Business metrics help you to make informed, data-driven decisions about where best to allocate your budget.
It’s easy to get bogged down with metrics. There are hundreds of different things you can track – how do you decide what matters?
Here are some of the most important areas to focus on.
Customer Lifetime Value and Cost Per Acquisition
Customer Lifetime Value and Cost Per Acquisition measure the impact of marketing, making them important metrics for startups that want to scale rapidly.
- Customer Lifetime Value (CLV) is the value of each customer to your business.
- Cost per acquisition (CPA) shows how much has been paid to win a new customer and is often broken down by marketing channel.
Depesh Mandalia helped scale kids’ subscription service toucanBox as CMO. He explained how these metrics come together:
“With toucanBox being a subscription business, our North Star metric is customer lifetime value. We pay an acquisition cost through a free box, so we need that product and marketing investment back. We measure lifetime value over a 12-month period. Then, we’ll break that down by channel. We look at acquisition costs and time to pay back.
“We found there are ranges of age bands that give us different CPAs and CLVs. Their needs are quite different. The CPA is cheaper for mums between the age of 18-24, but the lifetime value is lower, for example. These are mums that don’t necessarily have a huge amount of disposable income.”
Customer retention and engagement
Improving customer retention rates boosts recurring revenue and ensures your customers are happy. Customer retention is a great thing to track.
If you’ve just launched, one-to-one contact will be key. This could simply mean keeping a list of customers and the date they last used the service or bought something. Colour code the timestamp based on how often you expect them to need the service and keep them in the green!
If the list is too big, create a customer retention KPI. For example, a subscription business could look at churn rate. If you’re selling online, look at how often customers return to the site or buy something new.
If you’re booking B2B sales, how many customers are coming back to you when the contract ends? Finding new business will always be more expensive than rebooking new customers, so it’s important your KPIs tell you if there’s an issue.
It’s worth looking at cohort analysis too. This measure looks at retention of customers based on when they joined the site. This will link your customer acquisition efforts to how those customers act, helping you work out where a problem occurs if a particular cohort isn’t sticking with the service.
Social media ROI
A good place to start is to examine how social media could drive lead generation or win new customers. It can be tough to do in the early stages of a business, but you should formalise the strategy as quickly as possible.
“Return On Investment (ROI) is one of the hardest metrics to measure through social, but it is the key bottom line metric,” argues Adam Blackford-Mills, digital marketing manager at MRS Digital.
“Is your social media marketing making you money? By attributing social traffic to on-site conversions, you can start to get an idea as to exactly how much ROI you’re getting for your social media investment.”
To do this, first think about the action you want the potential customer to complete. Do you want them to buy something on the website? To register their interest?
Google Analytics will show you where visitors come from under ‘Referrals’. However, it’s important to set up goals to track completed activity – sometimes called a conversion – based on these points.
Your North Star metric
KPIs are measurable values that help a business to understand whether it’s making progress towards its goals. A North Star metric is a single KPI that can be used to measure a company’s performance – the one data point that defines success.
It allows founders to check the health of the business and communicate the direction of travel effectively. It’s the number that can be shared with investors or used to rally employees at a company-wide meeting.
For example, sportswear retailer Zaggora’s website accounts for the vast majority of sales and its North Star metric is daily revenue.
Zaggora’s secondary metrics are a direct function of its daily revenue (website traffic, multiplied by conversion rate, multiplied by the average order value).
If the North Star metric isn’t what they want it to be, they can start asking questions of that secondary level. Is the distribution of Facebook ads, one of their primary sources of traffic, working? Have they made a tweak to the website that’s affecting conversion?
“Those processes are quite simple,” founder Malcolm Bell said. “But it takes a lot of discipline and time to set them up. The simpler the process the better, otherwise you end up with a mess of Google Docs everywhere.”