Which KPI’s Should I Pay Attention To In My Business?

Transcript: Which KPI’s Should I Pay Attention To In My Business?

00:01 Hey, this is Aaron Fletcher at the Fletcher method, I want to answer a common question that I get all the time from business owners entrepreneurs, which is what KPIs or key performance indicators should I be paying attention to for my business.

This is really important because if you ask 1000 business owners what their KPIs are number one, they’ll probably scratch their head. Number two, they’re either not paying attention to the right numbers, they don’t have the few key metrics that matter at arm’s length, or they have no idea what to do.

And they’re totally overwhelmed and frustrated, they’re focused on bright shiny objects, you know, running a bunch of different traffic campaigns and celebrating getting cheap leads, in many cases without a back end profit ROI.

So What number should be should you be paying attention to? I’m going to argue that the master number and for most business models, would be lifetime value of a customer.

Hey, this is Aaron Fletcher at the Fletcher method, I want to answer a common question that I get all the time from business owners entrepreneurs, which is what KPIs or key performance indicators should I be paying attention to. for my business, This is really important because if you ask 1000 business owners what their KPIs are number one, they’ll probably scratch their head.

Number two, they’re either not paying attention to the right numbers, they don’t have the few key metrics that matter at arm’s length, or they have no idea what to do. And they’re totally overwhelmed and frustrated, they’re focused on bright shiny objects, you know, running a bunch of different traffic campaigns and celebrating getting cheap leads, in many cases without a back end profit ROI.

So What number should be should you be paying attention to?

I’m going to argue that the master number and for most business models, would be lifetime value of a customer.

00:41 Why? Because it kind of bakes in a lot of the sub metrics you need to get right to get there. The lifetime value of a customer simply applies the ultimate profit and die of a customer over time, whether you have a monthly recurring business, which I would argue every single business out there should be looking to transmit it to a monthly recurring revenue business, for many reasons, because you can scale more predictably manage your resources and add more value to customers do the predictability of that model.

01:14 Another thing you need to be looking at is your incremental sales. So how are you packaging, multiple products, services or modalities to increase the LTV.

So some people are looking at ways to market their business, they say, Hey, I can’t do a webinar, because I have a software product that starts at $99. Right?

I can’t do, you know, coaching or agency or consulting funnel, because my product isn’t worth enough to do that I don’t want to hire a sales team. So the way you achieve a high lifetime value for most business models is by funneling and actually adding more value.

01:46 So if you have a product, you can wrap around some training or coaching along with if you have a coaching business, you can add a membership or software to make the retention skyrocket and haven’t stick your business. But The bottom line is when you pay attention to the lifetime value of a customer, a lot of magical things happen. those businesses are focused on CPL, which is cost per lead.

I think that’s a mistake, because they’re trying to drive down the incremental cost per lead, they’re trying to celebrate the I’m getting dollar leads from Facebook ads or YouTube.

02:16 And that’s a race to the bottom because you’re in an auction environment, where things are always going to change in overtime prices are going to go on. So If you can focus almost all of your energy on increasing the lifetime value of a customer, you can pay more than your competitors to acquire leads and customers. So that’s that I would say lifetime value is the master metric you should be paying attention to, I want to show you a framework that we use to kind of manage metrics when it comes to marketing.

02:44 But again, LTV is so critical, because you have to be acquiring leads at a good rate, you have to be closing enough those leads whether you have a sales team or you’re selling online.

And obviously you have to have good retention, customer service, Stick rate and low churn or else you wouldn’t have that high of a lifetime value. Profit.

03:05 Okay. So the ultimate metrics, obviously, are growth rate profitability, and revenue. But LTV is the metric that most I would argue most business owners should be paying attention to, to get there. So we use a framework called the advertising metrics matrix, because it’s a tongue twister, and we like to fuck with people. Just kidding.

