Metrics that matter
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This document discusses various metrics that are important for startups and growth companies to track, including actionable metrics, customer acquisition cost (CAC), lifetime value (LTV), and cohort analysis. It defines each metric and provides examples. For CAC, it explains how to calculate it and considerations when doing so. It also provides guidelines for evaluating CAC and LTV ratios that indicate a stable business. For cohort analysis, it describes how to analyze user behavior and engagement over time by grouping users into cohorts based on acquisition date.
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Metrics that matter
- 2. Filippo Scorza #Start-ups #Growth Hacking #Innovation Manager @Tag #Digital Volunteer in Africa
- 6. filipposcorza.com Actionable Metrics An actionable metric is one that ties specific and repeatable actions to observed results: conversion, registration, share, check out…
- 8. filipposcorza.com CAC CAC can be calculated by simply dividing all the costs spent on acquiring more customers (marketing expenses) by the number of customers acquired in the period the money was spent.
- 9. filipposcorza.com CAC example Marketing investment: 100$ Customers acquired: 100 Customers CAC: 1 $/customer
- 10. filipposcorza.com CAC common mistakes • Consider the cost per lead and not cost per acquisition • Failing to include all the costs incurred in user acquisition such as referral fees, credits, or discounts
- 11. filipposcorza.com CAC valuation • Great Business = CAC Payback < 6 months • Nice Business = CAC Payback equal to 1 year • Low Business = CAC Payback > 1 Year • Unstable business = CAC Payback never reached
- 13. filipposcorza.com LTV LTV is a prediction of the net profit attributed to the entire future relationship with a customer. (Avg Monthly Revenue per Customer * Contribution Margin per Customer) ÷ Monthly Churn Rate
- 14. filipposcorza.com LTV example Monthly Customer Revenue: 100$ Customer Gross Margin: 25% margin Customer Churn Rate: 5% LTV: 500$
- 15. filipposcorza.com CAC vs LTV • Instable businesses: CAC > LTV • Nice Business: LTV / CAC > 3x • Good Business: LTV/CAC >5x • Great Business: LTV/CAC >7x
- 17. filipposcorza.com Cohort Analysis Is a subset of behavioral analytics that takes the data from a given data set (e.g. an e-commerce platform, web application, or online game) and rather than looking at all users as one unit, it breaks them into related groups for analysis.
- 18. filipposcorza.com Cohort Analysis A good cohort analysis helps reveal how users engage with the product over time
- 19. filipposcorza.com Cohort Analysis Investors especially appreciate this because it gives a clear picture of the evolution of engagement, repetition, product, business
- 20. filipposcorza.com Cohort Analysis • Pick the right set of metrics rather than a vanity metric (like app downloads) • Pick the right period for a cohort — this will be typically be a day, a week, or a month depending on the business (shorter time periods typically make sense for younger businesses, and longer ones for more mature businesses) • Period 1 (day, week, or month) — 100% of install base takes some action that is a leading indicator for revenue, such as buying a product, listing a product, sharing a photo, etc. • Period 2 — calculate the % of install base that is still engaging in that action a week or month later • Repeat the analysis for every subsequent cohort to see how behavior has evolved over the lifetime of each cohort
- 21. filipposcorza.com What if we don’t have enough data?
- 22. filipposcorza.com Assumptions If you are developing a new product or service you should start with what you have: research, interviews, competitive analysis and assumptions.