Creating a successful product is not possible without measuring how your product really performs with metrics. But which metrics should you consider? Let me show you, how you can define metrics for your business.
Define your customer journey
Before getting into detail, you need to keep the big picture in mind and understand your customer journey. The Pirate Metrics (AARRR) help you to look through your customer journey and check in which phase a problem occurs. AARRR stands for Acquisition, Activation, Retention, Referral and Revenue.
Acquisition
How do people find your business and how many people find you? For example if you are an e-commerce shop and have some Ads people could find you via Google Shopping. If you see that not enough people are finding you and your KPIs in this category are too low, you need to improve here.
Activation
When people check your product, how many of them are activated? For e-commerce it usually means, how many people are converted into customers. Let’s think about 100 people are going to your page and 10 people are buying — Then 10% of the acquired people turn into customers! BTW: This is a great Conversion Rate, for e-commerce it’s usually not higher than 5%. If your KPIs are too low in this category, you probably need to simplify the product in order to make purchasing easier.
Retention
Retention tells you how many customers are coming back. You can acquire new people all the time, but at some point you need to bring people back as the amount of people who are interested in your product is limited. Besides, it is quite expensive to acquire new customers all the time. If customers are loyal and purchase your product regularly, it also saves you acquisition costs. In case your KPIs in this area don’t perform well, you need to work on the customer needs and how to meet them better.
Referral
Do people recommend your product? If people really like your product, they will tell others. It’s like a free acquisition channel. You can measure satisfaction with a Net Promoter Score (NPS) asking if people would recommend your product to your friend. If your KPIs in this category are too low, you need to work on the satisfaction and understand in which services you might be not good enough yet.
Revenue
It all comes down to revenue. This tells you how much money you are actually making. It does not matter if your conversion rate is high, if a lot of people find you or if your average order value is high. It is the combination of all these things to reach the revenue you want. And even if your revenue looks nice, are you also profitable or throwing all your money out to acquire customers? In case your revenue KPIs are not performing well, check which steps could be improved. If you struggle to understand why some metrics are too low, you better interview your customers to understand the root cause of the problem.
Example questions for e-commerce:
- Are enough people finding your page?
- How high is your average order value?
- What’s your repurchase rate?
- How high is the repurchase frequency?
- Do loyal customers have higher carts than non-loyal?
Let’s crunch the numbers a little bit:
Scenario 1: 100 people are coming to your page, 10 of them buy something. On average they purchase for 10 €. (Conversion rate of 10%)
Scenario 2: 100 people are coming to your page, 5 of them buy something. In average they purchase for 50 €. (Conversion rate of 5%)
In which scenario do you earn more money?
Scenario 1: 10 x 10 = 100 €
Scenario 2: 5 x 50 = 250 €
So even if your conversion rate is higher in Scenario 1, you are actually making more money with Scenario 2. Put your metrics in perspective and don’t isolate one metric, even if it looks nice.
Which metrics do you measure? Are you putting your metrics into perspective?
No Comments