What are Growth Metrics? (23+ Metrics explained with formulas & examples 🚀)

Growth Metrics are plenty and it can get a bit confusing. So we’ve created a list of the top 23 growth metrics under acquisition, engagement, retention, revenue & customer satisfaction. Enjoy!

What are Growth Metrics? (23+ Metrics explained with formulas & examples 🚀)
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There are easily hundreds of Growth metrics you can measure for your product.
But it doesn’t make sense to measure all the metrics for your product at any given time.
The idea about good measurement is adding context and prioritizing the best metrics that show progress toward your business goals.
So we’ve put together a list of the most important growth metrics that every growth operator should measure 💪🏼 This includes four sections including customer acquisition, user engagement, revenue & customer satisfaction.
Enjoy 🚀

TL;DR

  1. Customer Acquisition Metrics 💰
    1. Customer acquisition cost (CAC)
    2. Conversion rate
    3. Cost Per Lead (CPL)
    4. Time to convert
    5. Customer Lifetime Value (CLTV)
  1. User Engagement Metrics 🌪️
    1. DAU
    2. WAU
    3. MAU
    4. Stickiness
    5. Activation Rate
    6. Session Length
    7. Feature usage
    8. Retention Rate
    9. User Engagement Score
  1. Revenue Metrics 🤑
    1. Revenue Growth Rate
    2. Gross Revenue
    3. Net Revenue
    4. Average Revenue Per User (ARPU)
    5. Monthly Recurring Revenue (MRR)
    6. Annual Recurring Revenue (ARR)
  1. Customer Satisfaction Metrics
    1. Net Promoter Score (NPS)
    2. Customer Satisfaction Score (CSAT)
    3. Customer Effort Score (CES)
 
🚀
Btw, we also break down detailed business models and create growth strategies for some of the most famous internet startups in India. Our favourite ones include the Zepto Business Model & Meesho Business Model breakdowns. We also create loaded templates 💪🏼 to make your life as a growth operator easier.

Customer Acquisition Metrics 🧲

Customer acquisition metrics are used to track and measure the effectiveness of your marketing and sales efforts to acquire new customers. Knowing this is critical to choosing the right strategies and doubling down on the best acquisition channels

1. Customer acquisition cost (CAC) 🫂

The total cost of acquiring a new customer, including all marketing and sales expenses. This is the simplest version of understanding how different campaigns & channels are helping you in acquiring customers.

Why is CAC an important growth metric?

Why
Explanation
Takeaway
Helps evaluate marketing and sales effectiveness on an org level 🤔
By calculating CAC, you can determine whether your marketing and sales efforts are generating a positive return on investment (ROI). If CAC is high, it indicates that you are spending more money to acquire a customer than you are generating from that customer. This simply means that you need to improve your sales and marketing strategies.
This number can allow the leadership team to tweak marketing channels, make changes in team structure & also enable them to think about adding new acquisition channels in the mix.
Make important pricing decision 💰
Knowing the CAC helps you make informed decisions about your pricing strategies.
For instance, if your CAC is high, you may need to raise prices to generate enough revenue to cover your marketing and sales expenses.
Change your positioning & GTM strategies 🤘🏼
Any change in pricing strategies also means that there will be a change in the overall product positioning.
If you change the pricing from $10 to even $100, the positioning of the product needs to change with it. If you’re a SaaS app, this might mean switching to an entirely new GTM strategy that is sales-heavy.
Allows leadership team to forecast costs 🧑🏼‍💼
With CAC in mind, leadership teams can get an understanding of how much money they need to spend to grow or even sustain the business in the future.
This information is essential for budgeting and planning purposes, as well as for making strategic decisions about resource allocation in the future.
Identify low CAC customer segments 📉
Calculating CAC for different customer segments can help you identify which segments are most profitable and which ones are not.
This allows you to look into the TAM of each customer segment and pick the one with low CAC & high TAM. It also allows sales & marketing teams to prioritize for the most profitable ICPs.
Identify low CAC marketing channel 📺
Calculating CAC for different marketing channels will also allow you to pick & choose your battles.
If a PAID channel like IG ads has a sustainable CAC, you can just double down on it and increase your revenue. It allows sales & marketing teams to choose a few successful channels & double down on them.

What is the formula to calculate CAC? ✖️

CAC = Total cost of all your marketing and sales efforts / Number of customers acquired
The “Total cost of all your marketing and sales efforts” includes the total amount of money spent on
  • Advertising,
  • Product/ brand promotions
  • Salaries
  • Employee commissions
  • Affiliate commissions
  • Influencer payouts
and any other expenses directly related to acquiring customers.
For example, if you spend $50,000 on marketing and sales efforts in a given month and acquire 100 new customers during that same month, the CAC would be: CAC = $50,000 / 100 = $500
This means that it costs you an average of $500 to acquire one new customer during the same month. By tracking CAC over time, you can determine if your customer acquisition strategies are becoming more or less efficient. This allows you to make adjustments as needed to improve your return on investment (ROI).
Click here to quickly jump back to the TL;DR section 💪🏼

2. Conversion rate ➗

The percentage of website visitors leads, or prospects that complete a desired action, such as making a purchase or filling out a form. By drilling down into your conversion rate at various stages of the funnel, you can understand the bottleneck at different stages of your acquisition funnel.

