How your business can use analytics to grow

As you build your business, it’s important to actively assess how efforts like marketing campaigns, product expansion, and price adjustments are impacting your overall performance and contributing to your business goals. By tracking performance analytics regularly and using the results to inform your operational and creative work, you’ll have a better understanding of the ways you can improve your growth strategy.

Which business metrics should you track?

To a point, the more data you have about your business performance, the more informed you are about where and how to make improvements. However, tracking too many metrics at once can leave you overburdened by noise with no clear signal of what decisions will drive growth. Start by tracking just a few core metrics before adding key performance indicators (KPIs) appropriate for your industry.

Conversion rate

If you’re not driving conversions and generating steady revenue, your business isn’t likely to last, let alone grow. Regularly tracking your conversion rate—the percent of visitors to your site or store who make a purchase—allows you to test different ways to optimize your sales funnel or customer journey to encourage actions that boost revenue. When tracking, you can replace the number of customers who made a purchase with whatever action you’re interested in—for example, you can track how many visitors sign up for a newsletter or purchase a service subscription.

Revenue run rate

Your revenue run rate projects future revenue based on your current revenue. You can determine your monthly run rate by looking at your average daily revenue up to the current date, then multiplying it by the number of days in the month. The same goes for calculating your quarterly or annual run rates:

• Monthly Run Rate = (Revenue in period ÷ # of days in period)  x  # of days in month
• Quarterly Run Rate = (Revenue in period ÷ # of days in period)  x  # of days in quarter
• Annual Run Rate = (Revenue in period ÷ # of days in period)  x  365

While run rate isn’t a guarantee of business performance, projecting your revenue can help you see how you’re stacking up against revenue goals or catch revenue fluctuation triggers in a timely manner.

Customer acquisition cost

Your customer acquisition cost (CAC) is as it sounds: how much you’ve spent to acquire new customers, on average. It’s calculated by dividing the total cost of an acquisition initiative—e.g., ad or promoted campaign—by the number of customers you gained as a result. For example, if you spent $2,000 on an ad campaign that resulted in 50 clicks and 10 conversions, your initiative had a cost per click of $40 and a CAC of $200.

Knowing and tracking your CAC helps ensure that you’re growing your business sustainably. Your CAC is an investment and you should consider how it ties into other key metrics, like customer lifetime value, to make sure that you’re getting a strong return on each customer acquired.

Average order value

Average order value (AOV)—the average dollar value of all unique orders—helps you understand the long-term value of each customer, as well as how your business stacks up against competitors. Efforts like cross-selling, upselling, or testing out new pricing structures are effective ways to increase your business’s AOV.

By lowering CAC and increasing AOV, you’ll be making each acquired customer worth more to your business.

Customer churn rate

Customer churn is important for service- or subscription-based businesses, and it refers to what percent of existing customers stop using your product or service during a period of time. Keeping a close eye on your churn rate will help you see when expected and unexpected spikes in churn (and, by extension, dips in revenue) happen. It can also help you evaluate your retention efforts, and see opportunities to rework your value proposition. 

Net promoter score

Most KPIs and other metrics measure quantifiable things like revenue or sales. Many important growth indicators aren’t quantifiable, but that doesn’t mean you can’t create data to analyze things like brand awareness or customer experience. One example is your net promoter score (NPS), in which you survey customer sentiment on a scale of 1–5 or 1–10. Compare results over time to see the effects of your marketing and product strategies, and ask more specific questions to break down why customers rate you the way they do.

See which KPIs are right for your business

How to use these metrics to grow your business

Here are some ways you can leverage data analytics to drive growth and improve efficiency:

Understand who your customers are and how they’re finding you

Data analytics can help you segment your customers by demographic or behavior, allowing you to see who is buying from you and which segments have the highest customer lifetime value. By tracking net promoter score and contextualizing it with feedback from surveys and social media comments, you can tailor your marketing campaigns and customer experience, reducing your customer churn rate and CAC.

Optimize your marketing and sales

Just tracking basic performance metrics for marketing campaigns provides a wealth of insights. For example, comparing conversion rates and CAC between different platforms and campaigns shows you which strategies are working. Segmenting these customers can show which campaigns resonate with whom. Tracking seasonal fluctuations in sales and AOV can help you identify upselling and cross-selling opportunities during seasonal downturns.

Creating data via experiments is also important. Use A/B testing to test different versions of ads, newsletters, or web pages to find your most effective options for different segments. You can also try increasing revenue with small perceptual differences, like highlighting different benefits or stats on your packaging, or rearranging how products are displayed in your store.

Optimize your operations and finances

While analytics can’t replace a holistic view of your financial health, they can help you understand it beyond your revenue and payments. Use a financial software that offers predictive analytics—a type of data analytics that forecasts the future by identifying trends in your current data. For example, your CAC, customer churn rate, AOV, and seasonal sales data provide a lot of information about what to expect in revenue and payments each year, allowing you to allocate resources where they’re most optimal.

In operations, data analytics can reveal inefficiencies and strategic opportunities, and free up resources to be reinvested in growth initiatives. For example, your productivity data allows you to provide employees with targeted training and advancement based on performance. Use an inventory management system to avoid excess inventory and stockouts. 

How to improve your business forecasting with limited data

Over-reliance on data makes for rigid strategy, putting businesses at risk of stifling creativity and being unadaptable when faced with unexpected events. If you’re a small business with less revenue and fewer employees, you can use your limits to your advantage. Use affordable tools and use the methods below to strategize based on what data you have:

• Use predictive analytics proactively. In addition to tracking relevant KPIs, make creative use of predictive analytics to stress test your business, identify weak points, and project whether you can endure bear markets or failed initiatives. 
• Strategize using external data. If your company data is limited, you can incorporate market and industry data into your operations by adopting a business ecosystem management strategy.
• Focus on customers. Beyond identifying customer segments, use analytics and A/B testing to simplify decision-making and smooth your sales funnel. For example, try offering customers fewer choices to avoid overwhelming them, or add FAQs and extra photos of products to your online store.
• Foster a creative company culture. Data-driven decision-making and playful experimentation can be complimentary. Encourage more ambitious experiments whose outcome is uncertain, and view failures as learning opportunities toward discovery and innovation.