Metrics that Matter for Your Business
You don’t know the health of your business if you don’t know these metrics.
Professionals need to know the statistics of their business. It’s easy to focus on providing great service to customers, which is why you became a coach, but the owner also needs to track stats on their business’s health for long-term success.
Eventually, software or a great accountant can make this task more convenient. But at first, it’s a good idea to do this yourself. A simple spreadsheet is all you need, and you only need to track a few key metrics:
This means how much total money is coming in every month, quarter, and year. For this article, we will focus on monthly revenue. You should know precisely how much is coming in every month. This is before expenses and everything else. All of the money received from clients should be deposited into your business account, so it can be easily tracked for this stat.
Cost of Goods
Cost of goods is the amount of money needed to produce and offer a product for sale. Of course, for coaching, there is no physical product to produce, but this number also includes payroll (typically, other than the owner’s pay) as well as the cost of services needed to provide your service. For online coaching, this number would include the cost of a software platform like TurnKey Coach. Another example would be screen-recording software subscriptions you use for feedback videos. In-person coaching would probably include renting a gym space.
If you are an individual coach working for yourself, you could put your pay in this category. But really, your pay is a dividend of the business’s net profit (which we will explain shortly) and fluctuates with the performance of the business.
Subtracting the cost of goods from the gross revenue will give you gross margin (or gross profit). This is the actual money left over for the rest of the business’s activities, like marketing—and for owner dividends. This figure can be expressed as an actual dollar amount, or as a percentage of gross revenue.
Take your gross margin and subtract your operating expenses. This can include travel costs, office supplies, computer and other hardware purchases, and gym equipment if you have an in-person business. This final number is your net profit.
These figures describe what is known as gross (or macro) statistics, which are business-wide statistics. It is helpful for a coaching business owner to know what their revenue margins are per client, so let’s switch gears and discuss some per-unit statistics.
Churn is the percentage of clients that you lose every month. This is an important figure for a coaching business, as it speaks to the average perceived value of your service to your clients. Ideally, this figure should be under 5%. A churn rate of 10% (or higher) is dangerous because it effectively means that every 10 months you have to completely replace your customer base.
To combat a high churn rate, focus on improving the customer experience. The value a customer perceives is affected by price, trust, consistency, technical expertise, and how authentic your care and attention are perceived.
Average Customer Lifespan
If you divide 100 by the churn rate, you will get the average customer lifespan. For example, 100 divided by a 5% churn rate would give you a 20-month average lifespan. A 3% churn rate gives you a 33-month average lifespan.
Monthly Recurring Revenue (MRR)
To calculate MRR, multiply the number of current clients (or subscribers) you have by the average monthly rate (or ticket price) you charge. This is how much money is coming in every month. For planning, you could adjust this number by your churn rate, to give you an accurate prediction of next month’s revenue as well as an accurate number of how many new clients you would need to maintain your revenue or grow it.
Lifetime Value of Client (LTV)
Multiplying ticket price by the average customer lifespan gives you LTV. This tells you how much revenue the average client will generate for your business. Multiplying LTV by your gross margin percentage will give you the lifetime value of profit for the average client.
Customer Acquisition Cost (CAC)
CAC is how much it costs you to acquire new customers. This could include mailers, search engine or social media ads, purchased leads, or any other marketing costs. Add up all your marketing costs for the month and divide that dollar amount by how many clients signed up. This is how much it costs to acquire each client.
The actual amount each client costs to acquire is less important than the ratio between CAC and LTV. A ratio of 1:3 or better is generally accepted as a healthy, sustainable business model. (Note that LTV here is based on gross margin, not gross revenue.) A higher ratio is always better, but an exceptional ratio (e.g. 1:20 or more) suggests you should spend more on marketing to attract more clients and expand.
After calculating all of these figures, you will likely see some obvious areas where you could improve your business strategy. More importantly, having a grasp on these statistics and considering the trends you notice over time (and cyclically through the seasons) will give you valuable information about how to adjust your efforts to continue being successful in the future.