Countless business consultants and software promise to help you calculate key performance indicators (KPIs) using charts, spreadsheets, and dashboards. It may seem like there’s no such thing as too much information, but analysis paralysis is a real phenomenon. When there are too many factors to consider, many people avoid making decisions altogether.
But that’s not to say you should be flying blind. Your business needs to collect data and track essential numbers. The only problem is determining what information is helpful and what will only cloud the picture. Every industry is different, so some key performance indicators may not apply to all businesses. But we’ve found the following 3 numbers hold a lot of value for entrepreneurs.
Churn refers to your attrition rate or the number of customers you lose each month. Finding new customers is hard, so you want to hold onto the ones you already have. That requires using retention strategies to keep customers happy and coming back.
When you start calculating churn, you’ll likely realize that you’re not doing enough to keep the customers you already have. (If you don’t find that and you’re not actively taking any steps to reduce churn, recheck your numbers — they’re probably wrong.) But you’ll also eventually start finding patterns. If your churn changes significantly from one month to the next, that tells you something. And if customers tend to drop off at a specific time of the year, that teaches you something else. This information will help you assess the overall health of your business and determine where and when you need to course-correct.
Customer Acquisition Cost
Hooray — you got a new customer! Your hard work has paid off. But what did it cost? It is key information, and it’s what customer acquisition cost (CAC) tells you.
You need to spend money to make money, and your marketing budget is an essential business component. But the more it costs to acquire a customer, the less profit you make. You want to keep the number as low as possible while still nurturing your leads to their full potential.
A good or bad CAC can vary wildly by industry, but you can’t determine whether yours is on the right track until you know what it is. Divide your marketing budget by the number of new customers to discover how much each one costs. On one hand, if the number is too high for your customers’ typical lifetime value, it may be time to reevaluate your approach. On the other hand, a small number may indicate you’re not investing enough — especially if you’re unhappy with your new customer rate.
Funnel Drop-Off Rate
No one closes the sale all the time. (If you do, we’d love to chat!) That’s just part of life. But to convert as many leads to sales as possible, you need to understand where your prospective customers are disappearing. The funnel drop-off rate helps you see how often people visit your website without making a purchase and when they decide not to buy.
Knowing your drop-off rate will help you better understand your customers’ behavior and where your website or processes might be dropping the ball. You can even determine it with a simple tool like Google Analytics. Don’t be too discouraged when you first see the number — most people who visit your website won’t buy, and drop-off rates are generally over 95%. But once you see where people are abandoning your company, you can determine what to do better.
Are the last pages customers tend to visit user-friendly? Are they loading correctly? Do they give too little information or overwhelm your customer with unnecessary details? Fixing these problems can lead to more business.
Whether you track your key performance indicators weekly or monthly is up to you, but any less than once a month won’t give you the information you need to adjust your strategy before your business goes fully off the rails. Set aside time to review your data, and don’t put the task off for later. If you want a successful business, key performance indicators need to be a priority. Just remember that numbers don’t necessarily tell the whole story. You should always consider your data in the context of your business. It may look great that you have a low churn rate, but it’s not very impressive if you only have 30 customers. Key performance indicators will help you understand whether your business is on track, but your business strategy remains up to you to decide.