Tuesday, March 5, 2013

6 business metrics to measure

The internet is a magical place for business.  It is (seemingly) infinitely measurable and scalable.  If your business truly wants to tap into its ability to scale, you should be measuring these 6 business metrics.

  1. ROI - ROI stands for Return on Investment.  The most commonly measured investment is marketing cost.  Depending on your business, it may be important to include investments such as those made in technology, employees, and customer service.  Regardless of the investment, it is important to know what you get in return.
  2. Average Sale - Your average sale is the median amount a customer spends with your company in a given transaction.  You may have natural segments within your sales and customers, but your average sale is important because it will help you make and measure investment decisions.  
  3. Cost per Lead - The cost per lead is the amount of time and money it takes to acquire 1 quality lead.  For an e-commerce site, a lead may be any visitor that makes it to a certain point in the conversion flow.  These are the customers you would target with a re-marketing campaign.
  4. Cost per Acquisition - The cost per acquisition is the cost per lead + the additional time and money it takes to make a sale to a quality lead.  Most people calculate this by adding up all their investments for a given time period and dividing that number by the number of new orders or customers.
  5. Customer Value - The customer value is the immediate value of a given customer.  In order to have a positive cash flow, the customer value should be more than the cost per acquisition.  Customer value may seem similar to average sale, but depending on the business, the difference of looking at the value of the customer versus the value of the shopping cart can be vast.
  6. Lifetime Customer Value - The lifetime customer value is how much a customer is worth in the long run.  Many industries acquire new business at a loss because their customer value is less than their cost per acquisition, but the lifetime value of a customer more than makes up for the difference.  The pawn industry, on average, has a particularly short lifetime for customers because most customers are in an acute monetary predicament.  Photographers tend to have a much longer lifetime for their customers because once you find a photographer you like, you tend to be a patron for many years.

These numbers say a lot about your business.  They also help identify how your business scales and what hurdles are in your way.  Most people think that conversion rate optimization merely increases sales, but it does much more.  CRO can be used to increase ROI and average sale while reducing cost per acquisition.  

Do you monitor these metrics for your business?