What are the different types of conversion rates?

Type
What is this?
Click through rate for ads
The number of people who see an ad or decide to click on it.
Click through rate on Google
The number of people who see your website on Google and decide to click on it.
Form fill up rate
The number of people who land on your website and fill up a form.
Sign up %
The total number of visitors who land on your website and sign up for your product
Free trial conversion
The total number of visitors who sign up for your product’s free trial
App Downloads
The total number of people who visits your website and download your app
Ebook download
The number of total page visitors who download an ebook after visiting your website
Email entries
The number of visitors who add their email after visiting your website

How do you calculate your conversion rate?

You can use simple division arithmetic to calculate your conversion rate along the different stages of your acquisition funnel.
Here’s an example of how it might look 👇🏼
Name
How to calculate
Click through rate
No of viewers/ No of website visitors
Sign up rate
No of website visitors/ No of sign-ups
Sign up to free trial conversion rate
No of free sign-ups/ No of free trial signups
Free trial to paid conversion rate
No of free trial signups/ No of payments
Tracking all these conversion rates will give you a health check of every stage of the acquisition funnel. It will also allow you to set benchmarks for each stage of the funnel. Based on the benchmarks, you can quickly understand when any part of the funnel is not performing well.
Click here to quickly jump back to the TL;DR section 💪🏼

3. Cost Per Lead (CPL) 🤑

Cost Per Lead (CPL) is the average cost of generating a qualified lead for your product or service. It is commonly used in digital advertising campaigns, particularly in pay-per-click (PPC) advertising. It is also frequently used in B2B businesses where it’s a sales-heavy GTM.

Why is Cost Per Lead important?

Why?
Explanation
Measure campaign performance 📲
You can determine which marketing campaigns are generating high-quality leads that are more likely to convert into paying customers. This information can be used to optimize marketing campaigns and focus on the channels and tactics that are most effective in generating leads.
Improve Budget allocation across your teams & channels 🏦
By focusing on the most cost-effective channels, you can maximize their return on investment and generate more leads without breaking the bank.
Improve overall sales efficiency 🫂
By analyzing CPL data, you can get a rough idea of the leads that are more likely to convert and focus your sales efforts on them. This can improve the efficiency of the sales process and reduce the cost of acquiring new customers.
Build long term acquisition strategies 🫂
Digital-first businesses naturally operate in highly competitive markets, where the cost of acquiring new customers can be high. By tracking CPL, you can stay competitive by doubling on low-cost channels. This allows you to build a profitable business in the long term.

How to calculate Cost Per Lead (CPL)? ✖️

To calculate the CPL, the total cost of the advertising campaign is divided by the number of qualified leads generated.
For example, if a PPC advertising campaign costs $1,000 and generates 100 qualified leads, the CPL would be $10.
Click here to quickly jump back to the TL;DR section 💪🏼

4. Time to Convert ⏲️

Time to convert measures the amount of time it takes for a lead to become a paying customer. It's calculated by subtracting the date a lead was acquired from the date the lead made their first purchase or became a customer.

Why is Time to Convert important? 🤔

Reason
Explanation
Identifying bottlenecks in the sales cycle 🍾
If the time to convert is longer than expected, it may indicate that there are bottlenecks in the sales process that need to be addressed. By identifying these bottlenecks, you can make changes to their sales process, such as improving lead nurturing or reducing the time it takes to follow up with leads, to improve their conversion rates.
Measuring performance of your sales team 📲
If the time to convert is plateauing or increasing, it may indicate that the sales team needs additional training or that they need to prioritize their follow-up efforts.
Measuring performance of your marketing campaigns 📲
You can determine which marketing campaigns are generating the leads that convert in the shortest amount of time. This information can be used to double down on campaigns & channels which are successful.
Changes in onboarding sequence ⚒️
You can also measure time to convert to understand how the changes in your onboarding sequence are affecting this metric. This allows you to run dozens of onboarding experiments with a revenue goal in mind.
Increase overall customer lifetime value 🫂
The customer lifetime value (CLTV)measures the total revenue a customer will generate over the course of their relationship with the business. By reducing the time to convert, you can increase the CLTV by starting the revenue generation process earlier in the customer relationship.
Exponential Impact on revenue 🚀
In most digital products, revenue is typically generated through recurring subscriptions. The longer it takes to convert a lead into a paying customer, the longer it takes for the business to generate revenue. By tracking time to convert, businesses can identify ways to reduce the time it takes to convert leads into paying customers, which can have a direct impact on their revenue.

