Key Performance Indicators (KPIs) are data points that measure your company’s performance. They help you answer specific business questions such as:
- Is the business financially viable?
- What is working well and what needs to be improved?
- What is driving customers to purchase your products?
- How can the company improve its profitability?
Let’s look at 10 KPIs that are useful to track for ecommerce, marketplace and SaaS based businesses.
Monthly Active Users (MAU): This demonstrates how many users visit your platform, website or service every month and are “active”. That could mean they engage with the blog, click on the pricing page or interact with the contact form. This is done by the number of users that visit your platform in a certain time period (albeit monthly in this case). For an ecommerce company like Drover, a peer to peer marketplace for leasing cars to drivers, seeing the MAU increasing means it is attracting new users to the platform.
Conversion Rate (CR): According to BigCommerce, even if you are doing everything right – you’d only expect to make a sale only 2% of the time. Clearly there are ecommerce companies that exceed that, however. Conversion rate can be calculated easily, as per the below:
Conversion Rate: # of sales / # of visitors
Provider to Consumer Ratio: This is important when tracking the growth of a marketplace business. This is defined as the number of customers a single provider on the supply side of the marketplace can serve. This varies radically across different marketplace businesses, according to Phil hu: AirBnB 70:1, Uber 50:1 and eBay 5:1.
Average Order Value (AoV): AoV is crucial to determine how much revenue you can generate over time. This describes the average size of an order on your platform. Naturally, the higher the average order size the better.
Customer Acquisition Cost (CAC): This is a single most important metric that runs across most business models. The amount it costs to acquire a new customer. Ideally, your CAC should be zero – that is every new customer is referred by another potential customer or customer base grows organically. However, that is rarely possible. To bring new customers onto the platform, you’ll have to spend some money. It is really important to track this over time, and see by how much you’re able to decrease it.
Customer Lifetime Value (CLV): This represents the total amount of revenue that you expect to get from each customer. To calculate the CLV, it depends on how long the customer is retained on the platform, how many repeat purchases does the customer make and what is the average order size. To get a general idea, CLV can be calculated based on the average order value multiplied by the average number of repeat purchases per customer.
Churn Rate: This metric measures the number of customers your platform loses over a given period of time (daily/monthly/annually). Churn rate is critical for SaaS based businesses, where customers pay subscription recurring payments. If the churn rate is high, clearly it means the customer base is unhappy.
Monthly Revenue Rate (MRR): MRR describes the predictable revenue stream of your platform. To calculate MRR, you need to understand the total number of customers per month, and know how much revenue does each customer creates, as per the below:
MRR = Amount of revenue per customer * Total # of customers
Contribution Margin (CM): Contribution margin is the margin that is left after you deduct all variable costs of producing the product or service from the total revenues. A common mistake entrepreneurs make is lumping fixed costs of building a product or service and variable costs together and deduct that from the revenue to understand profit. However, fixed costs remain permanent in the business, no matter how many products or service you produce, it is the variable costs (such marketing spend) that you can change in your business. Some of the most common ways to use the CM is to understand which products or services to continue building and which ones to kill or how to price the products or services.
Net Promoter Score (NPS): This is a great metric to understand if customers are likely to refer you to other users such that your platform can grow organically. To calculate NPS you must ask a specific question:
How likely is it that you would recommend [brand] to a friend of colleague?
And ask the user to answer with a number between 0-10. You can read more information about tracking NPS in this guide here.
Customers that give you a 6 or below are Detractors, a score of 7 or 8 are called Passives, and a 9 or 10 are Promoters.
To calculate your Net Promoter Score, detract the percentage of Detractors from the percentage of Promoters. It is that simple. So, if 50% of respondents were Promoters and 10% were Detractors, your Net Promoter is a score of 40.
About the Author
This article was written by Akriti Dokania of the Path Forward. The Path Forward was developed by Forward Partners, a VC platform that invests in the best ideas and brilliant people. Forward Partners devised The Path Forward to help their founders validate their ideas, build a product, achieve traction, hire a team and raise follow on funding all in the space of 12 months. The Path Forward is a fantastic startup framework for you to utilise as an early stage founder or operator. The framework clearly defines startup creation as being comprised of three steps. The first step of this framework involves understanding customer’s needs.