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Businesses operate with a dozen metrics – CTR, ROI, number of leads, number of subscribers… But the real problems are often hidden in the metrics that most often indicate growth or, on the contrary, possible decline and regression.
To understand how effectively your business is structured, whether you are able to retain customers and their money, and whether the sales funnel you have created is working, it is enough to monitor four key metrics on a regular basis.
Stelvel company recommends doing this regularly, ideally once a week. This practice helps you identify problems at an early stage, allowing you to respond quickly. This is especially important in dropshipping and online trading, where the situation can change on a daily basis.
1. LTV (Lifetime Value): do we know how to retain customers and their money
LTV is the most important metric for any business. It shows how much money the same customer brings in for as long as they shop in your shop.
LTV is the difference between the total amount a customer spends in your shop and the cost to attract that customer (CAC). For example: LTV= $60, a customer ordered 3 items worth $100, the cost to attract that customer was $40.
If a customer only buys from you once and never comes back, you are losing money and starting from scratch all the time, which means you are not growing your business. If LTV is growing, you are not only selling, but also steadily adding to your customer base.
What LTV shows:
- Are there repeat purchases?
- Are customers satisfied?
- Do they come back and recommend the shop?
Stelvel ltd managers recommend what to change if LTV is low: loyalty programme, service quality, repeat sales funnel and e-mail newsletters.
2. Conversion rate (CR): do we know who our customer is
CR is an outcome metric. It is for this reason that it is given special attention. The conversion rate shows how well you understand your target audience and how many of the users who come to your website (shop) take a targeted action, such as placing an order and giving you their money. This metric reflects the effectiveness of your sales funnel.
For example: CR =2% if 2 out of 100 visitors make a purchase from your shop.
What conversion rate shows:
- How accurate is your target audience?
- How clearly and convincingly do you articulate the value proposition?
- Are there technical or logical barriers to purchase?
If the conversion rate is lower than 1-2%, it is worth checking: the target segment (whether the target audience is correctly categorised), the website, the loading speed of the website and the structure of the offer itself and, of course, analyse and review the prices.
3. Average Order Value or Average Check: do we understand how to sell
The metric is directly related to margins, logistics, advertising ROI. AOV shows how much a customer spends on average per order. The higher this indicator, the more revenue you get for the same effort to attract a customer.
For example: the average cheque of an online shop AOV = $35 for each order, if paid $140 for 4 orders.
If the average check is increasing, it means the business is scaling without fuss (upsells, discounts or recommendations work). If the cheque is consistently low, it’s likely that they only buy on promotion or the minimum necessary, the site doesn’t offer anything extra or the assortment doesn’t generate interest.
What shows the average cheque:
- Do you know how to sell longer or more expensive?
- Do you use upsells, cross-sells?
- Does the customer understand what they are paying for?
If the average cheque is low, check if you can combine products (offer bundles and sets), introduce premium items, strengthen the perception of value (show what the customer is paying for).
4. Cost of Attraction (CAC): do we speak the language of the client
The metric shows how much money you spend on attracting one new client. These are costs associated with marketing campaigns, advertising, promotion. It takes into account the costs of: 1) website, 2) contextual advertising, 3) email newsletters, 4) content marketing, 5) SMM, 6) targeting in social networks, 8) influence marketing. To understand which channel is most effective, CAC is calculated separately for each channel.
CAC = Total marketing and sales costs / Number of new customers. For example: CAC = $40 if you need to spend $200 to attract 5 visitors to your shop.
CAC is a kind of performance evaluation: ads, landing pages, creatives, content. A high click price, a lot of ‘abandoned baskets’, poor response – all this may indicate that the advertising is not working and the target audience is not interested in your offer. Stelvel Bulgaria experts point out that if the cost of customer acquisition is stable and lower than the average cheque, then the business is growing without losses.
What CAC (Customer Acquisition Cost) shows:
- How much does it cost to attract one customer?
- Does the advertising pay for itself?
- Does the customer understand what you are selling and offering?
If CAC is higher than LTV – you are at a disadvantage, for example, in dropshipping business and online sales it is critical: no stock, no margin. Perhaps you need to change the offer, choose the audience more precisely, reconsider advertising or find a supplier with better conditions.