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More than 80% of companies have missed their sales forecasts and revenue projections in the past two years, which can have far-reaching impacts. Fortunately, tracking revenue metrics can help a company get back to profitability.
Understanding revenue metrics provides companies with a more thorough picture of their financial past and present so that they’re more prepared for the future. In this article, we’ll talk about what revenue metrics are, which ones you should be tracking, and how they can impact your growth.
What are Revenue Metrics?
Revenue metrics are measurements that assess the revenue of a company. These metrics are a critical part of a business’s revenue enablement efforts as they measure the overall performance of these tactics and help the company optimize its future efforts.
Why sales teams need to track revenue metrics
Sales teams should track revenue metrics as a part of their overall sales enablement metrics, as one of the most crucial parts of sales enablement is the alignment with revenue operations. Sales enablement and revenue enablement should work cohesively.
More than 50% of CSOs believe that sales enablement will support other revenue-generating teams, like marketing and customer success, in the next three years. To provide the level of support that these CSOs expect, sales teams need to know the revenue performance of the company to provide the best enablement measures.
Revenue metrics vs revenue KPIs
Revenue metrics and revenue key performance indicators (KPI) differ due to the word “key.” While a KPI measures the performance of a specific business process, it must also be tied to a particular business goal that’s critical for the company’s success.
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Top Revenue Metrics to Track (and How)
If you’re not sure where to start with tracking your revenue metrics, here are some of the top metrics to measure and how you can calculate them.
1. Customer Acquisition Cost
Customer acquisition cost refers to how much your company spends to attract new customers. This metric helps you measure the efficiency of your marketing and sales efforts. If you’re spending too much to convert one customer, you may find you need to adjust and find less costly solutions. For instance, if your customer acquisition cost is high due to a long sales cycle, you may want to optimize your sales efforts by expediting certain tasks with sales AI.
To find your company’s customer acquisition cost, you would first add the cost of sales to the cost of marketing for a specific time period. Then, you would divide that number by the number of customers you converted during that time period.
Customer acquisition cost = (cost of sales + cost of marketing) / number of converted customers
2. Customer Lifetime Value
In general, it typically costs five to seven times more to convert a new customer compared to retaining an old one. However, the monetary difference between acquisition and retention for your company depends on your customer's lifetime value. Your customer lifetime value is the total revenue you can expect on average from one customer during their relationship with you. A low customer lifetime value can indicate problems with retention.
To find your company’s customer lifetime value, you would take your customers’ average purchase value and multiply that by their average number of purchases. Then, you would take that number and multiply it by the average lifespan of a customer’s relationship with your business.
Customer lifetime value = (average purchase value x average number of purchases) x average lifespan
3. Lead Conversion Rate
Your lead conversion rate is the percentage of leads that have been successfully converted into customers. This percentage helps you see the effectiveness of your sales and revenue enablement measures.
If you have a low lead conversion rate, you should look at how you can improve your sales pipeline or how you can better train your sales team. They may be struggling with parts of closing a deal, like objection handling.
To find your lead conversion rate, you’d count the total number of leads generated during a specific time period and the number of leads that were successfully converted during that same time. Then, you’d take the number of leads converted and divide that by the number of leads generated. Multiply by 100 to get a percentage.
Lead conversion rate = (number of leads converted / number of leads generated) x 100
4. Annual Recurring Revenue/Monthly Recurring Revenue
Your annual or monthly recurring revenue refers to the revenue a business can expect from its customers each year or month. This metric is especially helpful for sales forecasting, which is a best practice for sales enablement efforts. When you have an idea of your future revenue, you can optimize your budget, manage your resources better, and improve your risk management.
These metrics are generally best for companies operating with a subscription model. To find your annual or monthly recurring revenue, you would first add the total revenue from new subscribers to the total revenue from existing subscribers over the course of one year. Add to this number any revenue from upgrades during this time period, and subtract the revenue you no longer have from churned subscribers or subscribers who downgraded.
Annual recurring revenue = (new subscriber revenue + existing subscriber revenue + upgraded subscriber revenue) - (churned subscriber revenue lost + downgraded subscriber revenue lost)
This formula will provide you with your annual recurring revenue. To find your monthly recurring revenue, you would divide this number by 12.