How do you calculate Time to Convert? 🕰️

Time to convert = End date - Start date
  • Where the start date is the date the lead was acquired by the business,
  • The end date is the date the lead became a paying customer.
For example, if a business acquired a lead on January 1 and the lead became a paying customer on February 15, the formula for calculating the time to convert would be: Time to convert = February 15 - January 1 = 45 days
Note that time to convert is usually measured in days, but it can also be measured in weeks or months depending on the business's sales cycle and customer acquisition process.
Click here to quickly jump back to the TL;DR section 💪🏼

5. Customer Lifetime Value (CLTV)

Customer lifetime value (CLTV) represents the total amount of revenue a business can expect to generate from a single customer over the entire duration of their relationship. It is a key metric in evaluating the long-term profitability of a business and in making decisions related to customer acquisition, retention, and marketing.

Why is CLTV important? 🤔

Why?
Explanation
Helps you with financial forecasting 🏦
It gives you an estimate of the total revenue that can be generated from a single customer over their lifetime. This one piece of information can be used to make informed decisions on budgeting, sales forecasting, and long-term business planning.
Helps you calculate your ideal CAC 🫂
You can determine how much money can be spent on customer acquisition channels without exceeding the total value that each customer will generate over their lifetime.
Double down on the right R&D costs 🛠️
CLTV can provide valuable insights into customer behavior and preferences, which can be used to inform product and service development decisions. By understanding the factors that contribute to high CLTV, you can develop products and services that meet the needs of the most valuable customers.
Improve CSAT scores over the long run 💯
By focusing on high-value customers, you can provide more personalized service to the highest value customers. This will also increase customer loyalty and retention.
Make smarter pricing decisions 💲
The CLTV of different customer segments, allows you to make informed decisions about pricing and discounting. You can offer discounts to high-value customers which leads to an even more effective strategy for increasing CLTV. You can also prevent discounts to low-value customers who in turn decrease returns over the long term.
Understand your customer segments incredibly well 💁🏼‍♂️
By segmenting customers based on CLTV, you can tailor marketing and retention strategies to their unique needs.
Helps with macro level decision making 🤔
CLTV is used as a tool for evaluating the impact of different business decisions on long-term profitability. For example, you can use CLTV to determine the potential return on investment of launching a new product or entering a new market. It can also be used to determine the positioning of the product for long-term profitability.

How do you measure CLTV?

There are several ways to measure customer lifetime value (CLTV), but here is a common formula that can be used:
CLTV = (Average Purchase Value) x (Number of Repeat Purchases) x (Average Customer Lifespan)
  1. Average Purchase Value: 💸
This is the average amount of money a customer spends on each purchase. To calculate this, divide the total revenue generated from all purchases by the total number of purchases.
  1. The number of Repeat Purchases 🔄
This is the number of times a customer makes a purchase over their lifetime. To calculate this, count the number of purchases made by each customer.
  1. Average Customer Lifespan 🫂
This is the length of time a customer continues to make purchases from your business. To calculate this, determine the time period over which you want to measure customer lifespan (e.g. one year, five years), and calculate the average length of time customers continue to make purchases during that time period.
Once you have calculated these three values, you can use the formula to calculate CLTV.
For example, if your average purchase value is $50, customers make an average of 5 purchases over their lifetime, and the average customer lifespan is 3 years, the CLTV would be: CLTV = $50 x 5 x 3 = $750
This means that the average customer is worth $750 in total revenue over their lifetime.
It is important to note that CLTV can vary depending on factors such as customer segment, product or service offering, and marketing channels.
Therefore, it is important to measure CLTV for different customer segments and to track changes over time to ensure that your are maximizing long-term profitability.
Click here to quickly jump back to the TL;DR section 💪🏼

User engagement & retention metrics 😮

User engagement and retention metrics allow you to understand the usage and stickiness of your products. At the end of the day, customer satisfaction and revenue are always a function of user engagement. So if your E&R metrics are not ideal, it’s a leading indicator that your revenue metrics might also go down.

1. Daily Active Users (DAU) ✋🏼

It measures the number of unique users who interact with a product or service on a daily basis. It can also be a measure of who completes a certain action every day to qualify as an active user.
For example, if someone says that The Facebook app has 1 million DAU, it means that there are 1 million unique users who are actively engaging with the app on a daily basis. DAU is a particularly important metric for social media and other B2C consumer apps that have a natural daily usage frequency.
Also, DAU is highly contextual and differs from each product. While watching one video can be a DAU for YouTube, scrolling through 10 reels might be a DAU for Instagram.

Why is DAU important for your product? 🤔

Why?
Explanation
Crucial metric for apps which monetise through ads 💪🏼
Social media apps like Facebook, and Instagram are heavily dependent on DAUs because of their revenue model. They can only get a lot of advertisers when there are a ton of daily users on the platform. High DAUs essentially mean a greater ability to monetize through highly targeted ads.
Helps prioritise product development efforts 🛠️
By analyzing the level of engagement and usage of different features, businesses can prioritize which features to improve or add to their product to increase user engagement. There have been instances where an entirely new product was born out of a single feature because it had a very high DAU.
Helps you benchmark against market standards 📊
DAU can also be used to track the growth of your product over time and compare it to competitors in the market. It provides a benchmark for user engagement and can be used to identify areas where your product may be falling behind its competitors.

