Even if you are not thinking about hunting for investors, KPIs are fundamental to establishing clear and feasible business objectives that can inform strategic actions. In line with this, apart from the internal control and tracking allowed by KPIs, these indicators serve to demonstrate the validation, growth and success of a product to potential investors.
8 Indicators which are Allies to your Business
Customer Acquisition Rate
The number of new service users or product buyers acquired during a period. This indicator is usually measured monthly. The information is collected from billing and/or accounting platforms.
This is one of the most important indicators when it comes to forecasting a business’s continuity and identifying the reasons why customers choose to leave. The result of this KPI offers information that can be used to optimize the product and avoid further losses. The churn rate is obtained from accounting information or from the CRM used by the company and it is calculated by dividing the number of customers lost during a period by the number of total clients at the beginning of said period. The result is multiplied by 100 and this gives the churn rate.
Customer Acquisition Cost
It reflects how much it costs a company to acquire a new customer. It is measured for longer cycles, generally, six months. It is obtained by dividing marketing expenses by the number of total new customers gained from that investment. Therefore, the Customer Acquisition Cost or CAC is effective to assess how much you can spend to attract customers, calculate returns on investment (ROI) and demonstrate that your business model is viable.
Monthly Recurring Revenue
Monthly Recurring Revenue or MRR is used by SaaS companies. It is calculated by adding up the value of all your customers with an active subscription (regardless of the price plan and subtracting discounts). In this way, it becomes easy to follow trends and get a much-need picture of how your business is growing (or not). This indicator is better used together with another one: the Annual Recurring Revenue or ARR, which is the annual measurement and represents the revenue in one calendar year.
Average Revenue per User
It measures the average revenue from a service’s or product’s user. The reference period is usually one month. A good practice is to measure this indicator by separating new and existing customers, so as to get a picture of how they are evolving or of whether new and existing customers behave differently. This indicator helps to identify which areas generate the most added value for customers and which services are in a bigger demand.
These are the expenses an organization incurs through its normal operations. They include salaries & wages, rent & leases, advertising, legal and professional fees, etc. Accountants become “strategic partners” when it comes to this indicator, and they help entrepreneurs define a suitable cost structure that will allow them to meet their obligations and, at the same time, grow.
Customer Lifetime Value
Customer Lifetime Value or CLV is a very important piece of data for investors. It consists in the average amount of revenue that each customer will generate for your business. It is not about associating a user’s value with the monthly value of the plan they’ve bought. It is also incorrect to compare the ROI of your marketing efforts against a customers first purchase. Therefore, what must be done is consider the average revenue associated with a user during their lifetime. This is calculated as follows: 1/cancellation rate x average revenue per user.
Brand reach is the estimated size of the audience reached by your brand through marketing campaigns, the press, social media presence, etc. This metric usually consists in the monthly number of people who have visited your website (monthly single visitors), seen your Google or Facebook Adds, opened your e-mails, etc.