margins. Your profit margin is the percent of revenue left over after costs and expenses. The calculation is relatively straightforward, once you collect your income and expenses data. To some extent, the best way to determine a good profit margin for your business is dependent on industry, so your profit margin value is relative to the average for businesses in your location and sector.
3. Revenue
When you’re looking for indicators of business growth, calculating your annual revenue growth rate is a good next step once you’ve analyzed your profit and losses. If you’ve been in business for fewer than three years, or are a venture-backed company that hasn’t become profitable yet, cash might be tight or business might vary month to month. Revenue can help indicate growth, even if your profits aren’t increasing right now.
That said, if your revenue is high or steadily increasing, yet profits are stagnant, you can use this opportunity to analyze where you can lower operating costs or losses to bridge the gap.
If your revenue indicates healthy year-over-year growth, but profits aren’t budging, zero in on your expenditure to see if there are any costs you can eliminate to free up more cash to put back in your business.
4. Sales
Revenue and profit usually get all the attention for indicators of business growth, but if you’re tracking success, it’s essential to also evaluate the sales that are driving your revenue.
Your sales team is the frontline of your business, and you have insights into the trends and changes from month to month that will impact revenue. So, it’s worth aligning your company’s KPIs with sales goals. Especially for small business owners hoping to increase sales, it’s important to consistently report on sales performance.
When a sales team has more leads than they can call, or are working exclusively on inbound leads, there’s a good chance the wider market is expanding—and with it, the potential for your business. And if your team is closing more deals than your product and account managers can handle, that might indicate growth potential for your business specifically. Just beware of churn due to over-selling.
With few exceptions, successful revenue models rely on sales—whether it’s subscriptions, services, or products—so booming sale can indicate it’s time to expand in order to accommodate new customers or accounts.
5. Workforce and Network Health
From headcount, to hiring patterns, to vendor relations, your employees and partners determine a large part of your success as a manager and owner. Yes, creating jobs can drain cash, especially if you’re in the early stages of your company. But a growing team indicates that your business demand is high enough to justify adding roles.
It’s a good sign if you’re hiring because you have to. An uptick in hiring is a great indicator of growth, particularly for small businesses, because there is typically limited cash on hand, which restricts hiring flexibility. And often before you start to see major profit increases, you’ll have to start hiring out of necessity—as in, account managers are maxed out, salespeople have more leads than they can keep track of, or you’re filling multiple roles yourself.
Also, excluding issues of productivity or mismatched roles, sometimes the best way to boost your business’s growth is to invest in a much-needed hire. Talk to your team about their bandwidth and needs. Their input can help you identify which aspects of your business are the most in need of extra hands.
People want to work for you. An engaged, active workforce will drive productivity and create a great culture. Dedicated employees who get your mission and share your values can help take you to the next level of success.
6. Market Share
Depending on your industry and geographical location, your portion of the local market could be an additional key indicator of how much your company has grown, and how much growth potential there is in the existing market.
Observe peer companies of a similar size, or better yet, direct competitors. If it’s relevant, check your competitors’ recent updates, keeping an eye out for new locations, products, or partner integrations—try checking a company’s blog if you need somewhere to start.
A healthy competitive market will actually help your business grow, so you want to see activity in the space outside of your own business. In the case of small businesses, this indicates demand in the market for the good or service you provide.
Next, try to figure out how big the potential market is, and whether or not that base of potential customers is growing. For many industries, you can find independent reports from analytics companies like Gartner, as well as free market research guides and resources. If you have more business than you can accommodate, too many sales leads to handle, and competitors in your space, there is a good chance the market for your business is strong—and growing.
Looking at Indicators of Business Growth: The Big Picture
A comprehensive assessment of your business, from day-to-day operations to annual revenue, should indicate to you how much your business is growing over time, and help you identify patterns in demand and spending. Demand, profit and revenue, and headcount might indicate growth from a numerical perspective, but true growth is largely a self-fulfilling prophecy. If demand indicates that your customer base is growing, for instance, act accordingly: Put your effort behind cultivating and expanding that following, and making necessary expansions and hires to support that base.
And whatever your financial statements are telling you, try to capitalize on what’s going well, be it quality products or services, a great sales team, or simply an excellent operation—while working on areas that could use improvement. Because one of the most powerful uses of growth analysis is to identify what’s holding you back. Unsuccessful services or products, inefficient spending, or making the wrong hires can be hard to identify in the moment. These factors are all easier to pinpoint when taken into consideration with financial data and your company KPIs.
In short, if you see indicators of business growth, act quickly capitalize on that growth. Look into small business financing to seize opportunities if they present yourself. At the same time, be sure to remove inhibiting factors, like bad hires and unnecessary spending, from its path. Once you’ve done your homework, and developed an idea of how your business is changing and growing, you can draw from countless free tools to help grow your small business.
Keep in mind, growth is also a risk. It’s tempting to see all growth as good growth—and you should celebrate these wins—but, above all, it’s important to stay focused on delivering quality and operating efficiently.
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from Fundera Ledger https://www.fundera.com/blog/best-indicators-business-growth
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