How to measure DAU? 📲

The simplest way to measure Daily Active Users (DAU), is by counting the number of unique users who have interacted with your product within a 24-hour period.
But before you do that, there are a couple of things you should do to maintain sanity 🎖️
  1. Define an active user 💁🏼‍♂️
An active user of a social media app may be someone who has logged in and posted content or interacted with other users within the last 24 hours.
→ Have a clear definition of DAU and how it will contribute to retention over a long period of time.
  1. Calculate DAU at the same time every day:
Set a time from which you will pull DAU data on a daily basis and stick to that timeframe. It will help you accurately understand how small changes in the product are affecting your DAU.
  1. Find a unique identifier for each user:
A unique identifier is something that allows you to identify every unique user in your product. Usually, growth folks use unique identifiers such as a user's email or username as their unique ID.
Click here to quickly jump back to the TL;DR section 💪🏼.

2. Weekly Active Users (WAU) 🚶🏼‍♂️

It is incredibly close to DAU, but the only difference is that this metric is measured on a weekly frequency. The context depends upon the nature of your product and it’s natural usage frequency.
💡
Social media apps have a natural usage frequency which is almost every day. But a product like Swiggy might be a great fit for a weekly usage frequency.
Click here to quickly jump back to the TL;DR section 💪🏼.

3. Monthly Active Users (MAU) 🏃🏼

Yet again, very similar to DAU, but this is just measured on a monthly frequency. Just like WAU, Monthly Active Users (MAU) is also dependent on the business goals and the type of product.
💡
While products like Swiggy are a great fit for WAU, Travel apps like Airbnb might fare off better with MAUs.
Click here to quickly jump back to the TL;DR section 💪🏼.

4. Stickiness 🍢

Stickiness refers to the ability of your product to keep users engaged and returning over a period of time. A sticky product creates a strong connection or habit in the user’s mind, making it difficult for them to switch to a competing product 💪🏼
Stickiness when executed well can also be a MOAT for your product 🚀

How do you measure product stickiness? 🤔

Product stickiness can be calculated using the ratio of monthly active users (MAU) to daily active users (DAU). This ratio is known as the "stickiness ratio" and provides a measure of how often users are returning to a product on a daily basis.
Stickiness ratio = MAU / DAU For example, if a product has 10,000 monthly active users and 1,000 daily active users, the stickiness ratio would be: Stickiness ratio = 10,000 / 1,000 = 10
This means that on average, each user is visiting the product 10 times per month, indicating a high level of engagement and stickiness 💪🏼.
Click here to quickly jump back to the TL;DR section 💪🏼

5. Activation Rate 🖱️

The activation rate measures the percentage of users who have completed a specific action signifying their adoption of the product. This action is often referred to as the "activation event" and it is typically the first step towards the user realizing the product's value proposition.
Increasing the activation rate leads to better user adoption and retention, which in turn can lead to increased revenue and customer loyalty 💪🏼
Some common examples of activation events include 👇🏼
  1. Completing the product registration process
  1. Uploading custom content to the product
  1. Making a purchase or a subscription
  1. Creating a profile or adding information to the account
  1. Inviting others to use the product

How to measure your activation rate?

Activation rate = (Number of activated users / Total number of sign-ups) x 100
For example, let's say you are measuring the activation rate of a mobile app that requires users to create a profile to start using it. In a given week, 500 users signed up for the app, and 300 of them completed the profile creation process. The activation rate for that week would be: Activation rate = (300 / 500) x 100 = 60%
Click here to quickly jump back to the TL;DR section 💪🏼.

6. Session length 📏

Session length refers to the amount of time a user spends actively using your product during one session. A session starts when a user opens the product and ends when the user closes or exits the product.
This metric alone might not be incredibly useful for understanding customer insights. But when you combine this metric with feature usage, sessions per user, and other product metrics, it opens up a world of possibilities.

How do you measure session length? 🧑🏼‍⚖️

Let's say a user accesses a product at 10:00 AM and exits the product at 10:30 AM. The session length would be:
Session length = End time - Start time = 10:30 AM - 10:00 AM = 30 minutes
Once you have calculated the session length for each user session, you can aggregate the data to calculate the average session length for a given period. This can be done by adding up all the session lengths and dividing by the total number of sessions.
For example, if there were 100 user sessions in a day with a total session length of 3000 minutes, the average session length would be: Average session length = Total session length / Number of sessions = 3000 / 100 = 30 minutes
Click here to quickly jump back to the TL;DR section 💪🏼.

7. Feature Usage 👊🏼

It refers to the frequency and intensity with which users interact with specific features or functionalities of your product. A feature could be anything from a simple ‘randomize’ button on Netflix to a full-blown feature on a SaaS app.

