Summary of The Lean Canvas: Business Planning Tool

## Introduction Business metrics are quantitative measures that help leaders, analysts, and investors assess a company's performance across finance, customers, operations, and people. Choosing the right metrics clarifies strengths, reveals weaknesses, and guides decision-making. > Definition: Business metrics are measurable values used to evaluate the performance and health of different parts of an organization over time. ## Financial Metrics ### Revenue Growth Revenue growth tracks how a company's income changes over time. It is typically expressed as a percentage increase or decrease between two periods. > Definition: Revenue growth = \(\dfrac{\text{Revenue}_{t} - \text{Revenue}_{t-1}}{\text{Revenue}_{t-1}}\) \times 100\%\). Practical example: - If revenue was $1{,}000{,}000$ last year and $1{,}200{,}000$ this year, revenue growth = $\dfrac{1{,}200{,}000 - 1{,}000{,}000}{1{,}000{,}000} \times 100\% = 20\%$. Real-world application: Investors often look for consistent positive revenue growth as a sign of market demand and scalability. ### Profit Margins (Gross and Net) > Definition: **Gross margin** = $\dfrac{\text{Revenue} - \text{Cost of Goods Sold}}{\text{Revenue}}$; **Net margin** = $\dfrac{\text{Net Income}}{\text{Revenue}}$. Breakdown: - Gross margin shows how efficiently a business produces or buys the goods it sells. - Net margin shows profitability after all expenses, taxes, and interest. Example: If revenue is $500{,}000$, COGS $300{,}000$, and net income $50{,}000$, then gross margin = $\dfrac{200{,}000}{500{,}000}=40\%$, net margin = $\dfrac{50{,}000}{500{,}000}=10\%$. Table: Gross vs Net Margin | Metric | Measures | Useful for | |---|---:|---| | Gross margin | Production or purchase efficiency | Pricing and COGS decisions | | Net margin | Overall profitability | Strategic planning and investor comparisons | ## Customer Metrics ### Customer Acquisition Cost (CAC) > Definition: CAC = $\dfrac{\text{Total Sales + Marketing Costs}}{\text{Number of New Customers Acquired}}$. Why it matters: CAC shows how much a company spends to gain a new customer and helps evaluate the ROI of marketing channels. Example: If you spend $50{,}000$ on marketing and sales and acquire 1{,}000 customers, CAC = $50$ per customer. ### Customer Lifetime Value (CLV) > Definition: CLV estimates the total revenue a business expects from a single customer over their relationship with the company. A simple formula: CLV = Average Purchase Value \(\times\) Purchase Frequency \(\times\) Average Customer Lifespan. Example: If average purchase is $100$, average purchases per year = $2$, average lifespan = $3$ years, CLV = $100 \times 2 \times 3 = 600$. Practical use: Compare CLV to CAC to decide if acquisition spending is sustainable: a common rule is CLV should be several times CAC. ## Customer Satisfaction ### Net Promoter Score (NPS) > Definition: NPS = \% Promoters - \% Detractors, where customers rate likelihood to recommend on a 0–10 scale. Interpretation: - Promoters: 9–10, Passives: 7–8, Detractors: 0–6. - Higher NPS typically correlates with stronger organic growth. Application: Use as a quick barometer of loyalty and to identify service improvement areas. Fun fact: NPS is widely used because a single, simple question often predicts referral behavior and revenue growth better than longer surveys. ## People & HR Metrics ### Employee Satisfaction & Turnover Rates > Definition: Employee turnover rate = $\dfrac{\text{Number of Employees Leaving in Period}}{\text{Average Number of Employees in Period}} \times 100\%$. Why it matters: High turnover can increase hiring and training costs and reduce institutional knowledge. Practical steps to act on these metrics: - Conduct regular employee satisfaction surveys. - Analyze exit interviews for recurring themes. - Invest in management training and career-pathing. ## Operational Metrics ### Inventory Turnover > Definition: Inventory turnover = $\dfrac{\text{Cost of Goods