The main point of using business metrics is to communicate an organization’s progress toward certain long- and short-term objectives.
MRR – Monthly Recurring revenue
It deals with the total revenue the product brings each month.
Formula to measure MRR
MRR = Number of customers x Amount each customer pays each month.
For example, if a company has 100 customers paying $200 per month, their MRR would be $20,000.
CAC- Customer Acquisition Cost
CAC is an important business metrics measures how much an organization spends to acquire new customers.
– Amount the company spends to acquire a new customer.
– Useful for measuring efficiency of marketing and sales activities
– Calculate if amount spent to acquire new customer is worth revenue they bring in
Formula to measure CAC
CAC = total cost ( marketing + sales ) / no of new customers
Example
If John spent $10 to market his product and got 10 people to buy his product in 1 week, his cost of acquisition for that week is $1.00.
Churn Rate
Number of users who stop using products over a specific period of time. It tracks a company’s ability to retain customers.
Formula to measure Churn Rate
(Lost Customers ÷ Total Customers at the Start of Time Period) x 100.
For example, if your website had 500 customers at the beginning of the month and lost 100 customers by the end, you would divide 100 by 500. The answer is 0.02.
Customer lifetime value (CLV or CLTV)
CLV is a metric that represents the total net profit a company can expect to generate from a customer throughout their entire relationship.
Formula to measure CLV
CLV = Average order value x Purchase frequency x Customer lifespan
For example, let’s say a typical customer visits once per month and spends $17 per visit over an average lifetime of 10 years. The customer lifetime value would be calculated as: $17 x 12 x 10 = $2,040.
