When I was teaching my toddlers their ABCs a few weeks ago, it dawned on me that there was a striking parallel between this basic life lesson and achieving business success. As cute as it was to hear my toddlers recite the ABCs, the ultimate goal was not just the recitation; it was for them to recognize the individual letters and understand the sounds they make, laying the groundwork for reading.
The ABCs of business also pivot around a similar theme – focusing on the right metrics that tie back to the ultimate goal, rather than the ones that look good on paper but don’t provide any real strategic value or insights.
We often fall into the trap of ‘vanity metrics’. Consider this scenario: You’ve developed an app and managed to get 10,000 downloads. Sounds impressive, right? But does 10,000 downloads equal success? Not necessarily. A more impactful metric would be the number of active users or the number of in-app purchases if profit is the goal for the app. As Ngozi Dozie, co-founder of OneFi, a Nigeria-based finance platform states, “Focusing on how many people download your app is irrelevant if they are not actually using your service and engaging with your product.”
Just like teaching the ABCs to my toddlers, we need to focus on metrics that help us meet our ultimate business goals. Vanity metrics might be nice, but they aren’t the full story. As Strive Masiyiwa, one of Africa’s most successful entrepreneurs, says, “Numbers tell a story, make sure it’s the right one.”
So here are the three metrics I believe you should prioritize:
1. **Customer Lifetime Value (CLV)**: This is the net profit a business makes from any given customer. It predicts the total value of the relationship with a customer. It’s the value of a customer over the “lifetime” of their relationship with your company, not just the first purchase. As Strive Masiyiwa puts it, “If your customer stays with you longer, they are more valuable to you.”
2. **Cost of Customer Acquisition (CCA)**: This is the cost associated in convincing a customer to buy a product/service. If the lifetime value of a customer is $20 and you’re spending $100 to acquire a customer, then you’re not being profitable. Issam Chleuh, the founder of Africa Impact Group, advises, “Businesses should try to keep the CCA lower than CLV to have a sustainable business model.”
3. **Gross Margin**: Gross margin is a company’s total sales revenue minus its cost of goods sold (COGS), divided by total sales revenue, expressed as a percentage. It is a measure of profitability at the most fundamental level.
In conclusion, a successful business knows its ABCs – the actual, beneficial, and crucial metrics. As Juliet Ehimuan, Google’s West Africa regional director suggests, “Prioritizing these essential metrics and regularly reviewing them helps businesses to be more efficent, remain competitive, and set the stage for sustained growth.”
A truly successful business knows its ABCs. In the words of Aliko Dangote, “To succeed in business, you must build a brand and never destroy it.” So, let’s be smart about the ABCs of our businesses.
Remember, as I always say, ABC – Actual, Beneficial, and Crucial Metrics are key to business success. Trust me, it’s as cool as it sounds. Thanks for reading!
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