Do You Know Your Numbers? Essential KPIs for Business Success

In today’s super-competitive business environment, understanding and leveraging key performance indicators (KPIs) is crucial for driving growth and achieving your strategic goals. A well-constructed measurement dashboard is an invaluable tool, providing actionable insights (pun intended) that help guide decision-making and optimise performance across various facets of your business.?

When engaging with a new client, I always ask what KPIs they measure and track.?

Here are the key drivers:

1. Cost Per Acquisition or Customer Acquisition Cost (CPA or CAC) of a New Customer

Definition: CPA/CAC measures the cost associated with acquiring a new customer, factoring in expenses related to internal and external agency labour, production, and media.

Importance: This KPI helps us understand the efficiency of marketing and sales strategies. By analysing CPA/CAC, we can identify cost-saving opportunities and optimise customer acquisition processes.

Calculation: CPA = Total Cost of Labour, Production, and Media / Number of Customers Acquired (start with a monthly time period)

(QQ: How many clients would you like? At the moment they are costing you X, with optimisation they could cost you Y)?

1. First or Average Order Value (FOV or AOV)

Definition: FOV is the average amount spent by a customer on their first order. AOV is the average amount spent by customers per order.

Importance: These metrics provide insights into customer purchasing behaviour and help businesses develop strategies to increase revenue per transaction, such as upselling and cross-selling.

Calculation: FOV/AOV = Total Revenue / Number of (First) Orders

(I like to quantify the relationship between CAC and FOV/AOV, as new-to-market businesses rates can be as high as 25%, while more mature businesses can get down to 10%)

1. Customer Lifetime Value (CLV)

Definition: CLV estimates the total revenue a business can expect from a single customer over the duration of their relationship.

Importance: Understanding CLV helps businesses allocate resources efficiently, focusing on retaining high-value customers and improving long-term profitability. Where CLV is not available, we calculate the percentage of customers buying again within a time period.

Calculation: CLV = (Average Purchase Value × Average Purchase Frequency) × Average Customer Lifespan

(It does put the business into perspective when quantifying the relationship between CPA/CAC and CLV)?

Repeat Customer Rate

Definition: This metric tracks the percentage of customers who make more than one purchase within a specified time frame (3, 6, or 12 months, depending on seasonality).

Importance: High repeat customer rates indicate customer satisfaction and loyalty, which are vital for sustainable business growth.

Calculation: Repeat Customer Rate = (Number of Repeat Customers / Total Number of Customers) × 100

(For more sophisticated businesses, this could be augmented with Net Promoter Score)

1. Website Conversion Rate

Definition: The conversion rate measures the percentage of website visitors who complete a desired action, such as making a purchase or signing up for a newsletter.

Importance: This KPI is critical for evaluating the effectiveness of your website and marketing campaigns in driving desired actions.

Calculation: Conversion Rate = (Number of Conversions / Total Number of Visitors) × 100

(I usually run with overall traffic minus bounce rate to get to a more accurate traffic-with-intent figure)?

1. Engagement Ratio

Definition: The engagement ratio measures the level of interaction your social media posts receive, calculated as the number of likes, comments, and shares divided by the number of posts and fans.

Importance: High engagement indicates strong audience interest and can lead to greater brand loyalty and advocacy. Think of 1% as a base.

Calculation: Engagement Ratio = (Likes + Comments + Shares) / Number of Posts × 100 / Number of Fans (Subscribers, Followers, and Fans)

(I love the way that Quinlty uses 1 standard engagement metric for all platforms rather than the biased rate you get from each)?

1. Return on Investment (ROI) / Return on Advertising Spend (ROAS)

Definition: ROI measures the profitability of an investment, while ROAS specifically measures the revenue generated per pound spent on advertising.

Importance: These KPIs help businesses assess the financial effectiveness of their investments and advertising efforts, guiding resource allocation and strategy adjustments.

Calculation: ROI = (Net Profit / Total Investment) × 100 ? ROAS = Revenue from Ads / Cost of Ads

(From experience 3.3 ROAS is break-even)

Conclusion

Incorporating these KPIs into your measurement dashboard provides a comprehensive view of your business performance. By regularly monitoring these metrics, you can make informed decisions, optimise strategies, and drive sustainable growth. Each KPI offers unique insights, and together, they form a powerful toolkit for achieving your business objectives. They act as an overview dashboard, with further levels of recursion/detail available for each.

(The joy is when the KPIs move in the right direction - over time)?

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If you don’t measure and track your business numbers and would like to automate a beautiful dashboard, please do not hesitate to get in touch.