5 metrics that successful companies use
In the business world, there is no room for improvisation. Any business, regardless of size or industry, must operate with a solid strategy backed by concrete data and metrics.
This is where metrics come into play, those figures that allow us to measure progress, make informed decisions and stay on the right path to success.
Metric 1: CAC and LTV - The Heart of Business Finance
The CAC represents how much it costs you to acquire a customer, including marketing and sales expenses. On the other hand, LTV refers to the value that a customer brings throughout their life with you.
The formula is simple: if a customer costs you $30 in CAC and then generates $100 in LTV, you have a healthy profit margin. However, to ensure your business is sustainable, it is essential that the LTV is significantly higher than the CAC.
This ensures that you not only recover your initial investment in customer acquisition, but also generate long-term profits.
It is important to note that these metrics cannot be known immediately. You should track over time to determine how long a customer stays with you and how much they spend during that period.
This information is invaluable for making decisions about customer acquisition and retention strategies.
Metric 2: Churn Rate – Customer Exit
No business is exempt from losing customers at some point. The question is how many leave and why. The churn rate allows you to evaluate the health of your customer base and understand how many customers you are losing over time.
The churn rate is calculated by dividing the number of customers who left during a given period by the total number of customers at the beginning of the period. For example, if you had 1,000 customers at the beginning of the month and you lost 50 during that month, your churn rate would be 5%.
Knowing why customers leave is just as important as knowing the rate itself. There may be several reasons, some of which will be out of your control, but others may be the result of problems with your product or service.
Use this metric to identify areas for improvement and retain your existing customers.
Metric 3: Recurring Revenue
If your business operates on a subscription or ongoing service model, recurring revenue is a critical metric.
This figure represents the amount of money that enters your business in a predictable and constant manner, either monthly or annually. Knowing how much you can expect to earn month to month is essential for financial planning and sustainable growth.
To calculate your recurring revenue, simply add up all the revenue generated by customers who subscribe to your service or product on an ongoing basis. This metric gives you a clear view of the financial stability of your business and helps you identify growth opportunities.
Metric 4: Objectives and Key Results (OKRs)
If you're looking for a more formal way to measure your company's progress, consider implementing Objectives and Key Results (OKRs).
This methodology, widely adopted in Silicon Valley, allows you to establish clear and measurable objectives at all levels of your organization, from the individual level to the enterprise level.
OKRs are based on the idea that you should not aim for 100% compliance, but 70%. If you reach 100%, it means that your goals were not ambitious enough.
On the other hand, if you are consistently below 70%, you are aiming too high. This flexibility allows you to adjust your goals and maintain a balance between ambition and ability to execute.
Metric 5: North Star Metric
Finally, the North Star Metric is a single metric that can direct all of your product and growth efforts.
Imagine that your business has a market and a product. When you tailor your product to your market's needs effectively, it creates a magical moment when your market gets a clear and valuable benefit.
The North Star Metric is the metric that reflects this magical moment. It is the metric that you can directly influence and that is closely related to the overall success of your business. Identifying your North Star Metric allows you to focus your efforts in the right direction and measure the real impact of your actions.
Metrics are the cornerstone of any successful business strategy. Proper tracking and interpretation of these numbers is critical for informed decision making and sustainable growth.
From CAC and LTV to churn and OKRs, these metrics offer valuable guidance for any business.
No matter what stage you are at as an entrepreneur, these metrics are essential to evaluate and improve your performance.
So, remember, don't stop measuring and adjusting, because only through understanding your metrics will you be able to take your business from where it is to where you want it to be.
Written by Moises Hamui Abadi : I am an entrepreneur, founding partner of Viceversa and SoyMacho. After leading several digital businesses and advising several other businesses; I decided to form MHA Consulting, a digital marketing consultancy dedicated to growing and enhancing digital businesses in more than 7 countries and generating more than 1,500 million pesos.
If you want more information on this topic or are looking for other options to profile your ideal client, at MHA you will find the solution you need. Schedule a call.