KPIs and Business Metrics
CAC, LTV, MRR, ARR, churn rate, NPS, conversion rate, ARPU, funnel metrics, north star metric
1What is a KPI (Key Performance Indicator)?
What is a KPI (Key Performance Indicator)?
Answer
A KPI is a key performance indicator that measures progress toward a specific business objective. Unlike a simple metric, a KPI is directly tied to a strategic goal and enables decision-making. For example, the conversion rate is a KPI for an e-commerce team because it directly reflects business performance.
2What is the difference between a vanity metric and an actionable metric?
What is the difference between a vanity metric and an actionable metric?
Answer
A vanity metric is a number that looks impressive but does not guide business decisions, such as total page views or cumulative downloads. An actionable metric, on the other hand, directly informs a decision and enables action, such as the conversion rate or D7 retention rate. Distinguishing between the two is essential for focusing analysis on what has real impact.
3How is the conversion rate calculated?
How is the conversion rate calculated?
Answer
The conversion rate is calculated by dividing the number of conversions (purchases, sign-ups, etc.) by the total number of visitors or users, then multiplying by 100 to get a percentage. This metric is fundamental in e-commerce and digital marketing as it measures how effectively a page, funnel, or campaign turns visitors into customers.
What does CAC (Customer Acquisition Cost) represent?
What does a customer's LTV (Lifetime Value) measure?
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