Do you know your KPIs? Simply gauging success by profit, or god forbid, Facebook likes, is a mistake. You can float by with surface level analytics for a bit, but eventually a lack of popper KPIs will catch up to you and may cost you big time. I get it, it may sound daunting to hear “Key Performance Indicator”, but once you know what to look for they’ll become your best friend; they’re sorta like the pulse of your business. So to make sure your business vitality is in the green and will live as long as you, here are 3 essential KPIs you should be watching and how to find them.
1. Monthly Reoccurring Revenue
Unless you want to run a business on credit, this KPI is fundamental. It sounds trite to say, of course you want revenue, but this is a unique category. This is money that is coming in reoccurring without you having to constantly sell. There’s effort involved as you still have to service your customers and make sure you’re creating value to justify monthly payments from your customers, but this is different from a one time sale as it provides a much better return. You only need to buy a retail item once and then you own it, transaction done. But if you offer a service or provide a depletable item, this warrants continual payments from a customer and continual reoccurring revenue for you.
You want to not only have enough monthly reoccurring revenue to cover your operating costs and have profit, but you want to allocate part of this revenue to improving your customer experience. It’s this quality of service and value delivered that makes customers willing to give you recurring revenue in the first place, as we’ll see with our next KPI, churn rate.
2. Churn Rate
Churn rate is the amount of new customers you get versus the customers you lose. Sure, there’s copious amounts of people in the world, so you can theoretically always find new customers, but there’s a couple problems here.
One, if you have a high churn rate, you likely don’t have a good customer experience and may be making a bad name for yourself, and your name is the most valuable thing you have as a company…something that could cost you big in the long run.
Two, not all customers are created equal. You’ll always lose customers, partially just because people aren’t always a right fit for your product, but when you find the right people, it’s gold. These people who align with your business can be some of the biggest building blocks as they evangelize about your product and keep coming back, spending money for more of what you offer – to forego a good customer experience is to shoot yourself in the foot in terms of long term growth, so keep an eye on that churn rate!
It should be clear you want to shoot for a low churn rate.If you offer subscriptions and customers are constantly canceling, maybe you need to improve your product or service – and depending on what you’re selling, churn rate may be better understood as customer retention and recurring sales. You know the phrase “a penny saved is a penny earned”, the practice is similar here. You want to make sure your customers are sticking around, otherwise, when you try and acquire new ones it’s like having a leaky bucket (you’ll lose them!) and that’s a lot of effort for nothing.
3. Customer Acquisition Costs
Despite what you may think, you don’t just want a low acquisition cost, you want to know the proportion of this cost to what a customer spends in your company. Because until you know what a customer is worth, their acquisition cost is totally arbitrary.
For instance, If you’re selling $1 burgers at McDonalds, you can’t afford to pay a a full dollar to advertise to a one-time buyer. But if you have a high-level coaching product selling for $1000, paying $1 to get a customer is chump change. Even paying $500 is not big deal because you’ll have double that income when they eventually buy. But there’s more nuance here, because if the customer buys more than once, everything changes as you can justify paying an even higher customer acquisition cost. That’s why Customer Lifetime Value is essential.
Bonus: Customer Lifetime Value
Customer Lifetime Value is a valuable KPI for scaling, the higher CLV the better. Over time and by having recurring sales, you can look back and historically see what the average customer is worth in term of their lifetime, from their first purchase to the present. Remember how I said you don’t want to pay $1 in advertising for a one-time sale of a dollar cheeseburger? ( I’m not even hungry, this is just an easy illustration). Well if it’s proven that after that first purchase, customers come back multiple times a week, not only buying cheeseburgers but also fries and milkshakes, then than $1 investment was pretty marginal and you’re making several times that initial cost. So by knowing the CLV, you can know your expected return on investment (ROI) and gauge how much you should spend in customer acquisition.
Again, it doesn’t necessarily matter the amount to acquire a customer, as long as their lifetime value is greater than the spend. You’ll want to keep in mind also how long the customer lifetime is as well, as it will take this amount of time to fully profit from your investment ie. you don’t want to unknowingly spend all your money on attracting customers, have to wait a year to break even, and have no money in the meantime.
Want to bump up your CLV to be larger? Try adding upsells and add-on options to your products – you know, the little things on a checkout page that say “while you’re at it, why not buy X too for a low price”. Even if only a few customers accept, that’s an increase to CLV and it takes no active effort beyond creating the initial offer. Looking at these KPIs is a backdoor to business success.
You might not have the nicest website, you might not even have the largest customer base, but if you have a good monthly recurring revenue, low churn rate, and high customer lifetime value, you’re successful and there’s nothing to stop you from scaling.
Do You Know Your Numbers?
Although these KPIs aren’t hard to calculate, some businesses have trouble digging up these numbers. This may be because they have been in business for so long, with so many people going in and out, that nobody knows what’s-what to even begin to calculate these fundamental metrics. It’s not a good place to be, held back from a better future because of your past. So that’s you, then you should get your ducks in a row so that you can be sure your business is in an upward trajectory.
We all know cleanup takes work, and sometimes it’s easy to have someone sort and organize for you, and that’s why we offer Infusionsoft Cleanup. After working with dozens of clients and being in countless different CRMs, we’ve figured out the best means of organizing and creating precedents to make sure accounts are easy to navigate for years to come. This means there’s nothing to hold you back from your data and making progress. If you’re account is already buttoned up, that’s good news, but if you need a hand taking this step towards better KPIs, check out our Infusionsoft Cleanup.
Working in a business, you know there’s a lot that goes on behind the scenes – does that make it unimportant because it’s not immediately seen? Definitely not. What goes on behind the scenes is more important than anything else, because this indicates the health of a company. So don’t settle for just knowing surface level analytics that don’t tell you the real story; get to the KPIs that matter.