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12 Business Metrics You Must Track During a Recession

5 min read • Jun 19, 2020 • Derek Miller

Flexibility is one of the most valuable traits of a business owner. You can never predict what will happen next (like a global pandemic), but you can put yourself in a position to adapt and grow. Throughout 2020, thousands of business owners have used their flexibility to offer new services, migrate digitally, and respond to customers’ needs through even the most challenging situations.

One of the keys to being flexible is knowledge. By keeping an eye on your business performance and industry trends, you can spot problems before they get out of hand. Check out these 12 metrics that can help you navigate during a recession, from small numbers that provide insight on your customers to national indices that report on global economic health. 

1. Sales Revenue

The most basic metric you can track during a recession is your sales revenue. This number tracks just how many sales you make. When your revenue drops, it’s indicating an issue that you need to address. The actions you take to increase sales revenue during a recession could include increasing marketing efforts, launching new offerings, or adjusting your sales process. 

2. Gross Margin

Your gross margin is more telling of your profits than your sales revenue. For example, a glass of wine and an appetizer in a restaurant might cost the same, but the wine has significantly higher profitability. Look at which items have the highest gross margin in your business (or the highest markups compared to cost) and make sure you are marketing these items to customers. This metric will help you increase your profitability during a recession. 

3. Cash Flow

Your cash flow is another indicator of the health of your business. Cash flow measures the amount of money you bring in each month compared to the amount you spend. Keep an eye on your cash flow to make sure your income levels remain healthy and that you do not bleed money.

4. Customer Loyalty

Every business needs a healthy number of new and returning customers to be successful. New customers bring life to your brand, but they can be expensive to acquire. Track your new vs. returning customer ratio to determine your customer loyalty. When your loyal customers stop returning, you need to invest in acquiring more. You may also need to evaluate why your customers aren’t coming back—especially those who have been loyal for several years. 

5. Monthly Recurring Revenue

The monthly recurring revenue (MRR) of your business is the expected guaranteed income that you can rely on. Gyms have a high MRR because customers buy memberships and pay the same amount each month. Subscription services like Netflix and Blue Apron also have business models that rely on a healthy MRR. 

Check to see if your MRR is dropping. This decline could be a sign that customers are canceling memberships and subscriptions to save money. You may need to adjust your business model for the recession. 

6. Conversion Rate

One reason your sales revenue may be decreasing is a drop in your conversion rate. During a recession, customers are less likely to make impulse buys. They are more careful about their purchases and may take longer to convert. You may notice a longer sales cycle or lower conversion rate during the recession.  

7. Average Order Value

Another valuable metric that can help you troubleshoot your sales is your average order value (AOV). This number is the amount that customers spend on average when they visit your business. Stores with high AOVs encourage customers to buy multiple products, add impulse buys, and upgrade to higher-quality items. If your AOV is dropping, customers are tightening their wallets. 

8. Top Products

Customers buy different items during a recession compared to when the economy is strong. They tend to buy more clearance and discounted items while looking for generic alternatives over name brands. If you notice a change in your top-selling products, your customers could be changing their behavior because of financial insecurity. 

9. Cash Reserve

Your cash reserve is the amount you have saved for a “rainy day,” otherwise known as an emergency fund. Most experts encourage business owners to have 3–6 months of cash saved up. If you find that you are dipping into this reserve to cover bills or make ends meet, you need to change your business operations immediately. 

10. Unemployment 

Unemployment rates nationally and regionally will impact the spending power of your customers. High unemployment means low consumer spending power. Not only will your customers have less disposable income, but they will want to save what money they do have. You may need to adjust your products or services to be more price-conscious as unemployment rates climb. 

11. Employee Turnover

Employee turnover is also important to track during a recession. When unemployment rates are high, people are less likely to quit when they don’t like their work. As a result, you may have a high number of disengaged workers still showing up each day. Consider whether your employees are staying with your company because they are driven toward your higher purpose or simply too scared to enter the job market. 

12. Consumer Confidence

A consumer confidence index tracks how people feel about the economy. When confidence is low, people believe that the economy is weak and that they need to save their money. When confidence is high, customers spend more. 

Drops in consumer confidence can warn you about potential changes in customer behavior. It can help you prepare for shoppers who want to spend less or buy different products. 

While all of these metrics are important, they are only as valuable as the actions you take from them. Knowing your cash flow health or the unemployment rate will only benefit your business if you adjust your processes and operations because of it.

Everyone needs to make adjustments during a recession. However, with the right flexibility and planning, you can get through a period of economic uncertainty with a strong customer base and a solid business foundation. 

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Derek Miller

Derek Miller is the CMO of Smack Apparel, the content guru at Great.com, the co-founder of Lofty Llama, and a marketing consultant for small businesses. He specializes in entrepreneurship, small business, and digital marketing, and his work has been featured in sites like Entrepreneur, GoDaddy, Score.org, and StartupCamp.