Why are feature usage metrics important?

Why?
Explanation
Identify the most valuable features in your product 🚀
Tracking feature usage allows you to identify which features are most valuable to users. This can help you prioritize your product development efforts & focus on features that matter most to users, and potentially increase user engagement and retention.
Improve overall user experience on your product 🫂
Understanding how users interact with specific features can help you by optimising features that are frequently used. You can also simplify your product by removing features that are rarely used or are confusing
Identify discovery related problems in your product 👀
If a feature is rarely used, it could indicate that it is difficult to find or use, or that it is not meeting user needs. Based on this, you could try improving the discoverability of the feature. If that feature is still not picking up, you can then dive into the technical error rate and feature completion rate to understand the full picture.
Helps you understand core product positioning 💪🏼
Feature usage metrics will help you make informed decisions about product development, marketing, and business strategy. These metrics can eventually also change your entire product positioning strategy

How to measure product feature usage?

There are different ways to measure feature usage, depending on the product and the specific features being tracked.
Some common methods include:
  1. Counting the number of times a feature is accessed
  1. Measuring the time spent on a feature
  1. Tracking the completion of a feature-specific action
Feature usage is highly contextual and depends on the nature of the product and the core business goals.
Click here to quickly jump back to the TL;DR section 💪🏼.

8. Retention Rate 🫂

Retention rate measures the percentage of users who continue to use a product or service over a specific period of time. It’s incredibly important to understand the stickiness of a product over a defined period of time.
Retention rate can be used in combination with other metrics, such as churn rate, to gain a more comprehensive view of user behavior and inform everything from product development to your resurrection strategies.

How to measure the retention rate?

The retention rate is usually calculated by dividing the number of active users during a given period of time (usually a week, month, or year) by the total number of users at the beginning of the period.
For example, if a product has 10,000 users at the beginning of the month and 8,000 of those users continue to use the product by the end of the month, the retention rate for that month would be 80%.
Click here to quickly jump back to the TL;DR section 💪🏼.

9. User Engagement score 🦾

User engagement score measures how engaged users are with a product or service. It combines multiple engagement metrics, such as session length, frequency of use, and feature usage, into a single score, providing a comprehensive view of user engagement.
User engagement metric is also highly subjective and changes from one product team to another.

How do you calculate your user engagement score?

To calculate a user engagement score, you need to identify the engagement metrics to include in the score, and then assign a weight or importance to each metric. If session length and feature usage are the most important engagement metrics for your product, those metrics might be given a higher weight in the user engagement score calculation.
But a couple of things to keep in mind before calculating your user engagement score 👇🏼
  1. Keep it simple 🚶🏼‍♀️
👌🏼
You don’t need to add hundreds of product metrics to come up with your user engagement metric. You can just choose the top 5 most important metrics based on your core business goal.
  1. Assign weightage based on the nature of the product 🏋🏼‍♂️
👌🏼
While feature usage might be an important metric for a B2B SaaS product, it might not be important for a social media product. DAU might have a higher weightage for a social media application. You need to keep that product & business context before applying points to a certain metric.
Click here to quickly jump back to the TL;DR section 💪🏼.

Revenue Metrics

We’re not deep diving into complex revenue metrics like EBIDTA & other financial jargon. Those things are best left to the finance experts. We’ve just broken down the revenue metrics which will allow you to take better growth decisions

1. Revenue Growth Rate 💸

The revenue Growth Rate shows the change in a company's revenue from one period to another. The most common way to calculate the Revenue Growth Rate is to compare the revenue in the current period to the revenue in the same period of the previous year.

Why is revenue growth rate important?

Why?
Explanation
Helps with long term financial planning 📊
Your revenue growth rate can help forecast future revenue and identify focus areas to improve revenue.
Helps with competitive analysis 🥊
The revenue growth rate is a key metric for comparing a company's performance to its competitors. By analyzing revenue growth rates in the industry, you can identify opportunities for growth and areas where you may need to improve to stay competitive.
Extremely helpful when pitching your product to investors 👋🏼
Investors and potential investors use revenue growth rates to evaluate a company's performance and potential. A high revenue growth rate can be a positive sign for investors and may help you attract new investments or help the organization secure more favorable financing terms.
Helps with strategic long term planning 🧗🏼‍♀️
By analyzing revenue growth trends, you can make informed decisions about investing in new products or services, expanding into new markets, or implementing new marketing strategies.

How do you calculate the revenue growth rate?

Revenue growth rate = [(Revenue in Current Period - Revenue in Previous Period) / Revenue in Previous Period] x 100
For example, if a company had revenue of $1 million in the first quarter of last year, and revenue of $1.2 million in the first quarter of this year, the Revenue Growth Rate would be calculated as follows: [(1,200,000 - 1,000,000) / 1,000,000] x 100 = 20% This means that the company's revenue grew by 20% from the first quarter of last year to the first quarter of this year.

