If you’re reading this, it’s likely that you’ve heard of growth metrics but don’t fully understand what they are. the things they do. Growth measures primarily assist you in assessing the performance of your company. They have a direct bearing on the business’s profitability.

But let’s narrow our focus a bit.

Why Are Growth Metrics Important and What Are They?

Each branch of digital marketing needs KPIs and analytics. Email marketing, as a result, has unique KPIs like open rate and bounce rate. Additionally, SEO has its own measurements, such as organic traffic and domain rating.

When you work with influencers, the effectiveness of your campaigns will be determined by metrics like the number of impressions and engagement rate. Growth marketing follows the same rules.

Now that you know why growth indicators are important, let’s look at each of them individually. These are the most crucial KPIs that startups, SaaS businesses (whether or not they are valuing their SaaS offerings), startup marketing agencies, and growth hacking firms regularly employ.

Activation Rate

The activation rate counts all new users who have taken a predetermined action within a given time frame. It is recognized that the executed action will produce the initial CV (customer value).  The activation rate calculation formula is as follows:

Activation rate = (Users who performed a key action / total number of users) *100

Annual Returning Revenue (AAR)

The return on investments over a year is measured by annual returning revenue.  The formula to determine the annual returning revenue is as follows:

Annual Returning Revenue = [(Total Value of Investment – Initial Value of Investment) / Initial Value of Investment] * 100

Monthly Recurring Revenue (MRR)

The predictable revenue that is anticipated to be collected each month is known as Monthly Recurring Revenue, or MRR.  It provides for reporting the effectiveness of the used resources and is used to forecast future income. You may get an indication of the revenue increases from the Net MRR. The formula to determine monthly recurring revenue is as follows: 

Net monthly recurring revenue = Average revenue per customer * total number of accounts in that particular month

Average Revenue Per User (ARPU)

The ability of a corporation to generate income at the level of its customers can be ascertained by looking at its average revenue per user. Comparing a company’s performance against that of its rivals also helps. The formula to determine average revenue per user is as follows:

Average Revenue Per User = Total Revenue Generated Over a Time Period / Number of Users During the Same Period

Revenue Churn

A metric called revenue churn counts the amount of money a business loses over time. Losses due to competition, downgrades in status, lost contracts, and bankruptcies are the main causes of revenue churn. The formula for calculating revenue churn is as follows: 

Revenue Churn = [(MRR at the beginning of the month – MRR at the end of the month) – MRR during the upgrades in the same month] / MRR at the beginning of the month * 100

Churn Rate 

The metric known as “churn rate” calculates the proportion of subscribers or customers that either canceled or didn’t renew their subscriptions within a predetermined time frame. One of the most important indicators for businesses with repeat consumers is this one. The churn rate calculation formula is as follows: 

Churn Rate = [(total users at the beginning of the period – users at the end of the period) / users at the beginning of the period] *100

Customer Retention Rate (CRR)

The opposite of churn rate is customer retention rate. As a result, it displays the amount of customers who continue to use your service or product over a specific time frame.

The number of new clients acquired over a certain period is subtracted from the total number of clients at the end of the period, and the result is divided by the total number of clients at the beginning of the period.

Customer Acquisition Cost (CAC)

The cost of obtaining a single client over a predetermined period of time is measured as the customer acquisition cost. It combines a number of costs related to turning qualified leads into clients. The formula to determine the cost of acquiring a customer is as follows: 

Customer Acquisition Cost (CAC) = (Total cost incurred on marketing & advertising / total number of customers converted)

Customer Lifetime Value (CLV)

The total revenue an organization anticipates from a single customer over time is measured by customer lifetime value. Businesses utilize the CLV statistic to pinpoint the client groups that are most beneficial to their operations. You need APV (Average Purchase Value), APFR (Average Purchase Frequency Rate), CV (Customer Value), and ACL (Average Customer Lifespan) in order to calculate CLV. The calculations for each of the aforementioned measures are shown below:

  • APV = Total revenue / Number of orders 
  • APFR = Number of purchases / Number of customers
  • ACL = Sum of customer lifespans / Number of customers 
  • Customer Value = Sale price – Cost of goods sold 
  • Here is the formula to calculate the customer lifetime value:
  • CLV = Customer Value * Average Customer Lifespan.
CLV to CAC Ratio

You can determine the effectiveness of your whole business operations with the use of the CLV to CAC ratio. For instance, if your CLV to CAC ratio is 3:1, it means that you will make an additional three dollars for every dollar you spend. Additionally, it aids in the evaluation of the company’s most important clients. As a result, they can be worth more than what was paid to acquire them. The CLV to CAC Ratio calculation formula is as follows: 

CLV to CAC Ratio = Customer Lifetime Value / Customer Acquisition Cost

Lead to Customer Conversion Rate

Sales conversion rates or lead conversion rates are other names for the lead to customer conversion rate. This indicator is essential for assessing how effectively a company’s sales funnel is working. The formula to determine lead to customer conversion rate is as follows:

Lead to customer conversion rate = (Total number of qualified leads that results in sales / total number of leads) * 100

Net Promoter Score (NPS)

An indicator of client loyalty is the Net Promoter Score, or NPS. It is based on surveys in which three main categories—promoters, passives, and detractors—are used to classify the intended audience. The audience is asked questions based on their subjective ratings. For instance, rate your likelihood of recommending a service to others on a scale of 1 to 10. The formula for determining Net Promoter Score is as follows:

Net Promoter Score = Percentage of Promoters – Percentage of Detractors

Conclusion

Growth metrics must be considered when evaluating the effectiveness of your internet marketing campaigns or a certain stage in your funnel. All startups and SaaS businesses should focus on expansion after gaining initial success. Examine those growth measures, then select the ones that apply to your company the most.