Monthly recurring revenue = ((new subscriber revenue + existing subscriber revenue + upgraded subscriber revenue) - (churned subscriber revenue lost + downgraded subscriber revenue lost)) / 12
5. Sales Cycle Length
Your sales cycle length is the average amount of time it takes to close a deal. If the average sales cycle length is long, it might show that a seller needs more training or that the sales and revenue teams don’t have the right tools and resources to address prospects’ needs.
To find your average sales cycle length, you would first find the average number of days it takes to close a deal during a specific time. Then, you would divide that number by the number of deals closed during this period.
Sales cycle length = average number of days to close a deal/number of deals closed
6. Average Profit Margin
Your average profit margin is determined by how much profit you bring in after accounting for the cost of goods sold. This number tells you how much you’re actually making after you account for costs like production materials and the wages you pay your staff.
To calculate your average profit margin, you’d first subtract the average cost of goods sold during a specific time period from your total sales during this same period. Then, divide that number by your total sales. Multiply by 100 to get a percentage.
Average profit margin = ((total sales - average cost of goods sold) / total sales) x 100
7. Return on Ad Spend
Your return on ad spend tells you how much money you made on an ad compared to how much you paid for the ad. When you know this metric, you can ensure your marketing efforts are paying off the way that you envision. If an ad is giving you the return you want, you can put more spend toward it. If that return isn’t there, you can cancel the ad and put that budget somewhere more worthwhile.
To calculate your return on ad spend, you would take the amount you generated from an ad campaign and then divide it by the amount spent. Then, multiply by 100 to get a percentage.
Return on ad spend = (amount generated / amount spent) x 100
8. Average Order Value
Your average order value tells you how much your customers typically spend when they place an order with you. This number is particularly important in revenue enablement, where the primary goal is to optimize revenue generation. If the average order value is low, it may show that your company needs to take advantage of more cross-selling or upselling opportunities.
To calculate your average order value, you would divide the total revenue from a particular time period by the total number of orders placed during that same time.
Average order value = total revenue / total number of orders placed
9. Predicted Revenue
Your predicted or projected revenue is the amount of money your company can expect to earn in the future based on historical sales data and current market and customer trends. This metric is a part of your sales forecasting efforts and helps you better prepare for your financial future. By knowing your predicted revenue, you can better manage your resources and ensure you’re staying in the green.
There are several ways to calculate your predicted revenue, but the most simplistic formula is to multiply the projected sales by the average product price. However, it’s important to note that challenges like market demand and competitor growth can cause fluctuations in your projections.
Predicted revenue = projected sales x average product price
10. Deals Acquired
The number of deals acquired refers to the average number of deals your sales team closes in a set amount of time. This metric is best measured when you’re working with a subscription model, as it informs you of the number of new contracts your sales team brought on board. The deals acquired metric helps you stay on top of your acquisition rate and ensure you’re steadily growing.
To find the number of deals acquired, you would tally up the number of customers converted in a set amount of time.
Deals acquired = number of converted customers
11. Marketing ROI
Your marketing return on investment (ROI) refers to the return you receive for what you spend on your marketing efforts. This ROI helps you ensure you’re spending money in the right places and reaching your target audience. A low marketing ROI tells you that you need to pivot with your marketing efforts.
To calculate your marketing ROI, you would look at a specific time period or marketing campaign and multiply your number of leads by the percentage of leads who became customers and your average sales price. Then, you’ll subtract your marketing spend and then divide that number by your marketing spend. Multiply by 100 to get a percentage.
Marketing ROI = (((number of leads x percentage of leads converted x average sales price) - marketing spend) / marketing spend) x 100
12. Cost of Revenue
Your cost of revenue is your cost of doing business. This metric tells you how much you spend to provide goods and services to your customers. This number includes the cost of labor, raw materials, marketing, and other expenses incurred by creating your products and getting them into the hands of your audience.
Many people confuse the cost of revenue with the cost of goods sold, but the cost of goods sold is just one part of the cost of revenue equation. To calculate the cost of revenue, you would add the cost of goods sold to your shipping costs, commissions, returns, taxes, marketing, and any other business expenses that relate to the creation and selling of your product.
Cost of revenue = all business expenses relating to creation and sale of product
13. Customer Churn Rate
Your customer churn rate is typically used in businesses that have a subscription model and refers to the percentage of customers who cancel or don’t renew their subscriptions. A high customer churn rate shows an issue with customer retention, which may indicate that you need to improve your customer success efforts and find ways to encourage customer loyalty.