What are the different types of revenue growth?

  1. Organic revenue growth 🐢
Revenue growth that a company achieves through its existing operations, without any external factors such as acquisitions or mergers. This type of growth is often seen as a sign of a healthy business that is effectively managing its operations and attracting new customers.
  1. Inorganic revenue growth 🐇
Revenue growth that a company achieves through mergers, acquisitions, or other external factors.
  1. Year-over-year revenue growth 📊
The most common type of revenue growth rate, and it measures the percentage change in revenue from one year to the next.
  1. Month-over-month revenue growth 📈
This is a not common metric but can be useful when you’re experimenting with a new market, product, or product positioning.
  1. Same product sales growth 🫂
It’s a measure of revenue growth that applies to companies with multiple products. It measures the growth in sales from products that have been operating for at least a year, excluding sales from new products.
Click here to quickly jump back to the TL;DR section 💪🏼.

2. Gross revenue 🐒

Gross revenue, also known as gross sales, is the total amount of money a business generates from its sales or other sources of income before deducting any expenses or taxes.

Why is this important?

Why?
Explanation
It can be used for competitor benchmarking 🥷🏼
Gross revenue figures can be used to compare the performance of your product with similar products in the industry.
It helps you identify trends in growth 👀
If your business experiences a consistent increase in gross revenue over a period of time, it may indicate that the business is growing and expanding, even if profits might not be increasing.

How can you measure gross revenue?

There are 5 simple steps to calculate gross revenue for your product or business 🔽
  1. Determine the time period 🕜
Identify the time period for which you want to calculate gross revenue. This could be a month, a quarter, a year, or any other period that is relevant to your analysis.
  1. Identify all sources of revenue 💰
Make a list of all the revenue sources for the business during the chosen time period. This could include sales of products or services, subscriptions, advertising revenue, or any other sources of income.
  1. Add up all sales revenue
Calculate the total revenue generated from the sale of products or services during the chosen time period. This can be done by adding up all the individual sales figures.
  1. Add up all other sources of income ➕ ➕
Calculate the total revenue generated from all other sources of income during the chosen time period, such as advertising revenue or rental income.
  1. Add the sales revenue and other income together ➕ ➕ ➕
Once you have calculated the total revenue from sales and other sources of income, add them together to get the gross revenue for the chosen time period.
For example, if a business sells products for $10,000 and earns $2,000 in advertising revenue during a quarter, the gross revenue for that quarter would be $12,000 ($10,000 + $2,000).
Click here to quickly jump back to the TL;DR section 💪🏼.

3. Net Revenue ♾️

Net revenue is the amount of revenue that a business earns from its sales or other sources of income after deducting all of the costs of goods sold, operating expenses, and other expenses.
While Gross revenue gives you an idea of your product's growth, Net revenue will show you how profitable your product is going to be.

Why is net revenue important?

Why?
Explanation
It indicates the profitability of the business 🤑
By deducting all relevant expenses from the gross revenue figure, net revenue represents the actual amount of revenue that your business has earned. It can be used to cover future expenses, invest in growth, or distribute to shareholders as dividends
Important for long term strategic planning 🚀
Net revenue figures can help you make strategic decisions about pricing, cost management, and investments in growth. For example, if you have incredible gross revenue, but low net revenue, you may need to adjust your pricing strategy or reduce expenses in order to improve profitability.
It helps you identify areas of inefficiency in your business 📣
Analyzing net revenue figures over time can provide insights into areas of inefficiency in the business. Maybe one of those marketing channels or experimental products is killing your profitability. Based on CAC & other acquisition metrics, you might decide to kill it altogether.

How to calculate net revenue?

Net revenue can be calculated in a very simple way 👇🏼
Net Revenue = Gross Revenue - Cost of Goods Sold - Operating Expenses - Other Expenses → Cost of goods sold refers to the direct costs associated with producing and delivering the products or services sold by your business. In a digital-first business, this could mean the costs of tools, servers, etc. → Operating expenses refer to the expenses incurred in running the day-to-day operations of the business, such as rent, utilities, and salaries. → Other expenses include any other expenses that are not included in the cost of goods sold or operating expenses, such as interest expenses or taxes.
Click here to quickly jump back to the TL;DR section 💪🏼.

4. ARPU (Average Revenue Per User) 👤

ARPU stands for Average Revenue Per User, which is a metric used to measure the average amount of revenue generated by each user or customer during a given period of time.

Why is ARPU important?

