Key Metrics Every Business Should Take Note Of
Want to take your business activities to the next level but sure how to best track your performance? If you answered yes, the first steps to understanding your key metrics are vital. Continue reading to find out more.
As entrepreneurs, many of us have no problem focusing on how to build a product but taking our company to the next level requires a more advanced level of discipline and skills to be able to collect and analyze the relevant business data; also known as metrics. Below is a selection of key metrics that you should collect and analyze when managing your business.
Conversion
The conversion rate is one of the most famous metrics in marketing and sales as it measures how many leads have turned into real customers. The word ‘conversion’ is mostly related to selling, however, it’s important to be aware that many things can be understood as conversion, not just making a sale – although that is always the end goal.
A conversion could be the newsletter signup, the completion of a form, a request for further information, an appointment, and yes, a click on the buy button. With this in mind, you begin to realize that your goal here is to find out the best ways to guide prospective customers and visitors to your site in the right direction or on the trip they want to take.
After the distribution of the leads by the sales team, it is possible to calculate the conversion percentage by dividing the number of deals closed by total leads and multiplying by 100. However, to achieve your objectives, you must become very good at understanding how people move through your website and your business; detect where your visitors are stuck and what makes them leave the road.
Just keep in mind that low conversion rates do not necessarily indicate a problem in the sales team. In fact, they may indicate that the failure is at another time in the sales funnel, as in the qualification of these prospects.
Lifetime value
The lifetime value calculates the average lifetime per customer: for how long it generates income for the company. You can use it to have notions of customer loyalty and retention. If a customer buys in your business for 1 year, you have an LTV greater than one that buys a single time and does not return.
There are several ways to calculate this metric, but we can simplify these variables by means of the following equation: average ticket per customer x number of transactions or sales per year x customer relationship time.
Acquisition cost per customer
The cost of acquisition per customer measures the total expenses necessary for a customer to buy from the company, including marketing and sales expenses. This metric is calculated by dividing the total marketing and sales expenses by the number of customers.
The acquisition cost can be combined with the lifetime value to find out the actual value of each customer. By dividing lifetime value by cost per customer, a desirable ratio would be around 3. Already a very low result indicates that customers are costing too much for the company compared to how much they spend.
Churn rate
The churn, also translated as customer dropout rate, is essential especially for companies offering subscriptions, as it measures the percentage of customers who cancel their subscriptions. Knowing this rate is important because in a service company, knowing how many customers remain gives a good sense of predictability and cash flow control. To calculate it, divide the number of consumers who canceled the service by the total number of customers.
In addition, when compared to other metrics, such as the conversion rate, it is possible to recognize certain flaws. If the total conversion rate is high, but churn too, you probably have a flaw in the service you’re offering or maybe in the customer service.
Number of leads
In a sales funnel, leads are contacts that are more likely to make purchases than the first prospects. Qualified leads, in turn, are those people who have already been educated about your company, your product or service. Typically, this education is done through a well-planned content marketing strategy and by building a relationship with potential customers.
You can even get a very high number of visitors to your site, but you need to know that the leads are the ones that fill out email forms, subscribe to your newsletter or download materials provided on the blog, for example. In these cases, it is possible to calculate the number of total leads and distribute them for follow-up by your sales team.
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