To calculate your customer churn rate, you’d divide the number of customers you lost during a specific time period by the total number of customers you had at the start of that time period. Then, multiply that number by 100 to get a percentage.
Customer churn rate = (customers lost / total number of customers) x 100
14. Revenue Growth Rate
Your revenue growth rate is the increase in your company’s total revenue over a specific time period. This number helps you see if your business is growing and is critical for your sales forecasting efforts. If you know your revenue growth rate, you can better predict what your future revenue will look like.
To calculate your revenue growth rate, you’ll first subtract your revenue from a previous period from the revenue from the current period. Then, divide that number by the previous period's revenue and multiply by 100 to get a percentage.
Revenue growth rate = ((current period revenue - previous period revenue) / previous period revenue) x 100
15. Net Promoter Score
Your net promoter score is a metric related to your customer success. This metric measures your customer satisfaction and loyalty, and it requires you to first get insight into how your customers think of you. Your net promoter score tells you how likely your customers are to recommend your business to their family and friends.
Referred customers provide a lot of value to your company. Not only do they have a 16% higher lifetime value than non-referred customers, but research shows that they are also more likely to go on to refer other customers to your business.
To find your net promoter score, you’ll first have to survey your customers on a scale from zero to 10 to ask how likely they are to recommend you to their friends and family. Those who responded with zero to six are your Detractors, seven to eight your Passives, and nine to 10 your Promoters. Subtract the percentage of Detractors from the percentage of Promoters to get your net promoter score.
Net promoter score = percentage of Promoters - percentage of Detractors
16. Annual Contract Value
Your annual contract value is the average yearly value of a single customer’s contract. This revenue metric not only plays a vital role in your revenue forecasting, but it also helps you locate your most profitable contracts. This metric helps your customer success team find the accounts that are most necessary to prioritize to prevent the contract owner from churning. This metric can also indicate if your contracts may be lower than expected, which may indicate a need to raise prices or retrain your sales team on upselling or cross-selling.
This metric is generally for companies that operate by subscriptions. To find your annual contract value, you would find the total contract value of a particular client and divide it by the length of the contract.
Annual contract value = total contract value/number of years on contract
17. Market Penetration Rate
Your market penetration rate is the percentage of customers you have compared against your total addressable market. This metric helps you gauge your market share and see how you hold up against your competition. It lets you see at a glance what your market reach is.
To find your market penetration rate, you need to know your target market size, which is the number of potential customers in your target audience. Then, you would divide your number of customers by your target market size. Multiply by 100 to get a percentage.
Market penetration rate = (number of customers/target market size) x 100
Advantages of Tracking Revenue Metrics for Your Business
Here’s a look at some of the impacts of calculating your revenue metrics.
Identify Low Performance
By tracking your revenue metrics, you can identify sellers and other revenue-generating team members with low sales performance. Depending on which revenue metrics are the lowest, you can determine where the areas for improvement are.
For instance, if your net promoter score is low, it might indicate that customer relationships aren’t as strong as you want them to be, which means that your sales and customer success teams may need further training to improve these relationships.
Or, if your sales cycle length is long, it might indicate that your sellers need more training for closing deals. Consider going even further to look at your training analytics to see where your sellers might need improvement to reach quota attainment.
Spekit offers in-depth analytics to track training progress. If your sales cycle length is long for one particular seller and their analytics say that they struggled with the negotiation stage, you’ll have pinpointed exactly where they need to improve.
Improve the Customer Experience
Research shows that increasing customer retention by just 5% can lead to an increase in profits by between 25% and 95%. Keeping your customers happy and engaged is important for your company’s reputation, but it’s also vital for your bottom line. Retaining customers is significantly more cost-effective than primarily relying upon acquiring new customers.
When you track metrics like customer churn rate and customer lifetime value, you’re measuring your relationship with your customers. If these scores are low, it indicates that you may need to work on improving your interactions with customers. Your customers want to be heard, and tracking these revenue metrics helps you be a better listener.
Improve Sales and Marketing Alignment
Revenue metrics aren’t just about your sales teams. Aligning your sales and marketing teams can lead to 32% higher revenue, retaining 36% more customers, and 38% higher win rates.
