We all hate Key Performance Indicators (KPIs). Trust me, we all really hate them. However, they have a place in a business.
These are really important data points that measure your company’s performance. If you have questions like this:
- Is my business financially viable?
- How can I improve my business?
- Why do customers buy my stuff?
- How do I become more profitable?
This probably means you need to start measuring some data points to understand your business a lit bit better. While the data points we’re introducing are most commonly used in eCommerce marketplaces and SaaS businesses, there’s no reason they can’t be applicable to many more.
Let’s dive straight into it.
Customer Acquisition Cost (CAC)
We cannot stress the importance of this metric and it runs across most business models. It answers your question, how much does it cost me to get a paying customer.
To bring new customers onto the platform, you have to spend some money. Decreasing this number is essential to making your business sustainable and profitable.
Monthly Active Users (MAU)
This is to show you how many users visit your platform, website or service every month and are using your service. By ‘using’ we mean generally, any action or you can even specify a specific action in order to get more targeted and real results.
Conversion Rate (CR)
At the best of times, your CR is about 2% of your website traffic. But this gives you a clear idea of how much traffic you need to generate to get your desired revenue.
Conversion rate can be calculated easily, as per the below:
Conversion Rate: # of sales / # of visitors
Average Order Value (AoV)
AoV helps you determine how much revenue you can generate over time. This shows you the average size of an order on your platform.
Customer Lifetime Value (CLV)
This represents the total amount of revenue that you expect to get from each customer. To calculate the CLV, you need to know the following:
- long the customer is retained on the platform
- how many repeat purchases does the customer make
- what is the average order size
CLV is then calculated based on the average order value multiplied by the average number of repeat purchases per customer.
Churn rate is critical for SaaS-based businesses, where customers pay subscription recurring payments. It calculates the number of customers leaving your platform per month, day or even year. If the churn rate is high, it means you’re doing something wrong.
Monthly Revenue Rate (MRR)
MRR describes the predictable revenue stream of your platform. To calculate MRR, you need to understand the total number of customers per month, and know how much revenue does each customer creates, as per the below:
MRR = Amount of revenue per customer * Total # of customers
What we’ve shared is the bare minimum you should measure in your business. From a blog shop to a large multinational business, these numbers are crucial.
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