We’re going to talk about some key metrics that are directly tied to your company’s growth. I’ll define each and show you how we calculate them.
Active Customers
Active customers are users that are paying to use your product or service. Where the revenue comes form.
Why is this metric important? Separating the active customers from the rest of users, such as users on free trials or users who cancelled, but used to pay, is important for accurately seeing how the business is growing over time.
Also gives the ability to try to upgrade them to a paying version.
Average Revenue Per User ( ARPU )
Average revenue per user (ARPU) is the average revenue amount you get from each of your active customers over a period of time, mostly monthly.
ARPU = Monthly Revenue / Number of Active Customers
Growth Rate
Growth Rate is a calculated used 2 numbers, one that represents a certain quantity’s starting value and another that represents is ending value.
For example, to calculate the customer growth rate for a month, you take number of customers at the start of the month and the number of customers at the end of the month and use them in the formula below:
GROWTH RATE = ( End of period number - Start of period number ) / Start of period number
For example, you have had 100 clients at the start of the month and 152 at the end, the growth rate would be (152-100)/100 = 0.52
You can also express the growth rate value as a percentage by multiplying it with 100. In the example above, 0.52 x 100 = 52%
Average Order Value
Average Order Value is an e-commerce metric that measures the average sales of every individual sales transaction processed. To give a clearer view of what this metric represents, it calculates the average dollar amount spent on your product or service for every transaction made.
The average order value can be calculated depending on the value of the overall contract or your business model and the length of your average contract (annual value, monthly value, weekly value, daily value).
Average Order Value = Total Value of Orders / Orders over a Defined Period
This metric helps you understand the purchasing behavior of your customers, predict future sales and create a strategy to come up with revenue projections in order to increase in sales revenue.
Average Customer Lifespan
Average customer lifespan of all customers, calculated by adding up all customer lifespans ( the amount of days, years or months they have been customers ) and dividing it by the number of customers.
Average Customer Lifespan = SUM of all customers lifespans / number of active customers
Lifetime Value
Customer lifetime value (LTV) is an estimate of how much revenue you’ll make from the average customer before they churn.
Lifetime Value = Average Revenue Per User * Average Customer Lifespan
Churn
Churn, sometimes known as attrition rate, is the percentage of customers or revenue lost during a given period (usually monthly).
For an example, if a subscription based business losses subscribers that means the churn rate is getting higher.
How to calculate your chrun rate?
Churn Rate = Customers lost in a period / Customers at the beginning of a period
Or, in other words, you can get the number of customers lost in a given period by subtract the number of customers at start from the number of customers at the end:
Churn Rate = ( Customers at the end of a period - Customers at the beginning of a period ) / Customers at the beginning of a period
Customer Acquisition Costs
Customer acquisition costs is a metric that represents the total cost spent on acquiring a new customer. Usually, the total cost includes advertising and marketing spendings, your marketers, sales persons, etc.
Customer acquisition costs are calculated by dividing the total cost spent by number of customers acquired.
Customer Acquisition Costs = Total Cost Spent / # Number of Customers
For example, if a company spents 2000 dollars on advertising and marketing in a year, and it gains 2000 customers as well, then the customer acquision cost would be 1 dollar.
Monthly Recurring Revenue
Monthly Recurring Revenue is the predictable total income your business generates from all the active subscriptions (that includes recurring charges from discounts, recurring add-ons, coupons).
In other words, monthly recurrings revenue refers to the consistent revenue that a business recives every month despite the ups and downs it may occure.
Usually, this is a by-product for businesses that offer subscriptions, a services paid on a monthly basis.
How to calculate Monthly Recurring Revenue?
Monthly Recurring Revenue = Number of subscribers under a monthly plan * Average revenue per subscriber
By using metric you can calculate the present financial state of the business and deduct future earnings based on the active subscriptions.