How to Measure Growth of a Company [+ Metrics]

Are you trying to find out how to measure growth of a company?

Growth is the lifeblood of any company, and it is paramount for any SaaS company. Measuring a company’s growth helps you understand how much you progressed and where you stand. It informs you whether your product growth is fine or if you should make tweaks to improve results.

In this article, we’ll go through how to measure growth of a company by delving deep into the basics, relevant metrics, and each necessary company growth rate formula.

What is the company’s growth rate?

The company’s growth rate refers to the measurement of specific variables associated with the company’s growth over a period.

What are the different types of company growth?

It’s important to know about the different company growth types if you want to know how to measure growth of a company.

Industry growth

It’s critical to acknowledge different industries have different growth rates. So you should benchmark your company’s growth against the industry average to see how well your company did. It lets you understand if your company is doing good or needs to improve its performance.

Within the B2B company space, the industry average conversion rate ranges from 14% to 25%.

If your company’s conversion rate falls below the average, you should work out to achieve or surpass it. It can include optimizing your marketing efforts, refining your product offering, or improving the customer experience.

Seasonal growth

Another crucial type of company growth is season growth. It considers the growth during specific time periods and the slump during other periods. For instance, there’ll be a huge demand for financial management platforms during tax season, unlike the other parts of the year.

SaaS companies must prepare to utilize the growth period and tackle the fluctuations in the rest months.

Compound annual growth rates (CAGR)

CAGR, or Compound Annual Growth Rate, is a vital metric that determines a company’s average annual growth rate over a specified period. It is essential for evaluating long-term performance and forecasting future growth.

The formula to calculate CAGR is –

CAGR = ((Ending value) / (Beginning value))^(1/n) – 1.

Here, n represents the number of years considered for the growth calculation.

Important metrics to measure the growth of a company

We’ll now look at some important metrics that will help you measure a company’s growth.

Customer acquisition cost

CAC, or Customer Acquisition Costs, refers to a company’s average cost to acquire a new customer. It encompasses various expenses associated with sales and marketing activities, like lead generation.

CAC is a fundamental metric in measuring company growth. Calculating it enables you to assess the efficiency of your sales and marketing efforts and customer acquisition strategies.

You can calculate CAC with the formula:

CAC = Total Sales and Marketing Expenses / Number of New Customers Acquired.

For example, your sales and marketing expenses in the last quarter were $50,000, and you acquired 200 new customers. Your CAC was $(50,000/200) or $250.

Conversion rate

The conversion rate refers to the percentage of users or prospects who take a desired action, such as subscribing to a service. In the SaaS context, it is mostly concerned with the free-to-paid conversion rate. This metric measures the percentage of free trial users who convert into paying customers within a given period.

This metric enables you to assess if your product offers value to customers and if they are willing to pay for it. A high free-to-paid conversion rate indicates great growth for your product as customers find value.

You can calculate the conversion rate by:

Trial conversion rate = Number of free-trial-to-paid users / number of trial users.

For example, your product has 1000 trial users, and 100 trial users convert to paying customers. Then the conversion rate was (100/1000) x 100 = 10%.

Customer lifetime value

CLV, or Customer Lifetime Value, represents the total revenue you can generate from a customer throughout the relationship. Calculating it helps you comprehensively understand how effective your retention strategies are.

To calculate customer lifetime value,

Customer Lifetime Value = ARPA (average revenue per account) / Customer Churn Rate.

For example, if your ARPA from the net profit was $4,000 and your customer churn rate was 10%, your CLV from the previous period’s revenue would be (4,000/0.1) or $40,000.

Customer satisfaction

Customer satisfaction metrics refer to measuring how well a company’s products or services meet or exceed customer expectations. Measuring customer satisfaction is necessary to gain insights into a company’s health and success.

You can use Net Promoter Score (NPS), Customer Satisfaction Score (CSAT), or Customer Effort Score (CES) to measure and benchmark your customer satisfaction.

Here, NPS measures the likelihood of customers recommending a product or service to others. Then CSAT assesses customer satisfaction based on specific interactions or experiences with a product. And CES evaluates how easily a customer can complete the tasks with your product or company.

Customer churn rates

Churn rates measure the rate at which customers discontinue their subscriptions or stop using a product or service. High customer churn indicates a negative growth rate and underlying issues like dissatisfaction, bad customer experiences, etc.

Effectively managing customer churn can ensure you retain more customers by satisfying them. As a result, this metric is crucial for driving sustainable growth and maximizing revenue.

You can calculate it by:

Customer churn rate = (Number of churned customers / Number of customers at that period’s beginning) x 100

For instance, your number of customers was 25,000 at the beginning of June and 24,550 at the end. Then the customer churn rate would be {(25,000 – 24,550) / 25,000} x 100 or 1.8%.

Best tactics to drive business growth

We’ve discussed how to measure the growth of a company. Now we’ll see some of the best practices to improve a company’s growth.

Personalize customer experience to increase conversion rate

Personalizing the customer experience is a powerful tactic to improve conversion rates and drive growth. It allows you to tailor your marketing messages, deliver relevant product recommendations, and provide personalized offers. Since you do these based on customers’ preferences, it will satisfy the customers and increase the possibility of conversion.

In the SaaS industry, personalization often begins with welcome surveys. Companies often use welcome surveys to learn about customer preferences. These surveys include questions about customers’ user roles, jobs to be done (JBTDs), etc. You can then design and trigger personalized experiences tailored to each customer’s needs and goals.

Identify high-value user cohorts to target for revenue growth

Segmenting users into specific cohorts allows you to understand their needs, preferences, and engagement levels. This valuable insight helps you identify the high-value users you can target to boost your revenue.

You should use customer segmentation to group users based on their behavior and engagement levels. It includes segmenting them based on in-app engagement product goals, feedback, etc. As a result, you’ll be able to easily identify the most active users and the users with positive experiences.

After pinpointing your high-value user cohorts, you can trigger upgrade messages. They’ll be more likely to upgrade to more premium subscriptions since they already find value in your product. You should utilize this significant revenue growth opportunity by offering contextual upgrades to your high-value users.

Identify potential friction using funnel analysis

Funnel analysis offers insight into the customer journey’s various stages, from initial awareness to retention. By focusing on different stages of the journey, you can identify where customers may face challenges and might consider leaving your product.

After proactively identifying potential friction points, you should make necessary improvements to eliminate the friction. Then, the possibility of churn reduces as dissatisfied customers see that you’ve addressed their concerns and made improvements.

Since your customers’ concerns get solved, they’ll be more likely to do business with your product for longer. As a result, churn reduction will help you significantly increase your customer lifetime value too.

Collect and act on customer feedback to retain existing customers

Collecting and acting on customer feedback is one of the necessary strategies to retain more customers. Actively seeking customer feedback enables you to take a customer-centric approach to offer the best value to the customers.

You should implement in-app surveys across the customer journey to collect feedback from your customers. Analyzing the survey responses will help you identify improvement opportunities and understand customer expectations.

After identifying the pain points, you should proactively eliminate them and close the feedback loop. It’ll showcase your strong commitment to enhancing customer satisfaction and help you retain existing customers.

Conclusion

“How to measure growth of a company” is a good point to start if you want to track your company’s growth and make informed decisions. By tracking the key metrics and adopting the best tactics, you can make data-driven strategies to boost your growth.

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