Basic KPIs for your business health(2)
Miguel Nicolás
12/03/2020
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We continue to analyze the key performance indicators that guarantee the health of your business. Here we go with the essential KPIs of the good entrepreneur.
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In the first part of this series we already analyzed in detail what we understand by KPIs or key indicators. In this second post, we are going to focus on some especially related to the client, which, in reality, are the ones that work as a more accurate x-ray to know the state of our business well.They are, in general, quite simple to calculate, but no less representative for that reason.Each of these indicators fulfills the function of showing an individual (although not independent) vision of what is happening with a particular aspect. All of them help to manage our company more efficiently and to know where to focus on enhancing our capacity for growth.
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KPIs related to customer
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Customers represent the measure of success in a business, so it is convenient to take them as a reference.Let´s see the list of indicators and the correct way to calculate them. Prepare your favorite analytics tool and start extracting the data you need to know.
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#1 – AOV (Average Order Value)
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This KPI does not exactly refer to the client as such, but it is necessary to calculate others that do.In addition to this, it should be kept in mind that many marketing strategies are aimed at making the customer spend more money on each purchase. We can play with shipping costs, use bundle products and packs to promote cross-selling, upselling ... By raising the average price of orders we improve the overall performance of the business.
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AOV is calculated by dividing the total revenue by the number of orders. If € 5,000 have been obtained in a month from a total of 150 operations, the AOV for that period is 33.33. You know, then raise it a little more if possible!
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#2 – CLV or Customer Lifetime Value
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Acquiring a client has a cost, that is so. Therefore, it is crucial when making our forecasts to know how much this acquisition will report generate on average.We need to control this aspect as part of the viability strategy, but by acting on it we will be improving profitability in the long term.We can also obtain more than one CLV depending on different types of clients. This enriches the strategy and allows us to act independently for various customer segmentations.
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To calculate the CLV we only have to multiply the value of the average purchase per customer by the purchase frequency and this, in turn, by the average duration of the commercial relationship.Let's see an example: if your customers place orders with an average value of € 30 each month and continue to do so for one year (12 months), the cost of that CLV is € 360. This is the data that you must manage to know the profitability in the medium and long term.
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The truth is that the name is already a definition in itself. This ratio refers to the number of customers that have ceased to be in a given period. It is a metric that primarily evaluates how things are being done.Churn rate is also used extensively in email marketing, social media marketing and other strategies that use records in databases that we can unsubscribe from.Generally, a high cancelation rate often reveals that there is a problem behind it: something is not being done correctly and customers are reacting to it. If we do not have effective control of the Churn Rate, we cannot take any action to stop it.
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To perform its calculation, we must divide the number of users who have unsubscribed by the total of those we have at the beginning of that period and, when expressed as a percentage, multiply the result by 100.If it turns out that we had 5,000 clients in the month of March and we lost 100 at the end of the month, our Churn Rate is 2%.
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Adding these three KPIs to those we published in the previous post, we can say that with this you have a reasonably complete view of how things are going in your company. You can use a small dashboard to check data in an agile and fast way. There are more KPIs, but with these you can get a feel for your business well.
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What are the essential KPIs for you? What indicators do you use in your day to day to know the health status of the company? Are they the same we proposed? Tell us about it!
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Images | Unsplash.