With so many dashboards and analytics tools available – each boasting hundreds of KPIs and metrics, it can be confusing to decide which metrics you should be tracking in your business.
One of the most common reasons I hear from people who do not track metrics, or who struggle with their analytics is that they're unsure which KPIs they should be measuring and how to track them.
The key to using KPIs to grow your business is carefully selecting meaningful ones that apply to your business, and then monitoring these regularly and acting on any insights.
Below you'll find a list of eight powerful business metrics that you should be tracking along with tactics for how to track them and what actions you should take to optimise these KPIs.
1. Active Customers
Your total number of customers can be a seductive metric, but does it paint an accurate picture of your business performance?
There may be a massive disparity between the total number of customers you have and those who are actively engaging with you regularly.
Why Measuring Active Customers is Important
One of the easiest ways to grow revenue is not by adding new customers, but by keeping your existing customers happy so they stick around and continue to buy from you.
I see too many businesses focusing exclusively on customer acquisition to increase the top-line number. Many of these customers never activate, or they abandon the product, and the business spends more money on acquiring new customers while simultaneously losing money over the long-term because existing customers don't stick around.
How to Track Active Customers
Depending on the type of business you're running, tracking active customers will require a tailored approach.
For a SaaS business, you would track the last time a customer signed in to your product and if it was within a predefined window; e.g. 30 days then the customer is considered active.
For an eCommerce or service business, it might be the last time a customer interacted with you or purchased something from you.
If you have access to an API endpoint that is tracking your active customers, you can monitor your active customers in Everview and even get alerts when a customer de-activates.
How to Improve Your Active Customer KPI
The first step is to ensure that new customers are activated after they've signed up. You can achieve this by having an excellent onboarding process that guides customers through the various actions they should take to get the most from your product or service.
You'll also want to identify inactive customers and determine why they are no longer engaged. Don't be afraid to reach out to people with a friendly email and ask. Once you understand the underlying issues, you can begin to work on solving these problems to increase the size of your active customer base.
A good trick here is to build an automated system that identifies when a customer de-activates so you can take immediate action to re-engage them. If you wait too long before engaging with a unsatisfied customer, you risk losing them to a competitor.
2. Revenue Per Customer
Many business owners focus on measuring average revenue per customer, but this metric in isolation doesn't provide many actionable insights. To grow revenue efficiently, you need to understand the relationship between individual customers and revenue.
Why Measuring Revenue Per Customer is Important
Have you ever heard of the Pareto Principle (also know as the 80/20 rule)? It suggests that often 20% of your customers are generating 80% of your revenue. This insight can be easily overlooked when measuring average revenue per customer.
How to Measure Revenue per Customer
The software you use for collecting payments should provide you with a list of customers along with how much money each of them is spending. If you can't sort them by monetary value, try exporting the list as a spreadsheet and sort it in Excel or Numbers.
How to Improve
Sorting your customer list by descending monetary value will alert you to your most valuable customers. You can then profile this customer segment and start targeting new prospects who fit the same profile.
This approach will enable you to optimise your marketing strategy because you now know that you can spend more money on acquiring this type of customer. It's also the easiest route to maximising your revenue growth because you're focusing on the type of customer who will generate the most revenue with the least amount of effort.
3. Number of Support Tickets
Tracking support ticket volume isn't just a metric for masochistic techies – every business should be monitoring the number of problems their customers experience and proactively driving this number down.
Why Measuring Number of Support Tickets is Important
A high number of support tickets doesn't just cost you time and money in support costs; it indicates more severe problems:
- Your product is difficult to use
- Your onboarding systems and documentation are not doing their job
- Your product has bugs or issues that you need to address
How to Measure Number of Support Tickets
Don't just rely on your email inbox for handling support, invest in support ticket software like Groove that will not only improve your support workflow but will also automatically track the number of tickets opened along with other metrics for you.
How to Improve
Your goal is to reduce the total number of tickets you receive; this will save you time, money and lead to increased customer satisfaction and retention.
Fortunately, the support tickets that you're receiving will give you a clear picture of what the issues are, so you can then:
- Make improvements to your product and remove sticking points
- Improve your onboarding systems and documentation
- Consider implementing some automated support-flows using bots and AI
- Solve the recurring problems that people experience
4. Average Response Time
Following on from the last metric is how long it takes you to respond to support messages. Overlooking poor response times can have a massive impact on customer retention.
Why Tracking Average Response Time is Important
When a customer experiences an issue, at best they are mildly frustrated, and at worst they are pissed off and angry.
Neither of these scenarios is positive. The solution is to handle customer issues as quickly and as effectively as possible.
The quicker you get back to someone, the faster you will alleviate their pain and lead them back to being a satisfied customer. You may be amazed at how easy it is to turn an angry customer into a happy customer by merely responding to them promptly and listening.
Sending an automated response saying you'll respond in 1-2 business days is simply not good enough – this only makes people feel unheard, undervalued and raises their frustration level.
You'd expect this kind of behaviour from large companies – and this is a competitive advantage for small businesses – you can often win frustrated customers from big companies by responding to them quickly.
Just this morning, I was having issues with my online bank and had to call support. I was already frustrated and grew increasingly more angry as the call went on due to their poor service and being on hold for extended periods.
I voiced my frustration on Twitter, and a competitor replied to me within minutes offering to help me get set up on their service. Guess who I'm probably going to switch to?
How to Track It
Most support ticket software will measure your average response time automatically for you.
