Every day your business will be collecting data, and depending on the size of your business this will differ dramatically. But, whatever your size, you’ll be collecting data that will indicate the performance of your business.
With everything from Google Analytics that measures your website traffic and performance to social media tools measuring your activity on Facebook, Linkedin, Twitter and Instagram, how do you decide what metrics are worth measuring?
Here’s three metrics that I encourage my clients to measure as soon as they can. They’re not a vanity metric and influence the bottom line of your business accounts, therefore I consider them to be important for you to track and have a handle on.
1. Cost of acquisition (CPA in £)
Knowing how much it’s costing you to acquire a new customer is vital for lots of reasons. Firstly it helps you budget for further growth. If you know it costs you £100 to acquire a new customer, then it stands to reason then to acquire 10 more will cost you £1000. Of course, it’s not a straightforward but you get the idea.
By measuring CPA (cost per acquisition) you can then start to influence it and bring this cost down. For example you might make improvements to your targeting or add extra elements to your landing page to improve the customer experience.
Measuring CPA is relatively straightforward for most businesses but can get a little complicated when harder to measure activities are part of your marketing mix i.e. sponsorships, events, radio and tv advertising etc. But for most businesses CPA is simply an equation – Marketing cost / number of new customers = CPA.
Your CPA can be broken down by campaign and your overall CPA will be gained by simply working out how much you’ve spent on marketing , divided by the number of sales you’ve made.
2. Lifetime customer value (LTV in £)
Now you know your cost of acquisition (CPA), how do you know if you’re gaining customer profitably? One way of understanding this is working out the lifetime value of your average customer. Of course, for every customer this will be different but for our business, we’re just looking for an average, something we can measure and track and understand if we’re acquiring new customer profitably.
Lifetime value can be a complex business to work out. But for most businesses it will be fairly straightforward. Let’s say you run a gym, and members pay a subscription of £30 per month to use your gym. Over time you have come to understand that your average gym customer stays with you for 26 months. So, this would give you a LTV of £780. Now, you also know that during their lifetime they also spend an average of £8 a month in your cafe or vending machines, so this would take the LTV of £988.
Armed with the knowledge that your average customer is worth £988 turnover to your business, you can then start to make sensible decisions about your CPA (cost of acquisition). Clearly spending £1200 to acquire a single customer means you’re going to be making a loss, but if it costs you £200 CPA then you’re into profit.
3. Conversion rate (in percentage)
There’s lots of possible conversion rates that can be measured. For example, website visit to lead or enquiry. Also, add to basket to checkout and landing page visit too booking. Depending on how your website is setup and what you’re selling will determine what conversion rate you need to measure.
For most businesses their website aim will be to convert a visitor into a prospect by getting an enquiry from them (lead). Usually this will be a form on a page that you want them to complete.
As with the other metrics that matter, conversion rate can be worked out using a simple equation. Landing page visit / number of enquiries = conversion rate.
So, for example if you are a training provider and you want to work out conversion rate then simply add up the page visits to your course landing pages, divide by the number of enquiries or bookings and this will give you a percentage number.
Now you know what your conversion rate is you can set about improving it by making changes to the website or improving your targeting of who you’re sending to your page. You might also want to look at the form and remove any unnecessary fields to improve performance.
By improving your conversion rate, you will increase the number of enquiries you get and in turn the sales you make, giving you more turnover and hopefully, profit!
There you have it, my top three metrics that are worth measuring in your business. If you need help setting up your business for success, and want to know more about which metrics to measure, call me on 07849 020558 or email firstname.lastname@example.org