How do you know what KPI’s to choose to take to the board or your investors?
When the big boss calls you in and asks to see the latest marketing KPIs. Do you skip along to the office all bright-eyed and bushy-tailed or shudder at even the thought of this very task?!
It’s okay. We’ve been there!
When you need to send reports up to the top, what should you take? There are so many data points, so many metrics, it can be hard to see what matters. Are you going in the direction, what action do you need to take from these reports, is it going to change your behaviour?
Avoiding data vomit is hard, and as we have mentioned in our post What Metrics Matters, what you present and who you are presenting to can make all the difference. In this post I will be sharing with you what influencers in our network said when I asked the following:
“If you could only take 5 key performance indicators (KPIs) to the board, what would they be? ”
I have also included a detailed explanation on some of the metrics in their list to help you get started!
Thank you again Rand, Edwina, Jim, Tink, and Matthew!
Rand Fishkin, SparkToro
- Customer Lifetime Value
- Cost of Customer Acquisition
- Churn/Retention Rate by Cohort
- Growth Rate (of customers and revenue)
- Traffic and Customer Acquisitions by Channel
What is Customer Lifetime Value?
Customer Lifetime Value or LTV is a super metric to help you understand just how much you could invest in your acquisition activity. I have seen companies I work with invest between 35-50% of their LTV. It is also useful to identify and compare your critical target segments as you will have customers who are worth more to you over their lifetime, and therefore you should spend some resource in keeping them happy!
Overall, it can be a bit of a fiddle to get your head around, but it is worth it as you can define how much revenue a customer will generate during their lifetime with you which supports what you want to put in your marketing budget to get and keep your customers.
To do a simple LTV calculation you will need to know the initial cost of customer acquisition, how much annual profit you get from each customer, and the average customer retention rate.
Here’s an example below:
Annual profit contribution per customer x average number of years that they remain a customer – cost of customer acquisition.
Eg £1000 profit x 5 years average customer – cost to acquire £2,000 = £3,000 LTV
Keen to learn more? See this example of a lifetime calculation for Starbucks from Kissmetrics. It gives another way of considering LTV, but it’s more complex.
Edwina Dunn, CEO Startcount
- Commitment / Brand Love
- Share of wallet
- Channel preference
- Spend / Frequency
- Coverage (what proportion of spend the top x% of customers account for)
How do you calculate Purchase Frequency?
You can work out your purchase frequency by using this super simple calculation. You can define your time periods to one that best fits with your business model, here I have just gone ahead with a 1 year period.
Your Total Orders (365 days) / Unique customers (365 days) = Purchase Frequency
This metric is going to tell you the average number of times that your customers are making a purchase with you over your chosen time period.
If you want to understand the time between your customers purchased use this super easy formula to see how long a typical customer takes before making a repeat purchase.
365 days / purchase frequency = time between purchases
Tink Taylor, Founder DotMailer
- Sales Made
- Cost of Acquisition
- Monthly Reoccurring Revenue
- Churn Value in £ and # of clients
- Sales Pipeline / Forecast with Dates
How do you calculate Churn?
Churn helps you understand how quickly your customers are leaving you. We all know that it is cheaper and easier to retain customer than it is to get new ones. Monitoring your churn rate gives you an understanding of how good you are at keeping your customers.
To calculate you use this little formula:
Customer lost during x period / starting customers of x period = churn rate %
For example, if I lost 3 customers in month one / starting customer in month one = 3% churn in month one.
Jim Sterne, Founder eMetrics Summit & Digital Analytics Association
- Increased Revenue
- Lowered Costs
- Improved Customer Satisfaction
- Increased Capabilities
How do you calculate Customer Satisfaction?
A way to calculate if your customers are satisfied with your product or service is to look at your Net Promoter Score (NPS). This is way to find out how likely people are to recommend you to people and use you again.
You have likely had some form of communication from a company asking to rate on a scale of 1-10 how you found your experience, the company will be using this to calculate their NPS. If you rated them anywhere from 1-6 you are counted as a detractor, 7-8 is passive, and a 9-10 are promoters.
NPS = % of detractors – % of promoters = NPS score
I like to use this NPS Calculator which does the heavy lifting for you.
Matthew Eisner, Global Marketing Manager at Startupbootcamp
- Ratio of Daily Average Users : Monthly Average Users (DAU:MAU)
- CPA: cost per acquisition
- CLT: customer lifetime value
- Customer referral rate
- Customer Churn
How do you calculate referrals?
You can use a metric called K-factor/ Viral coefficient. It is a way to see how likely your customers are to pass you on to friends via referrals. Think of the times you have had an email from a friend to buy a product, or try out a new app or service.
If you can create a product where users onboard each other, all you have to do is hit a single node in each network of people to gain adoption
This one happens to be Matthews favourite metric and you can see why, if you hit a K factor greater than 1 you are in for that hockey stick of growth.
To work it out use this calculation.
i= number of invites sent by each customer
c= the % of conversion of each invite
Let’s do an example.
Working out the value of i
If I have 1,250 users who send 200 invites (2000/1250) then i = 1.6
Working out the value of c
Out of the people invited 580 convert as new customers (580/2000) then c= 0.29
This would indicate that I am getting customers but I shouldn’t expect to see explosive growth. Now let’s imagine that you ramp up your offer, or incentive for people to join you, or your UX is improved and the same number of users 1250 send out the same number of invites (2000) but due to the better offer and UX you convert 1250 instead of 580, then you have growth.
1,250 users send 2000 invites (200/1250) = 1.6
1250 convert as customers (1250/2000) = 0.625
We don’t have all the answers as to what you should report on, but our process and cool UX wizardry will get you there faster.
Spend some time planning on how you’re going to show your work, with the right data in a way that is as smooth as silk and as easy to read as your A, B, Cs.
As a result, those insights and answers will be easier to see and action, which is the whole point of reporting right?! If you want to learn how to report like a boss, to your boss, download our Report like a boss template here.