KPIs are a great way to measure success of your business. But, what KPIs should you track?
Whether you’re an emerging startup or an established business, you don’t need to reinvent the wheel here, a few industry standard metrics will give you a pretty good picture of where your business is heading, if measured regularly. We suggest measuring and tracking the following::
MRR (Monthly Recurring Revenue) – Refers to the number of active users on your platform that’ll be billed each month. MRR helps you predict exactly how much revenue you’ll earn monthly (helpful info for investors too, right?) ARR (Annual Recurring Revenue) – Multiply MRRx12 and you get the Annual Recurring Revenue. As the name suggests, ARR predicts the revenue you’ll generate yearly. Churn Rate – Divide the number of users lost by the number of users at the start period and you get your churn rate. Needless to say, a high churn rate isn’t good for business as it means you’re losing your customers. ARPA/ARPU (Average Revenue per Account/User) – Here you can calculate the average revenue per customer by dividing your MRR with the number of customers. LTV (Customer Lifetime Value) – One of the most important metrics, LTV tells you the average revenue generated by your customer over their entire journey with your business. (Customer revenue x customer lifetime) – cost of acquisition and maintenance will give you your customer lifetime value. Or, you can ‘ARPU/ Customer Churn Rate = LTV’ it. CAC (Customer Acquisition Cost) – CAC tells you the cost to acquire your customer and how much value they bring to your business. Divide your total sales and marketing expenditure by the total number of customers acquired during a specific period and you get your CAC. LTV:CAC Ratio: The metric that predicts whether your marketing efforts will go in vain or not, the LTV:CAC ratio tells you the lifetime value of your customer over the cost of acquiring them. Your customer lifetime value should be three times the cost of customer acquisition. If your LTV:CAC ratio is 3:1, you’re doing your business right.
While these are just some of the metrics, there are a few advanced metrics that narrow down on where and how you can improve your business strategies for optimum growth. Maybe tomorrow I can discuss the advanced stuff with you.
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