In today’s tech-centric world, ‘digital business’ is a bit redundant, as all companies have some sort of digital presence. For most businesses, metrics have become increasingly important when it comes to determining success. This is especially true for early stage and startup tech companies working hard to balance growth and profitability while navigating the competition.
When it comes to metrics, there are countless things a company can measure, but measuring everything leads to analysis paralysis, where objective-based decisions are clouded by too much information. This includes a glut of metrics across all digital channels, properties and platforms including social, email, search, display, e-commerce portals, smartphones, tablets, etc.
It’s easy to miss the forest for the trees with all this data. Sometimes it’s beneficial to step back and revisit the most topline, fundamental, business-oriented metrics as the true drivers of competitive success. Here are five KPIs any ‘digital’ business (and really all businesses) must track and act on in order to stay ahead.
- Return on Investment (ROI)
Every undertaking where resources are invested should have clear and measurable business impact and be measured in monetary terms. This may seem difficult during the start-up phase since upper funnel marketing objectives need to be achieved (brand awareness, brand recall, favorability, consideration, etc.), all of which are difficult to measure especially given the universally complex customer journey. For a start-up, fewer customers, shorter legacies, and unexplored market segments may allow for easier measurement of business impact than for an established business with minimal customer growth. Another dimension that may not be available to established businesses is the ability to use long periods to measure ROI with high quality results.
For example, in an enterprise-based business like ours, we can trace almost every activity to an eventual new sale, an upsell or a renewal. Intermediary objectives or proxy measures are sales funnel advance and funnel speed. In other words, businesses need to ask if opportunities progress to the next stage and determine how long each stage takes.
Considering ROI from our advertiser customer perspective, ROI for some channels is easier to quantify than others. Fortunately, our channel, digital partner marketing, is one that is easier to measure (research shows that $1 of partner marketing spend drives $14 in revenues for ecommerce businesses). However, partner marketing makes mostly sense for certain verticals and typically larger organizations. We are routinely asked to provide guidance and technology to help customers to track and measure ROI performance across their marketing channels.
- LTV (Ratio of LTV & Acquisition Cost)
It is conventional wisdom that the cost of acquiring new customers is much greater than retaining existing ones (a typical factor is 7). For startups, acquiring customers as fast as possible is standard operating procedure leading to very heavy investments into sales and marketing, especially for digital businesses (i.e. grow fast or lose). It may be painful, but establishing metrics to measure customer lifetime value (LTV) is critical, even if they are predictive.
For clarification, customer lifetime value is “a prediction of the net profit attributed to the entire relationship with a customer.” LTV is important because it allows businesses to focus on and build marketing strategies and sales promotions around customers that generate the highest revenues over time (profitable revenues of course). Therefore, it’s important to study and make decisions based on the value over time (a good rule is about 3 full years), of every customer class acquired across every acquisition channel.
To make matters more difficult, one standard ratio that is being used to evaluate start-ups is LTV divided by CAC (customer acquisition costs). Ratios of three (LTV > 3 * CAC) can be considered the floor, obviously, the higher the better.
- Net Promoter Score (NPS)
Successful businesses understand the power of brand ambassadors – customers that promote or give a positive recommendation about your product/service. Word-of-mouth remains a powerful source of advertising, as people are more likely to trust their personal circle of influence. This is why Net Promoter Score (NPS) is an important metric. NPS is “an easy way to measure loyalty for online applications” and most importantly, “is claimed to be correlated with revenue growth.”
Measuring and understanding your NPS help to estimate organic business growth because a company’s promoters are: “considered likely to exhibit value-creating behaviors, such as buying more, remaining customers for longer, and making more positive referrals to other potential customers.” Customers that buy more over time and per transaction (higher Average Order Value) are obviously more valuable to the business as well as likely to recommend your business to others.
With the customer journey touching so many channels and devices, it’s important to understand and measure attribution across every stage of the sales funnel. Marketing attribution: “provides a level of understanding of what combination of events in what particular order influence individuals to engage in a desired behavior, typically referred to as a conversion.” Reasonable attribution (of course, no start-up can afford to deploy a sophisticated, AI-based multi-touch attribution modeling approach) is important because it allows companies to optimize their marketing activities based on what touch points and channels drive business impact and sales.
In performance marketing, attribution is key to driving sales growth and profitability gains for both advertisers and marketing partners. Today, performance marketing includes a wide range of performance-based commercial models and marketing partners – from media partners, meta-partners and social media portals, affiliates, comparison-shopping engines and aggregators to mobile apps. Value attribution is becoming more widely used, replacing ‘last click wins’, allowing businesses to better understand where to invest marketing budget, and why.
- Time-to-Revenue and Cash
“With growth as the dominant driver of valuation today, accelerating time to revenue has become the new business mantra,” according to Andrew Dalley, Managing Director of MGI Research. Driving faster time-to-revenue is key to growth and therefore a critical metric. This is true whether you’re an established brand selling existing products, but it’s even more critical for early stage technology companies introducing new products to market.
Whether you’re a SaaS company selling a new B2B platform, or a business selling B2C products or services, chances are it’s taken significant time to develop and launch your offering. The key to success is understanding (and reducing to the extent possible) the time it then takes to begin generating significant revenues. The more you accelerate the time-to-revenue cycle, without taking shortcuts on quality, your business will become cash-flow positive faster (which needless to say opens up completely different relationships with customers, shareholders, and surprisingly potential partners).
A version of this post by Erik Mikisch was originally published on the Tech City UK blog.