How to Improve Your Average Response Time
Create a well-structured support system that enables you to respond to support requests quickly and efficiently. You can also benefit from canned responses to common questions to increase your response time.
If a customer is experiencing an issue that's going to take some time to resolve, don't just leave them hanging in a state of frustration. Respond to them quickly and inform them that you're working on their issue – a timely response can immediately dispel their frustration.
5. Customer Acquisition Cost (CAC)
This metric does what it says on the tin – how much does it cost you (on average) to acquire one single customer.
Why Is This Important?
Unless you want to pour marketing budget down the drain, you need to determine if what you are doing is profitable by asking the question:
Is what I'm spending to acquire one customer less than the revenue that the customer generates?
You should always be aiming to reduce this number as much as possible. The smaller your CAC, the more profit you will make from each customer.
If you're selling a $500 product but spending $495 to acquire a customer, you're not making much profit compared to if you were paying $5 on customer acquisition.
How to Measure Customer Acquisition Cost
At a high level, you can quickly calculate CAC by dividing the total amount spent on marketing by the number of acquired customers:
total marketing spend / acquired customers
Although it gets more complicated if you want to segment your campaigns and customers, fortunately, most modern advertising platforms will calculate this for you when using their pixel integrations.
How to Improve
- Improve your targeting to reach customers who are more likely to convert
- Experiment with different marketing channels to find ones with a lower CAC
- Improve your landing page to increase your conversion rate
6. Customer Lifetime Value (CLV)
CLV measures the total monetary value that a single customer brings to your business over the period they remain a customer.
Customer lifetime value isn't just a fancy metric for tech startups; every business should be tracking and optimising this metric.
Why Is Customer Lifetime Value Important?
Attempting to grow your revenue by acquiring new customers is often an expensive and inefficient strategy. It is much more cost-effective to generate more revenue from the customers you already have.
A high CLV will also enable you to increase your customer acquisition cost while maintaining or growing profit. This will allow you to target higher-value customers in more expensive marketing channels.
How to Track It
Use a tool like Baremetrics or ProfitWell to calculate CLV based on your customer payments. If you want to calculate it manually, you need to determine the total length of time a customer will engage with your business and how much money they will spend within this timeframe.
How to Improve Customer Lifetime Value
If you own a SaaS business, you should focus on customer retention to ensure your current customers stay with you for as long as possible. Each month that a customer continues to pay, their lifetime value increases.
For other business formats that aren't based on recurring payments, you need to determine how you can generate more revenue from your existing customers through different products and services.
Value is a two-way street, the more value you can provide – the more money you will make. Focus on creating a value ladder that your customers can ascend by benefiting from up-sells and complementary products.
For example, if a customer purchased your book, can you provide added value by offering a bespoke service?
No matter what kind of business you're in, you should also be seeking ways to generate more value from your existing customer base.
7. Net Promotor Score (NPS)
NPS is a score ranging between -100 and 100 that determines how likely a customer is to recommend your business to their friends.
Why Net Promotor Score Is Important
Your most powerful marketing channel is your existing customers. A recommendation from a happy customer is likely to convert much higher than any ad.
If you can create a product that makes your customers happy and they tell their friends, growing your customer base will be much easier.
How to Track It
NPS is straightforward to implement – it's a single question that asks customers to indicate on an 11-point scale (0-10) how likely they would be to recommend your product with 10 being most likely.
Customers are segmented into three categories based on their response (detractors, passive and promoters). The NPS is then calculated using:
percentage of detractors - the percentage of promoters
This equation will generate a score between -100 and 100.
Use a tool like Hotjar to collect customer responses and calculate your NPS for you.
How to Improve Your Net Promotor Score
Build sharing features into your product so your customers can share it with their friends. Even better: incentivise them for doing so. It can be a cash incentive or something else; Dropbox expedited their growth by offering customers extra space when they invite their friends.
Reach out to your promotors and find out what has made them so loyal, replicate these behaviours to all of your customers, especially your detractors. Think of ways to delight promotors and make the experience even better.
Your NPS is a very high-level view of your overall customer satisfaction. To take action on this insight, you need to talk with your detractors to find out why they are dissatisfied and then take action to turn the experience around for them.
8. Gross & Net Profit Margin
There's an old saying:
Revenue is insanity; profit is sanity.
When we read articles by the business media, we're often dazzled by huge revenue numbers that businesses are generating. While a growing revenue figure is impressive, it's not necessarily a good indicator of a sustainable business.
Why is Profit Important?
What ultimately matters for long-term business growth is how much profit you're making. If you're generating $20,000/mo but spending $30,000/mo, then your business is obviously not sustainable.
There are two profit metrics that you must understand – gross profit and net profit.
Gross profit is the amount of money you make, minus the cost of goods sold (COGS). If you're a digital business, then COGS is the cost to you of delivering your product or service (this will include hosting, technology, time).
A high gross profit margin means you're making more money than what you're spending, and have more disposable cash in the business.
Net profit then is your gross profit minus all of your expenses, interest and tax.
Understanding both of these metrics is essential for determining the financial health of your business.
How to Track It
How to Improve Gross & Net Profit Margins
Understanding your gross profit can provide insights that will, for example: enable you to look at ways to reduce the cost of delivering your product. You might also want to consider raising your prices to increase your gross profit margin.
If your net profit is significantly lower than your gross profit, then you should consider cutting expenses to increase the amount of capital in your business.
There you have it! Plenty of homework for you :-)
If you want an easy way to track your metrics in one dashboard, you can create a free Everview account and display all your data from different tools in one place.