Why?
Explanation
Helps you make pricing & positioning decisions 💲
ARPU can be used to inform pricing decisions by providing insights into how much customers are willing to pay for a product or service. Based on the ARPU, you can decide to tweak your pricing to optimize for more customers or more ARPU/customers.
Helps you understand different customer segments 🙋🏼‍♂️
The true magic of ARPU comes to life when you segment users. You will see a different subset of users with high, medium & low ARPU. These insights can allow you to optimize marketing, products, and even fundamental business strategies.
Helps you evaluate the success of your sales & marketing campaigns 🙈
By tracking changes in ARPU over time, you can evaluate the success of your marketing and sales strategies. If ARPU increases after a marketing campaign or sales promotion, it may indicate that the campaign was successful in generating more revenue per user.
Helps you with deep customer insights 🤔
It can help you identify opportunities to upsell or cross-sell products and develop new products that meet the needs and preferences of your customers.
Helps you prioritise product development efforts 🏗️
If your team identifies that users who purchase a certain product or feature have a higher ARPU, you can prioritize the development of similar products or features.
Helps you get deeper insights on acquisition channels 🔁
If you find that some acquisition channels bring you a ton of high ARPU customers, you can effectively double down on those channels.

How to calculate ARPU?

ARPU = Total Revenue / Number of Users
For example, if a company generates $10,000 in revenue in a month and has 1,000 users during that same month, the ARPU would be $10 ($10,000 / 1,000).
You can also calculate ARPU by different acquisition channels, feature usage, product usage frequency etc to get more granular insights on your customers.
Click here to quickly jump back to the TL;DR section 💪🏼.

5. MRR (Monthly Recurring Revenue):

It is a metric used to track the recurring revenue generated by a business on a monthly basis. MRR is commonly used by businesses that have a subscription-based model or a recurring billing model.

Why is MRR important?

Why?
Important
It is the ultimate health metric in a recurring business model ❤️‍🩹
A steady or increasing MRR indicates that the business is growing and acquiring new customers, while a decreasing MRR may indicate churn or customer attrition. This is the primary metric that all businesses with a recurring model need to measure.
Ties directly into product development 🏗️
By understanding MRR trends and changes, your product teams can identify areas for improvement and prioritize development efforts to enhance the product and customer experience. For example, if MRR is decreasing, product teams can investigate potential issues with the product or customer experience and work to make improvements.
Helps you understand customer retention 💁🏼‍♂️
By analyzing MRR trends, product teams can identify potential reasons for customer churn and work to improve customer retention rates through product improvements, new features, or other strategies.
Helps you make important pricing decisions 🏦
With MRR trends, product teams can determine if changes to the pricing strategy are necessary, such as adjusting pricing tiers, introducing new pricing models, or modifying pricing structures.

How to calculate MRR?

MRR is the sum of all recurring revenue you have generated for a month.
For example, let's say your business has 200 active customers paying $50 per month for a subscription service, and 50 active customers paying $100 per month for a recurring billing service. MRR = (200 x $50) + (50 x $100) MRR = $10,000 + $5,000 MRR = $15,000 Therefore, your MRR is $15,000 per month.
Click here to quickly jump back to the TL;DR section 💪🏼.

6. ARR (Annual Recurring Revenue):

ARR is the total annual revenue generated from all of a company's recurring revenue streams. ARR is crucial if you’re working on a product that operates on a subscription-based model or has a recurring billing arrangement.
ARR is a subset of the MRR since it literally is MRR multiplied by 12.

Why is ARR important?

ARR is important for all reasons MRR is important in a recurring business model. It gives product & business teams some clarity on the amount of revenue they will pull by the end of the year.
Also, ARR serves as a good benchmark to make long-term strategical decisions like pricing, positioning, feature usage, etc..

How to calculate ARR?

To calculate ARR, you simply multiply the MRR (Monthly Recurring Revenue) by 12 (the number of months in a year). Here's the formula:
ARR = MRR x 12
For example, if your business has an MRR of $10,000, your ARR would be: ARR = $10,000 x 12 ARR = $120,000 Therefore, your ARR is $120,000 per year.
Click here to quickly jump back to the TL;DR section 💪🏼.

4. Customer Satisfaction Metrics

Customer satisfaction metrics are lagging metrics that will help you understand how satisfied customers are with your product. We’ve explained the 3 most commonly used CS metrics to use in your product. Nailing the measurement and attribution of these 3 metrics will give you tons of insights into your product experience and growth.

1. Net Promoter Score (NPS) 🙏🏼

Net Promoter Score (NPS) measures the likelihood of customers recommending a product or service to others.
NPS is based on a single question: "On a scale of 0-10, how likely are you to recommend this product/service to a friend or colleague?
Based on this response, users are categorized into three different buckets
  • Promoters (score 9-10): These are customers who are highly satisfied with the product and are likely to recommend it to others.
  • Passives (score 7-8): These are customers who are satisfied with the product, but are not as enthusiastic as promoters. They may be more likely to switch to a competitor.
  • Detractors (score 0-6): These are customers who are not satisfied with the product and are likely to discourage others from using it.

Why is NPS an important metric to track?

  • A high NPS indicates that a product is meeting customer needs and expectations, and is likely to generate positive word-of-mouth recommendations and repeat business.
  • On the other hand, a low NPS may indicate that a product has fundamental issues that need to be addressed in order to retain customers and maintain a competitive position in the market.
  • Comparing NPS across different products or product lines can help product teams prioritize investment and resource allocation based on the potential impact on customer satisfaction and loyalty.
  • A low NPS can damage a company's reputation and lead to negative word-of-mouth, which can have long-term consequences for the business. It helps you intervene before long-term damage is made to your brand.

