Reporting is a crucial tool when running a business, and regardless of how capable you are with numbers, to be truly successful you will need to understand the performance and trends of your business and industry, before you can make any informed decisions.
Below, we look at some of the key metrics you should be tracking, and provide details of why you should be tracking them and how to get the information.
In this article we will be covering:
- Cost Per Acquisition (CAC)
- Conversion Rate
- Customer Satisfaction/Net Promoter score.
Understanding these four metrics will instantly give you a better understanding of how your business is performing and where you can improve it.
Revenue, and even more specifically profit, is the most important metric amongst 99.9% of businesses, as understanding the overall performance of your business provides invaluable insight into whether your business is growing or shrinking.
The key to fully understanding your revenue, however, is to make sure you have accounted for everything. Missing out any irregular costs or payments will instantly skew your results and trick you and any other stakeholders into thinking that your business is performing better or worse than it is.
The key to effective revenue reporting is organised financials. By making sure your information is kept up-to-date in a system such as Sage, Quickbooks or Xero, you will be able to put together instant reports on your business dealings, allowing you to make quicker and more informed decisions on a regular basis.
Cost Per Acquisition (CPA)
Cost Per Acquisition, commonly referred to as CPA, is a key metric for understanding marketing performance. In short, CPA shows you how much each new customer costs you to acquire.
This includes sales, marketing, and cost of fulfillment combined, and then divided by the total number of customers. Businesses want to try and make their CPA as low as possible, as the more customers you can bring it for less money, the higher your profit margins will be.
CPA Ratio is an advanced use of the Cost Per Acquisition metric and Revenue metric combined. Very simply put, it allows you to understand how much each pound you spend on acquisition generates in return. It is widely accepted that the golden ratio is £3:£1, in other words each pound that you spend generates you £3 in return. If your ratio goes any lower than this, profitability is going to become a challenge, and any higher than this and you are probably guilty of under-investing in new customer acquisition.
Conversion Rate is slightly different to the other metrics in this article, because conversion rate can be applied to any platform you sell on. Conversion Rate is calculated by the amount of people who view your offer* vs. the amount of people who view your offer*.
Often showed as a percentage, the types of offers you would want to find out the conversion rate for include (but are not limited to):
- Your business as a whole
- Particular marketplaces/websites
- Individual listings
- Individual products across multiple platforms
- Groups/type of listings
The target conversion rate will vary dependent on the platform, but generally speaking, as high a conversion rate as possible is always a good thing.
The conversion rate is a common metric for understanding the quality of your advertising and products, and by identifying which of your products have a low conversion rate, time and/or resource can be dedicated to increasing this conversion rate.
Alternatively, if a product has a particularly low conversion rate it may be worth stopping selling this product until you can understand why and how to improve it.
*Offer is a marketing term for requesting a viewer to take an action. This can be completing a sale, providing contact details or following you on social media (or many other variations).
Understanding how your customers feel about your service and products is crucial to understanding if you need to fix anything within your business, and where your businesses areas of strength are.
There are a number of ways to understand how happy or unhappy your customers are, and one of the best ways to gauge this is through the use of a post-sales questionnaire. There are a number of services out there that allow you to automate this process including Linnworks partner Xsellco.
Net Promoter Score (NPS)
Net promoter score is a quantitative scoring of your customer’s satisfaction.
This score is often shown as a percentage metric and is a representation of how many of your customers would recommend you to a friend or colleague.
The recommendation is the greatest representation of how happy a customer is with your products or service, and can be calculated by looking at the percentage of your customers who would recommend you.
For example, if you have 100 customers and 80 would be happy to recommend you, your Net Promoter Score would be 80%. For more information on Net Promoter Score, make sure you check out this article.
Are there any metrics which are crucial to your business? Tell us in the comments, we'd love to hear from you!