When you run a business, you live and die by your metrics, and that's a year-round journey. But as you approach the end of the year, it's the perfect time to take a deep-dive into your key metrics, figure out how you can optimize, and set your goals for the year ahead.
As a venture investor at Inspired Capital, when I look at a company I want to hear a founder's full vision. I want to understand why they're the right person to be building this business, take a deep dive into the market opportunity, and get in the weeds on their product, tech, and go-to-market approach.
Metrics are an important part of that story. At a glance, they can be powerful indicators of everything from product-market fit to the path to profitability.
As the calendar year comes to a close, here are a few key metrics to consider:
1. Customer Acquisition Cost (CAC)
A thriving business needs ongoing access to new customers. Your CAC measures how much it costs for you to acquire a new user. There are a few ways to think about what you include here. Some companies might produce a blended CAC (which includes everything that goes into acquiring a customer, like paid and organic marketing, agency fees, referral fees, etc.). Or if paid acquisition is core to your strategy, you might look at a paid CAC, which essentially shows how much it costs to buy a new user on channels like Facebook or Instagram.
Whatever number you use will depend on your business and how you're marketing to future users. Across the board though, it's important to consider two big questions going into your 2020 strategy: First, is my CAC sustainable? If we put more money toward our existing marketing channels, will the costs be stable?
And second, how can we lower our CAC over the next year? For this question, dig into the data to understand what channels work best for you. Maybe it's a killer referral program that is driving word of mouth growth or maybe your latest podcast ads are working wonders. Knowing what's going well will help you understand where to lean in and how to best allocate your resources.
2. Conversion Rate
When you get a customer's attention, how well are you converting them to the next step in your process? Converting a user further down into your funnel is critical across all types of businesses and product offerings.
Maybe you're trying to get users to download your app, and they're getting stuck on the second question in the sign-up flow. Or maybe your sales team is pitching your B2B platform to future customers and not getting the customer to agree to a demo. Whatever your sticking points are, you should know these conversion numbers cold.
More importantly, know that you always have an opportunity to make improvements here. Even if you think your conversion rate is phenomenal, you can always make it ever so slightly better. Before you head into the next year, come up with at least three new things you can test to improve.
Using the above examples, try changing up the sign-up flow questions. Use a platform like UserTesting to understand exactly where people are getting stuck and to watch customers engage with your new version. On the sales pitch front, listen to calls and review pitch decks from the salespeople that have been most successful. I used to listen in on sales calls at LearnVest and always learned so much. When you zero in on what they're doing well, incorporate those learnings into materials the whole team can use moving forward.
3. Retention Rate
You're spending time and energy acquiring customers, but are they sticking around? So often we only focus on the front door of a business, but you can also learn a lot about engagement and stickiness by looking at retention. The concept of retention applies to all types of businesses: if you have a SaaS company, you'll look at subscription renewals. If you're selling a D2C product, you can dig into repeat customers.
Why is it important to expend energy here? CAC costs are typically high. You're not going to keep everyone around, but you do need to make sure you're engaging customers as long as possible to achieve the highest possible lifetime value (LTV) of a customer.
When you look at your retention metrics, typically captured in "churn rate," this is a great opportunity to gather qualitative data, too. For example, at LearnVest, we always took customer feedback incredibly seriously. We had a full UX team who would interview customers and run surveys to understand exactly why customers were willing to pay our subscription fee.
This is critical as your product evolves. You need to validate that your new products and features are resonating. Even though a lot of the companies we look at at Inspired Capital are early-stage, we like to see that early churn rates are low, founders are collecting insights from customers on what's working, and they are doing deep cohort analyses to get the best lens on the data.
No matter how far along your company is -- from a just-launched startup to a Fortune 500 company -- these core metrics will always be important. Trust me, I've worked on both ends of the spectrum.
As a CEO, you want to be obsessive about every single data point that comes out of your business, but we can't do it all, all the time. So take this end of year period to focus on these three things. Make sure you understand them, have the right measurement systems in place, triple-check your data is reliable, and enter the new year with creative ideas to find wins all around.