Key strategic growth metrics and how to calculate them

September 6, 2023
Sarah Stockdale

1. Customer Churn Rate: Think of this as the percentage of your customers who decide to break up with your business over a certain period. If this number starts climbing, it's like a red flag in a relationship. It tells you that you may not have product market fit, or that you’re growth channels are bringing in the wrong customers.

Formula: (Number of Customers at Start of Period - Number of Customers at End of Period) / Number of Customers at Start of Period * 100

2. Revenue Churn Rate: This is similar to the Customer Churn Rate, but instead of losing customers, you're losing revenue. It's like taking a pay cut. This could happen if your customers switch to a cheaper plan, stop buying your product or service, reduce their average order value, or stop adding on additional services.

Formula: (Revenue at Start of Period - Revenue at End of Period) / Revenue at Start of Period * 100

3. Renewal Rate: If your business has subscriptions, this tells you how many customers decided to renew. A low rate might mean your customers are not seeing the value in sticking around.

Formula: (Number of Customers Who Renewed / Total Number of Customers Up for Renewal) * 100

4. Customer Retention Rate: This lets you know the percentage of customers you managed to keep over a certain period. It's a good way to measure if your customer loyalty strategies are working.

Formula: (Number of Customers at End of Period - Number of New Customers During Period) / Number of Customers at Start of Period * 100

5. Customer Lifetime Value (CLTV): Imagine being able to predict how much value (money) a customer will bring to your business over time. That's what this does. The higher the number, the better!

Formula: Average Purchase Value * Average Number of Purchases * Average Customer Lifespan

6. Average Revenue Per User (ARPU): This is just a fancy way of saying "how much money, on average, each user or customer brings in". This is super handy for figuring out which types of customers are most valuable to your business.

Formula: Total Revenue / Number of Users

7. Net Promoter Score (NPS): This is basically a popularity contest. It measures how many of your customers like your product or service enough to recommend it to their friends.

Formula: (Percentage of Promoters - Percentage of Detractors) * 100

8. Cost of Goods Sold (COGS): This number shows you how much it costs you to make your product or deliver your service. If this is high, your profit margin might be lower than you'd like.

Formula: Beginning Inventory + Purchases During the Period - Ending Inventory

9. Gross Margin: This tells you how much money you have left after paying to produce your goods or services. It's like your business's take-home pay. You want this number to be as high as possible!

Formula: (Total Revenue - COGS) / Total Revenue * 100

10. Operating Margin: This is a bit like your business's report card. It shows you how well you're doing at turning sales into profit.

 Formula: Operating Income / Revenue * 100

11. Return on Investment (ROI): This tells you how much bang you're getting for your buck. It's a way to see how effectively your business uses its money to generate profit.

Formula: (Net Profit / Cost of Investment) * 100

12. Customer Acquisition Cost (CAC): This shows how much it costs you to win over a new customer, including all your marketing and sales costs. If this number is high, you might need to rethink your marketing strategies.

Formula: Total Cost Spent on Acquisition / Number of Customers Acquired

13. Customer Profitability Score (CPS): This is a great way to figure out which customers are putting the most money in your pocket. 

Formula: Net Profit from a Customer / Total Net Profit * 100

14. Conversion Rate: If your business has a website, this tells you what percentage of visitors are doing what you want them to do, like buying a product or signing up for a newsletter. 

Formula: (Number of Conversions / Number of Total Visitors) * 100

15. Earnings Before Interest and Taxes (EBIT): This number gives you a glimpse of how much money your business is making before paying interest and taxes. It's a nice way to check the pulse of your business's profitability.

Formula: Revenue - Operating Expenses (Not including interest and taxes)

Look, understanding these metrics is not just about collecting numbers. It's about turning data into actionable strategies to help grow your business. And when we talk about success, I mean customer retention — the glue that binds your customers to your brand. A smart retention strategy is informed by these metrics, with their unfiltered, raw insights into what's working and what's not. Remember, it's always cheaper to keep an existing customer than to acquire a new one. So, buckle up, dive into these numbers, and arm yourself with knowledge. Each metric is a key that can unlock new understandings of your customers and sustained growth for your business. 

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