Revenue metrics tracking brings your sales and marketing teams together to work toward specific revenue goals. For instance, sales cycle length may have sales in the name, but both sales and marketing can work together to reduce it. When marketing creates better content and sales tracks how their prospects use that content, it can reduce your sales cycle length by providing prospects with what they want to see earlier in the sales cycle.
Support Strategic Planning
Tracking your revenue enablement metrics helps you better prepare for your financial future. Metrics like your annual recurring revenue and revenue growth rate enable you to build a better sales forecast, which is an important step to becoming a business built upon data-driven decision-making, which 65% of B2B sales leaders say they plan to be the foundation of their companies by 2026.
When you make plans built upon revenue metrics, you’re more likely to be ready for the future. An accurate sales forecast informs your budget and ensures that your finances are prepared for any eventuality. Making these sorts of strategic decisions helps you mitigate the effects of risk and keeps your financial standing from feeling too volatile.
Revenue Metrics FAQs
If you’re wondering more about how to use revenue metrics and why you should, this handy FAQ can help answer some of your questions.
How are revenue metrics and sales metrics different?
Sales metrics refer to the measurements used to track the overall sales performance of a salesperson, a sales team, or a company. These metrics help you gain insight into topics crucial to a salesperson’s success, such as their win rate or frequency of reaching quota attainment. Tracking these metrics can help you identify areas for improvement for sellers and measure a business’s sales growth.
However, revenue metrics are more focused on the overall revenue generation of a company. Instead of being focused on sales, they measure the success of all revenue-generating teams, including marketing and customer success. These metrics enable a company to keep track of its profitability, ensure resources are going to the most profitable places, and that all revenue-generating teams are getting the training they need.
What is the best way to measure revenue?
The simplest way to calculate your revenue is by multiplying your total number of sales by your sales price. However, this method doesn’t take into account other variables, like your marketing expenses and cost of goods sold.
The best way to measure revenue is by keeping track of your analytics that enable you to calculate your revenue metrics and ensuring that you maintain a record of these revenue metrics calculations. Metrics like your average profit margin and your annual recurring revenues are good measurements to look at to better understand your revenue.
What are KPIs for revenue analysis?
KPIs are metrics that are tied to a specific business goal, so a KPI for revenue analysis would be a metric that directly relates to your revenue goals. For instance, if your revenue goal were to grow your average revenue per customer, some KPIs it might be helpful to keep track of would be your average order value and your customer lifetime value.
Or if your goal was to grow more qualified leads from your marketing efforts, you might then look at your marketing ROI, return on ad spend, and customer acquisition costs as your KPIs.
How do you track revenue performance?
These revenue metrics are the best way to measure your revenue performance, but you should also keep a record of your calculations so that you can track your performance over time. You might consider recalculating your revenue metrics every quarter to keep track of your growth and overall revenue success and find opportunities to improve in the next quarter.
Analytics software can also help track your revenue performance. Many revenue enablement tools allow you to see important metrics on your analytics dashboard, which can make having to do revenue metrics calculations much easier.
Optimize Your Revenue Metrics with Spekit
Your revenue metrics provide you with actionable insights to help you improve your revenue generation. Tracking these metrics enables you to celebrate the success of your revenue-generating teams, and it also allows you to identify areas for improvement.
If you want to improve your revenue enablement efforts, Spekit’s here to help. Spekit’s AI-powered platform provides enablement in the flow of work, offering bite-sized bits of learning, as well as content recommendations, delivered to your reps right when they need it. Spekit helps with:
- Content analytics: Track how prospects use your content to ensure that you’re creating the right content that your salespeople need to close that deal.
- Sales team training: Spekit uses just-in-time learning, with bite-sized, easy-to-understand bits of learning delivered right in a user’s flow of work, no context switching required.
- Sales and marketing alignment: Spekit is built for all revenue-generating teams, not just sales, and this platform creates one source of truth, or one place for all teams to get the correct information and training they need.
- AI-powered content recommendations: Spekit unpacks emails and previous interactions to send users the piece of content they need to close a deal, delivered right on the email platform they’re already working on.
- AI-powered content generation: Spekit also uses AI to create content with just one simple prompt, from sales scripts to playbooks and beyond.
- Easy-to-setup and maintain: Spekit works wherever your teams are already working, connecting with the tools your sales team already uses to keep your employees from having to switch contexts and lose productivity.
