3 MOST IMPORTANT METRICS WHEN STARTING UP
Ah, business metrics. Analysts are constantly trying to come up with the next new ace-in-the-hole for understanding your business practices perfectly, and how to keep from ever making a mistake. The truth is we can’t stop ourselves from errors in our business practices at every turn—but we can learn from them, and how to prevent them going forward.
Here are three metrics that are essential to measure when starting your online business. Start measure them as quickly as you can and make sure that you stay on top of each of them, as they’ll help you sharpen your skills of owning and running a business as a whole.
Not only will they help you to find the week spots, but also to ideate and execute new ways of doing what you do best. Refining is an incredibly necessary part of running a great online business. If you can use these to that end, you’ll be ahead of the pack much more than you know.
Cost of Acquisition
Customer Acquisition Cost (CAC) is invaluable. It helps you to understand where are exactly your marketing dollars are going, and how exactly they’re helping you.
The model for this is simple: you take how much you’re spending on different acquisition tactics—various marketing efforts, etc.—and then match that with how many customers you’re acquiring over a given time. This article is extremely helpful in breaking down some of the finer details.
This can show you when the best times to find and acquire customers are, teach you about trends for your target market, and help you to find where you’re wasting money. It’s an essential place to start in your analytical efforts.
Lifetime Value of a Customer
Lifetime value is the other side of CAC, which will ultimately help you to shape how and why you’re marketing to your base. The lifetime value takes your understanding of CAC and pairs that with how much that customers is going to make you over the course of their relationship with your company.
Once you understand how much you can generally profit from a customer, you can go back and create a spending limit on acquisitions. If the two simply aren’t matching up, then it will be clear that you need to revamp your plan for acquiring and retaining customers.
Customer Retention (Churn Rate)
The churn rate of a customer is especially useful when you’re in the SaaS industry, but is really something that we can all learn from doing commerce in 2015.
In the world of subscriptions, services and memberships, churn rate can be extremely complicated, and totally unclear as to how to measure. We won’t give you the entire explanation here, but the idea is that you want to find (generally) a month-to-month turnover rate of your customers—and what that means for your revenue.
It could be that you have a higher churn rate during certain seasons, which might mean ramping up your acquisition efforts. In other cases, you may simply need to reevaluate the way that your service is set up, and how it can influence the way that you retain your customers.