I’ve been a part of dozens (maybe hundreds) of product launches And in each of these cases I ask my team to put together a simple dashboard of a small set of metrics for our paid and free products that let me know the success of our efforts. For startup entrepreneurs, you can also track these metrics with Google analytics.
Paid Product Metrics
Customer Acquisition Cost / Cost Per Acquisition
The customer acquisition cost or cost per acquisition is the basic marketing cost to acquire a customer. For example, if it costs $1,000 on Google paid search to get 500 people to visit your site and five of those people purchase an item, your CAC is $200 ($1,000/5). CAC is a derivative of your cost per click (CPC) or the costs to drive a visitor to your app and your conversion rate. In many cases, before the sale is complete, you’ll also measure your cost per lead (CPL) as in-between step in order to collect data about the user to remarket to them.
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Conversion Rate
The conversion rate is measuring the percentage of people that interact with your product that eventually end up buying. The key here is to break down each step of the conversion funnel.
For example:
a) What percent of your site visitors bounce before taking any action?
b) What percent of your app visitors register?
c) What percent of your registered users add an item to cart or sign up for a free trial subscription?
d) What percent of your carts/free trials convert into paid customers?
Lifetime Value
Lifetime value is the sum of all the payments you expect to receive from a customer over their lifetime interaction with your business. LTV is most typically attributed to subscription businesses with predictable recurring revenue. However, LTV is also a function of average order value (AOV), where you have a commerce site that sells items individually; in this case the LTV is the sum of the total expected number of AOVs. Products like Netflix have low monthly cancellations and have a very high LTV with loyal customers that stay active for two years or more.
In a growing tech business, you ideally want to have a ratio of 3:1 or greater of LTV/CAC. In these cases, your marketing efforts are meaningfully multiplied by the margin those customers will provide.
Net Promoter Score
The net promoter score is the most common measurement of the quality of the product experience. By asking this one question of your customers: “How likely is it that you would recommend [Company X] to a friend or colleague?” you derive a net negative or positive score that tells you how pleased people are with your service. Companies like SurveyMonkey have good free tools tomeasure your NPS.
Free Product Metrics
Traffic/Registered Users/Engagement
The basic key performance indicators of any free digital products typically consist of:
- Traffic: The number of unique visitors that use the product in a given period of time.
- Registered users: The number of people that sign up to use the service that can be marketed to on an ongoing basis.
- Engagement: The measurement of how much and often a user engages with a product, typically measured by “time on site/app” and “average visits”.
Viral Co-Efficient
The viral co-efficient is my holy grail metric and the truest measure of how quickly your application will grow. VCE attributes a number (typically a decimal) to a product to determine how many of its users drive additional adoption. A VCE of 0.5 means each user drives the adoption of 0.5 additional users. So your first 100 users, will drive an additional 100 users (the first 100 users drive an additional 50 users > those 50 users in turn drive 25 users > 12 users…). Any VCE of one or higher is incredibly powerful because in theory any set of users you get provides you a never-ending stream of new users. This metric is so critical because it’s the best predictor of growth, social-dating appTinder for example has an off-the-charts VCE.
Cost Per Vistor
Cost per visitor is similar to CPC addressed above. CPV is a simple way to look at the blended cost of driving visitors to your free product (search engine marketing, email, social). In many cases, you won’t have the budget to sustainably drive thousands or millions of visitors to a product that has no direct revenue associated with it. But at first it’s common to pay for some of these users in order to validate the value and viral nature of the product. Making sure you have low cost ways to drive traffic to your free application is critical when you first launch.
Make it a habit to review these metrics on a daily or weekly basis, look at the trends month after month, and you and your business will benefit greatly.
This piece originally appeared in the Wall Street Journal: http://blogs.wsj.com/accelerators/2014/06/04/jason-nazar-marketing-metrics-that-matter-most/