3 Key Business Metrics Explained (Every Entrepreneur Must Know)

Every business initially starts off as a dream, right? And it's really easy to get excited by a dream until you run the numbers. There are three numbers or metrics that decides if your business is a money machine or a slow motion disaster. If you think a business, any business, runs on anything other than

actual hard numbers, you are in for a very bad time. It doesn't matter if you run a lemonade stand or a software company. you will always be faced with them and most people don't know what they mean, let alone how to use them. So, here are the three business metrics every aspiring entrepreneur must

understand. Welcome to Alux. So, we're going to start off with something today called customer acquisition cost or CAC. So, every business eventually faces one unavoidable question. How much does it cost to get a new customer? That is your CAC. [music] It's the first pillar of the holy trinity of business metrics. On paper, it looks pretty straightforward

because in large part, it is. You spend money to attract customers and some of them buy. Divide your spend by the number of new customers and you've got your CAC. Here's the formula. Okay, your CAC equals total sales and marketing spend divided by the number of new customers. So, if you spent $10,000 on

Facebook ads last month and got 100 customers, your CAC is $100. Simple, [music] right? But here's the trap. What if the average customer only spends $80 with you? Suddenly, you're paying $100 to get 80 bucks back. In that scenario, getting more customers is what drives you out of business. That's why CAC is

unforgiving. A business can look exciting from the outside with tons of new customers each month, but if CAC is higher than the money each customer brings in, well, you're literally paying to go bankrupt. Think of it like running a lemonade stand. You spend $10 making posters and five people show up. That's $2 just to get each one to your stand.