understanding health Your business starts with customer focus: Are you delivering innovative value to your customers? Is a value that is so above and beyond other solutions that it’s worth a potential customer’s time and effort to switch to you? Is the value that is so clear and increasingly a step forward that they don’t consider other solutions?
This is what matters most and what drives long-term growth.
Now, how do you measure that success and growth? You need to go beyond the superficial numbers: you need to know the metrics that inform what’s happening in every aspect of your business — the ones that go deeper than just your averages. Averages lie and can be dangerously misleading.
Consider a scenario: if Jeff Bezos walks into a bar with 100 people, suddenly, on average, the net worth of every individual in that bar is over a billion dollars. Is this helpful? Would that lead you to take the right steps? No — averages hide true insights.
It’s convenient to just focus on your overall metrics and averages like revenue and growth, especially when they look great, and even get a little more sophisticated – looking at revenue and revenue growth by product, customer segment, or geography – still shows an incomplete image.
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We experienced this at Intercom, where the segmented metrics looked good, but there were hidden insights that would have held us back if we hadn’t found them and made deliberate changes.
Time for a checkup: diagnosing the health of your prescription
So what deeper insights do you need to look for and how do you find them? One of the most useful metrics you can analyze for deeper insights is revenue health by segment.
All companies track and report total revenue, but you also need to understand the health of your revenue. Revenue health is a way to analyze the ongoing value you are delivering to your customers, in addition to metrics like Net Promoter Scores.
Hidden insights… would have held us back if we hadn’t found them and made deliberate changes. to quote Karen Peacock
If you are a SaaS company, you track and report your annual recurring revenue, and the best ways to measure revenue health are gross revenue retention (GRR) and net revenue retention (NRR).
Gross revenue retention is your ability to retain customers and revenue from those customers. You calculate GRR by taking your total revenue at the beginning of the period, minus the revenue loss during the period, and minus the revenue contractions during the period (customers who stay with you but pay less) – then divide it all by the total revenue in the period. beginning of the period.