The top 5 metrics to consider before making business decisions

The top 5 metrics to consider before making business decisions

The more you know about your business, the better it is for you to make the right business decisions. You’ll probably come across two main challenges here: you’re either unsure about which data metrics you need to measure or you don’t know how to measure it. Another probability is that you’re so immersed in day-to-day tasks that you forget to gauge the progress you’re making or the challenges that you need to overcome.

Those challenges aren’t easy to deal with, but this post should break them down into simple tasks and tips to keep you on track. Starting with the first hurdle: What are the different metrics you need to measure?

Monthly Revenue

One of the most important metrics to measure is your monthly revenue. This can be calculated by multiplying the price of your products or services by the quantity you’ve sold over a particular month.

Business metrics revenue

This is a very important metric to calculate as it allows you to assess the performance of your business month after month. By calculating your monthly revenue you can analyse trends such as dips in revenue during a particular period, prompting you to dig deeper to find out exactly what’s causing that drop. On the other hand, you could also spot a welcome increase in revenue, which should lead you to find out what caused it and, more importantly, how to make it happen again.

By working hard to replicate positive results you’ll be laying the groundwork for a sustainable business – one that draws in more revenue each month. You would also need to plan your revenue forecasts around this figure. This guide will help you out in preparing your forecasts with the help of a few additional bits of information, such as costs and profit margins.

Churn

If your business gets repeat customers, you should know who they are by calculating repeat custom. This metric goes both ways – you will also need to calculate the churn, meaning the number of customers that stop buying your product. This figure will give you valuable insight into whether or not your clients are satisfied with your product.

If clients are dropping out after making the first purchase, for instance, it could indicate that something’s not quite right with your product. At this stage you should focus your efforts on improving your product rather than try to attract new customers.

How? Ask!

You could get all the answers you need by speaking to both your existing and past clients and asking questions along the lines of:

“We really miss you! Is there something that we can do to get you back?”

“Would you suggest our product to your friends and relatives? If yes, why would you do so?”

You could even go a step further and ask for feedback before the client walks out on you, just like Starbucks did in coffee shops across the world:

Top 5 business metrics Starbucks

If you don’t happen to have coffee shops in every corner of the globe, you can still get in touch with your clients to ask questions and get feedback by sending them a short email questionnaire, for instance. Online tools like Surveymonkey or Surveygizmo make this quick and simple.

You also have another option that’s closer to home – you can get customer feedback through your site itself! Check out Olark or Qualaroo – these tools make it easy for you to ask questions to your website visitors as soon as they go to specific web page or behave in a certain way.

Most importantly: If you really want to lower your churn you need to better understand your customers. Forget about what you think about your company and start thinking about it from your customers’ perspective. What do they want from you? Which problems are they trying to solve? Does your product address these problems? Find out, and modify your product accordingly.

Keep in mind that this is not a one-off exercise, but a process that should be implemented in an on-going manner. It’s crucial if you’re looking to build a sustainable business in the long run.

Lifetime Value

The client lifetime value (LTV) applies for businesses that either sell a subscription based service or get repeat customers. It is the projected revenue that you will get from each customer for his lifetime. There is a simple way in which you can work this out. Take the average revenue per sale and then multiply it by the number of repeat transactions and average retention time. The diagram below will make this easier to wrap your head around:

Metrics lifetime value LTV

So let’s say that you get a total number of 2000 repeat customers per year for your online store that spend on average $200 for every transaction that they will make. The average number of transactions per year is 3 whilst the retention rate is 2 years. To work out their LTV you need to do the following:

Business metrics LTV

In this case the LTV would be $1200. So in other words each customer is getting you $1200 before he stops buying from your site.

LTVs vary according to the type of traffic that you are attracting to your site. For example you can compare different LTVs for the different clients that you get from online marketing campaigns and then focus on those that have a higher LTV. You can also compare the different LTVs based on geography – which regions have the highest LTVs? Once you find that out you can start focusing your strategy on attracting more clients from those regions.

Conversion Rate

This metric will help you to measure the success rate of your website. In order to improve your website you need to know how many sales or leads you’re generating from your current web traffic. If for example you want to work out the sales conversion rate for your website you will use the equation below:

Business metrics conversion rate

This will give you the percentage of unique visitors that are making a purchase from your website. In order to improve your conversion rate you will have to analyse every step that each visitor is making before purchasing your products.

A lot of CMOs are discouraged when they calculate their conversion rate because the real situation would be that from, say, 100,000 unique visitors they can only convert something below 2% into sales. However, keep in mind that not all of your visitors are ready to buy and most of them are still at the beginning of the buying cycle.

You should look at it this way: if you improve your conversion rate by just 1% you will increase your sales by 50%. So rather than discouraging yourself, focus on continuously improving your conversion rate by optimising your website. These tips will help you to convert more sales from your website.

Cost per Acquisition

This metric is one of the most important ones that is ignored by a lot of businesses, unfortunately. The cost per acquisition is the price that you have to pay to acquire a new customer. This means that it measures the cost of advertising to convert a visitor into a customer.

You need to know exactly how much a customer is costing you when using different advertising channels, such as PPC (pay per click) advertising. This will give you a clear indication on whether you should continue to invest in advertising or else use other means to generate business that will cost you less money.

So let’s say you have an option of choosing whether to continue running PPC ads or invest in SEO – what you would need to do is to calculate how much it is costing you to acquire a new customer through these channels. With PPC, this is quite easy to calculate since all you need to do is to divide the total cost of your PPC account by the number of sales that you’ve generated for that particular month.

On the other hand, to calculate the CPA from SEO you need to calculate the monthly service fees of your web-marketing agency and any additional costs that you might incur when running an SEO campaign and divide them by the number of transactions generated from SEO for a particular month. The latter can be easily obtained by logging into your Google analytics account and finding the total number of transactions generated by organic traffic. Find this under the Acquisitions > Keywords tab as shown below:

 Business metrics Google analytics

And there you have it!

The metrics above should keep you focused on increasing your sales. Do not see them as separate data sets – they all tie in to the same goal. It is important that you share this data with your team members so that they will be able to visualise the bigger picture.

After all, the more they know about the business, the better it is for them to come up with ideas on how to improve the process of acquiring new customers!

Blog

Gilbert Zammit's Story.

0 comments