As you build your business, you need to actively assess how efforts like marketing campaigns, product expansion, and price adjustments are impacting your overall performance and contributing to your business goals. Analytics help you see the full picture and give you the information you need to make informed decisions.
For example, if you invest in an ad campaign, you to track your return on ad spend (ROAS) if you want to determine whether or not the campaign was worth the investment. This helps you identify what worked, what didn’t, and what you can do next time to improve the performance. Tracking general performance analytics on a regular basis gives you that level of insight into your business on a wider scale, allowing you to identify areas for improvement in your conversion funnel, opportunities to boost revenue, and innovative ways to reach new leads.
What metrics should you be tracking?
Knowledge is power, and the more information you have about your business performance, the more empowered you are to move the needle forward. That said, tracking too many things at once can leave you feeling bogged down by data and unsure of how to use the information to make meaningful decisions for long-term growth. That’s why it’s good to start by tracking a few core metrics that give you insight into how your business is doing. Here are some of the most common (and essential) metrics to get you started:
Conversion rate
Revenue is one of the most basic components of a successful business. If you’re not driving conversions and generating steady revenue, your business isn’t likely to last, let alone grow.
Conversion rate is one of the most essential metrics to track on a regular basis, as this will confirm that users are doing what you need them to do when you come to your site. For the most part, conversion rate represents the percentage of site visitors who make a purchase after arriving to your website. However, it might also be replaced by an alternative non-transactional equivalent—e.g., signup rate—in the event that you have a different primary goal for visitors to your website or landing page, such as signing up to your email newsletter.
Tracking your conversion rate month over month allows you to test different ways to optimize your sales funnel or onsite customer journey to encourage behavior and actions that align with your business goals. Maybe customers are dropping off before checking out because there are too many interim pages before they can place an order, or maybe people aren’t signing up for your newsletter because your signup form isn’t featured prominently on your website. Experimenting with different changes to your site experience and analyzing the effect these changes have on conversion rate can help boost revenue over time and scale your business in the right direction.
Revenue run rate
Keeping an eye on your revenue every month is great, but it’s also critical to understand how your revenue is tracking over time so you can plan accordingly for future growth. Revenue run rate is an estimate of future revenue that’s projected according to current financial data. For example, you can determine your monthly run rate by looking at your average daily revenue up to the current date and then multiplying it by the number of days in the month. The same goes for calculating your quarterly or annual run rates.
While run rate isn’t a guarantee of business performance, projecting your revenue on a regular basis helps you understand if you’re pacing in the right direction. This way, you can see how you’re stacking up against revenue goals that you’ve set, as well as catch revenue fluctuation triggers in a timely manner so that you can understand different factors that impact your revenue positively and negatively.
Customer acquisition cost
It would be amazing if all customer acquisition followed a “build it and they will come” pattern, but that’s not the case. For the most part, you need to spend money to attract new leads, and that’s where your customer acquisition cost (CAC) comes into play. Your CAC can be calculated by dividing the total cost of an acquisition initiative—e.g., ad or promoted campaign—by the total number of converting customers you gain as a direct result. For example, if you spend $2000 on an ad campaign that results in 50 clicks and 10 conversions, you’re looking at a CPC, or cost per click, of $40 and a CAC of $200.
For larger businesses, there might also be a little more to the story. For example, if you have a marketing manager that ran the ad or if you worked with an external design agency on the creative assets for a campaign, you’ll need to factor in your employee’s salary or your design agency’s rate to calculate an accurate CAC.
Knowing and tracking your CAC helps you ensure that you’re growing your business in a sustainable, profitable way. While customer acquisition is critical to building a thriving business, that doesn’t mean you should prioritize doing it at any cost. On the contrary, your CAC is an investment and you should consider how it ties into other key metrics, like customer lifetime value (LTV), to make sure that you’re getting a strong return on each customer acquired.
Average order value
While acquiring customers at a healthy CAC is one step in the direction of sustainable growth, sometimes it helps more to get the most out of existing customers than to try and find new ones. Average order value (AOV)—the average dollar value of all unique orders—helps you understand the long-term value of each individual customer, as well as how your business stacks up against competitors as far as pricing, product offering, etc. Efforts like cross-selling, upselling, or testing out new pricing structures are effective ways to increase your business’s AOV, thus boosting total revenue over time.
Looking at AOV in conjunction with other metrics also helps highlight its importance. For example, let’s say you have a slightly higher CAC than you originally planned for. While you can certainly work on getting this number lower, you can also offset some of that cost by bumping up your AOV and making each acquired customer worth more to your business.
Churn rate
Customer churn pertains more to subscription-based businesses, and it means that customers stop using your product or service for one of any number of reasons. Perhaps they find your offering too pricey, or maybe they found a competitor on the market that delivers in an area where your business is still lacking; whatever the reason may be, a high churn rate is a sign that there may be opportunities for improving your business or reworking your value proposition.
Keeping a close eye on churn every month ensures that you catch unexpected spikes in churn (and, by extension, dips in revenue) when they happen. This allows you to be proactive about addressing churn-related issues as soon as they arise to reduce the customer dropoff.
In the event that churn is consistently high month over month and not just related to an isolated instance, tracking churn closely can help you understand how retention efforts help reduce churn over time. Digging deeper into churn can also help you see things like whether customers within particular segments (e.g., acquisition channel, demographic, etc.) are likelier to churn than others. From there, you can be more thoughtful about how you address ongoing churn.
Burn rate
If you’re not careful with your business finances, it’s easy to burn through a lot of money quickly. That’s why it’s critical to keep tabs on the money going in and out of your business.
Your burn rate is the amount of money that you spend every month on your business. The faster you burn through cash, the more likely you are to run into business-jeopardizing cash deficiencies. Calculating your burn rate involves looking at your overall expenditure and your categorized expenses to get a clear idea of how long you could operate your business with the funds you have on hand. Make a habit of assessing your burn rate regularly to account for changes in cash flow, revenue, and expenses that may occur month over month.
Even in the event that you anticipate cash flow disruptions and plan on utilizing something like a line of credit to get over the hump, you have to do so strategically. Understanding why you’re burning through cash at the rate you are and having a plan for keeping your business on track down the road ensures that you’re not using financing as a stopgap, but rather as part of a thought-out plan to position your business for long-term success.
Net promoter score
Analyzing brand sentiment and retention is one way to see if you’re building a loyal customer base, which can translate into brand advocacy and increased awareness. While there are a few metrics you can look at to gauge this—repeat customers, returning website visitors, reduced churn—your net promoter score (NPS) should definitely be at the top of the list.
This widely-used marketing metric assesses your brand’s overall customer experience by engaging directly with customers and asking them how likely they would be to recommend your business to a friend. The NPS is calculated by subtracting your business’s total detractors (unhappy customers who would not recommend your business to others) from your promoters (enthusiastic customers who would recommend your business to others). The higher your NPS, the healthier your business is and the likelier you are to experience strong growth with loyal customers.
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