Understanding Health Your Business Starts With a Customer Focus: Do you deliver extraordinary value to your customers? Is the value that far exceeds other solutions that they are worth the potential customer’s time and effort to turn to you? Is this obviously a step forward so clearly and incrementally that they won’t think of other solutions?
This is what matters most and what drives long-term growth.
Now, how do you measure this success and growth? You need to go beyond the superficial numbers: You need to know the metrics that tell you what’s going on in every aspect of your business — metrics that are deeper than just your averages. Averages lie and can be seriously misleading.
Consider a scenario: If Jeff Bezos walks into a bar of 100 people, all of a sudden, on average, everyone in that bar has a net worth of over $1 billion. Is this useful? Will that lead you to take the right actions? No – averages hide true insights.
It’s convenient to focus only on overall metrics and averages, like revenue and growth, especially when they look great, and even getting more complex — looking at revenue and revenue growth by product, customer segment, or geographic region — still paints an incomplete picture.
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We tested this out at Intercom, where hashed metrics sounded fine, however there were hidden insights that would have held us back if we hadn’t found them and made intentional changes.
Time to Check: Diagnose Your Revenue Health
So what are the deeper insights you need to look for, and how can you find them? One of the most useful metrics you can look at to get deeper insights is the health of your revenue by segment.
Every business tracks and reports total revenue, but you also need to understand the integrity of your revenue. Revenue health is one way to look at the ongoing value you provide to your customers, as well as metrics such as your Net Promotion Score.
Hidden visions… would have held us back if we hadn’t found them and made deliberate changes. quotes Karen Peacock
If you’re in SaaS, you track and report your annual recurring revenue, and the best ways to measure the health of your revenue are gross revenue retention (GRR) and net revenue retention (NRR).
Total Revenue Retention is your ability to retain customers and the profits from those customers. You calculate the GRR by taking your total revenue at the beginning of the period, minus the revenue contractions during the period, minus the revenue contractions during the period (customers who stay with you, but pay you less) — and then divide it all by your total revenue at the beginning of the period.