How to measure NPS?

Calculating NPS might seem complex, but it’s simple if you break it down into these simple steps
  1. Collect data 💽
Send a survey to your customers asking them to rate, on a scale of 0 to 10, how likely they would be to recommend your product or service to a friend or colleague.
  1. Categorize your responses 🔙
You can categorize your responses into three groups based on the rating. Anyone between 9 - 10 is a promoter, while passives are between 7 - 8, and detractors are between 0 to 6.
  1. Calculate percentages under each category 🔣
Calculate the percentage of responses in each category by dividing the number of responses in each category by the total number of responses.
  1. Calculate NPS 📲
You can subtract the percentage of detractors from the percentage of promoters to get the overall NPS for your product. The NPS score can range from -100 to 100.
For example, if you received 100 survey responses, with 50 promoters, 30 passives, and 20 detractors, you would calculate the NPS as follows:
  • Promoter percentage = (50/100) x 100 = 50%
  • Detractor percentage = (20/100) x 100 = 20%
  • NPS = Promoter percentage - Detractor percentage = 50% - 20% = 30
Therefore, the NPS for this survey would be 30.
Click here to quickly jump back to the TL;DR section 💪🏼.

2. Customer Satisfaction Score (CSAT) 🧘🏼

It measures the level of satisfaction that customers have with your product. The CSAT score is calculated based on a survey question that asks customers to rate their satisfaction with a product or service on a scale of 1 to 5 or 1 to 10.
Tracking CSAT scores over time allows you to monitor changes in customer satisfaction and identify trends or patterns in customer feedback.

Why is CSAT important?

CSAT as a standalone growth metric might not provide you with enough context. But when CSAT is often used in combination with other metrics, such as NPS (Net Promoter Score) or CES (Customer Effort Score), it provides a more complete picture of customer satisfaction and loyalty. While NPS measures customer loyalty and the likelihood of them recommending your product , CSAT complementarily measures if a certain feature or action was satisfactory in the product. A ton of good CSAT scores will eventually lead to better NPS scores.

How to measure CSAT?

The CSAT survey typically asks customers to rate their satisfaction with a product or service on a scale of 1 to 5 or 1 to 10, with 1 being "very dissatisfied" and 5 or 10 being "very satisfied." The scores are then averaged to calculate the CSAT score, which is typically expressed as a percentage.
For example, if a survey of 100 customers results in an average satisfaction score of 4.5 out of 5, the CSAT score would be calculated as follows: CSAT = (Number of satisfied customers / Total number of customers surveyed) x 100 CSAT = (90 / 100) x 100 = 90% Therefore, the CSAT score for this survey would be 90%.
Click here to quickly jump back to the TL;DR section 💪🏼.

3. Customer Effort Score (CES) 💪🏼

Customer Effort Score (CES) is a metric used to measure how easy it is for customers to complete a specific task with your product. The primary goal of CES is to understand the level of effort required by customers to achieve their goals when interacting with your product.

Why is CES important?

CES provides valuable insights into the customer experience and can help you identify areas for improvement on your product. By reducing the level of effort required by customers to complete tasks or interactions, you can improve customer satisfaction and loyalty, as well as reduce customer churn.

How to measure CES?

To measure Customer Effort Score (CES), you can use a survey to ask customers to rate the level of effort required to complete a specific task or interaction. The survey can be administered in a variety of ways, such as:
  1. Email surveys 📧
Customers are sent an email with a link to a survey asking them to rate the level of effort required to complete a specific task or interaction with the business.
  1. In-app surveys 📲
Customers are presented with a survey within the app or website, immediately following a transaction or interaction.
  1. Phone surveys 📱
Customers are contacted by phone and asked to rate the level of effort required to complete a specific task or interaction.
→ The CES survey asks your customers to rate the level of effort required to complete a task or interaction on a scale of 1 to 5 or 1 to 7, with 1 being "very low effort" and 5 or 7 being "very high effort." The scores are then averaged to calculate the CES score, which is typically expressed as a percentage.
For example, if a survey of 100 customers results in an average CES score of 4 out of 5, the CES score would be calculated as follows: CES = (Total score / Total number of respondents) x 100 CES = (400 / 100) x 100 = 400% Therefore, the CES score for this survey would be 80%.
Click here to quickly jump back to the TL;DR section 💪🏼.
 
Those were all the growth metrics you need to get a macro and micro-level view of your product.
We hope you enjoyed reading this guide and were able to implement some of these metrics in your product.
Thanks again 💪🏼
 
 
 
 
 
 

Written by

GrowthX Editorial Team
GrowthX Editorial Team

Growth can be achieved in a profitable, scalable & sustainable way. That’s what we write here, one blog at a time 🚀

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