Dynamic Business Metrics

© Federico Della Bella 2016
http://www.federicodellabella.com
Dynamic Business Metrics
How-To. Dynamic Business Metrics
Motivation
If traditional business metrics have been used for years by managers,
entrepreneurs, and investors, the emphasis and the systematic adption of
dynamic metrics in managing companies is more recent.
After Prof. Egger, we consider as dynamic those metrics that can vary
significantly over intervals of a less than a month through specific actions.
Traditional metrics usually vary on longer term and depend on multiple
factors.
The growing interest in this type of metrics is due to the dramatic increase of
the capacity to collect, store, and analyze data.

Decision Making in Data Drive Companies
The emphasis on dynamic metrics is also coherent with the analytical
approach of many digital businesses.
Whatever is about manufacturing, marketing activities, management of
resources, behaviors of clients, the ability to collect quantitative data about
fundamental measures and take decisions to improve performances should
urge companies to collect and analyze data in a systematic way.
Data Driven Companies are companies where decision making process is
based primarily on analysis of data.
There are many studies showing that those companies have better
performances than companies whose decision making is based primarily on
intuition (see Data Science for Business, Foster Provost and Tom Fawcett).

Marketing and Communication in the Data Deluge Era
The availability of enormous quantity of information about clients behaviors,
transactions, and reactions to communication and promotional campaigns has
completely changed marketing.
In 2010, Sian Ellis coined “the term ‘growth hacker’ to define a new type for market
leading a new type of growth-oriented marketing organization for startups.”
This approach relies mostly on the exploitation of economies of scale offered by
digital platforms, through the use of analytics and improvement of predictive
capability.
It is also typical of startups to launch A/B versions of products or communication
and measure real-time performances. Dynamic metrics measurements suggest real
time the enforcement of specific actions or correction to quickly improve
performances.

Classification of Dynamic Metrics and Dashboards
Dynamic metrics can be classified according with the areas of intervention.
Each company or venture can define its own dashboards to measure
performances, do A/B tests, verify reactions of clients, opportunity to launch
a product in a specific market, etc.
The main characteristic is that they can be measured real time and offer a
comprehensive vision of companies performances in specific areas and in
correlation with specific parameters.
1. Financial metrics
2. Users metrics
3. Acquisition and Marketing metrics
4. Sales
This list doesn’t have any ambition of being complete. Its scope is to suggest
an approach.

Financial Metrics
How-To. Understand Business Metrics
1. Monthly Revenue Growth
• Most used by founders than by VC
• Size matters (100% of 1 is 2…)
• 40% can be considered good
2. Revenue Run Rate
• Your last month revenues multiplied by 12
• In early stages, VC evaluate 18-24 months
3. Cash Burn Rate
• Monthly negative cash flow
• Cumulative Cash Burn Rate give you the Financial Need
4. Runway
• How long your cash will last
• Your cash divided by Monthly Burn Rate

User Metrics
1. Daily (monthly) Active User
• The most widely used metric
2. K-Value
• Your user base at To + users invited by user base at To within T1
• Measure of Virality
• Borrowed from epidemiology
• E.g.: 1.2 is strong; 1.4 is very strong (usually doesn’t last long)
3. Proportion of Mobile Traffic
• Number of visits from mobile divided by Total visits
• Very important (people spend a lot of time, and money, on mobile)

User Metrics
4. Churn Rate
• The proportion of users leaving the platform
• For a social media: 80% too high, 40% good, 20% phenomenal
5. Cohort Analysis
• How many users who joined in a time frame are engaged in subsequent
weeks
• Measure engagement

Acquisition and Marketing
1. Customer Acquisition Cost (CAC)
• Money spent in promotion divided by the number of acquired customers
• In e-commerce $ 30-60 is great
• Successful online businesses rarely go above $ 120
2. Pay-back period
• In e-commerce number of orders (or time) to cover cost of acquisition
• In freemium or adv-driven model 3-6 months are good; more than 18 months
too much
3. Net Promoter Score
• Ask a sample of clients if they would suggest the product (scale 1-10)
• Score: 1-2 are detractors
• Score 9-10 are promoters
• The difference of the proportion is the Net Promoter Score

4. Magic Number
• Return on Investment in Marketing and Sales
• Divide net growth of revenue in 2 subsequent quarter multiplied by 4 by
marketing expenses in first quarter
• Ex: Q1 = 200K; Q2=400; exp1=300K à Magic Nr = 2.66
• If Magic Nr > 1 you are scaling your marketing
5. Average Size & Order Velocity
• Average price and time to repeat the purchase
• They influence margins and growth
6. Customer Long Term Value
• The discounted vale of revenue streams generated by an acquired
customer

7. CTR
• Click-through-rate
8. CPM
• Cost per thousand impression = cost to reach 1 K impressions
9. CR
• Conversion Rate
CTR =

Users
𝑐𝑙𝑖𝑐𝑘𝑖𝑛𝑔
𝑜 𝑛
𝑎 𝑛
𝐴 𝐷
Users
reached
CTR =

Users
𝑝 𝑒𝑟𝑓𝑜𝑟𝑚𝑖𝑛𝑔
𝑑 𝑒𝑠𝑖𝑟𝑒𝑑
𝑎 𝑐𝑡𝑖𝑜𝑛𝑠
Users
landed
on
your
page

10. Frequently-bought-together
• Frequently–bought-together = a dynamic metrics, widely used by
Amazon, to measure the likelihood of co-occurring sales
11. Latency
• Time delay in a computerized response
12. Page-load-time
• Time required to load a webpage

Dynamic Business Metrics

Recommended

Recommended

More Related Content

What's hot

What's hot (20)

Similar to Dynamic Business Metrics

Similar to Dynamic Business Metrics (20)

Dynamic Business Metrics