And It’s really cool for most business models to reverse engineer kind of what your metrics should be in order to have a maximum lifetime value maximum profitability. So there’s a lot of metrics here, and I can give folks if they’d like to see it, but the bottom line is, what you want to do is you want to reverse engineer the value in cost to acquire a customer.

03:44 And then you’ll know for each step of your funnel, no matter what type of following you have, what you should be paying for each of those phases of the funnel for each step of your funnel, Taking strangers to traffic to conversions, to prospects to customers and beyond, Okay?

So if you simply look at what is the actual value of customer, the annual client value, And I base it on one year, for a lot of reasons, your lifetime value is going to be greater.

04:05 But if you can achieve a five to 10 x ROI on the annual value of a customer, and you’re going to be that much better off, Okay? So let’s say your a coach or an agency consultant, SAS company, and the annual customer value is 10 K. Okay? Will you simply reverse engineer the performance of your funnel, and the attrition that happens throughout your funnel to get there, if you don’t have numbers, I’ll give you some baseline numbers you can look at.

For example, let’s say the cost, The annual customer value is 10. K, Let’s say you have a sales model, or someone who does an online demo or a strategy call that they’re trying to convert prospects into customers, Let’s say for every customer, you talk to you close, just 25% that’s pretty well, I would look at 40% for a good model if you’re doing the marketing properly.

04:53 But let’s say you have an inbound strategy session with your booking on your calendar, or obviously on none of your sales team or your meeting clients in person, and you close 25% of the people you talk to into being a customer.

That means that if an annual client valued $10,000, That means just to have a strategy session with a prospect would be worth 2500 bucks. Pretty cool, right?

And then reverse engineer say, Okay, well, what if only 5% of the new leads, I generate book that strategy session, That means that a lead for my business, That’s why you’re seeing why I want you to increase the lifetime value.

05:30 Because if the annual value of a customer goes up, which is easy to do, again, by bundling your products, membership software with things like training or coaching, leverage coaching or consulting, then everything is so much more forgiving. Check it out. It’s only 5% of the strategy sessions, I’m sorry, 25% of your leads, strategy sessions, That means a lead is worth $125 to your business. Now think about that.

That’s implying that holy crap. If you pay at $12 a week, which is you can basically one run a huge ads at Facebook and or, or elsewhere and not even really worry about it and not have to micromanage and do what a lot of the Guru’s preach out there. 

06:14 And I’m not gonna get into Facebook’s algorithm but 90% of information out there is total BS in terms of what the gurus teach in their courses. They have you setting up all these little $5 ads ads, which is totally going against Facebook’s algorithm, and you’re crippling Facebook, they can’t even optimize your campaign, because each ad set essentially is looked at as a different, completely different campaign in terms of optimization. So The bottom line is, what if you could pay $12 a lead, And you had a 10 times ROI.

So if you paid $12, a lead the lead was worth hundred $25. That means he paid $250 for a strategy session that’s worth 20 $500 if you only close 25% of Mina customers.

So that’s how we look at the KPIs specific to marketing. And I would say other than your top level profitability growth rate, which are the ultimate metrics that either investors or shareholders would look at.

7:09  That LTV is the master metric, we tend to look at the first thing I want to do I look at a business if I’m gonna invest in that business, either for equity or consult with that business or take on that business as a coaching client. I’m considering how can we increase the LTV of a client right off the bat with cross cells up cells packaging, bundling, implementing a recurring revenue model for that business, privatizing the business?

So there’s scale there, so you’re not gonna be hindered by scale?

07:36 So to go from proposals to products, meaning that, you know, how do you take an intangible like a service and actually fun with it to a fixed product deliverable that increases the heck out of it lowers buying resistance and increases conversions when you’re selling an absolute tangible product around your service? Okay. So Yeah, I look at LTV over that’s helpful.

08:02 What I want you to do as a takeaway is just say, two things, how can I increase by two or three x the lifetime value of a customer right away By changing and by the way, when you when you bundle If you have a SAS company, or a coaching consulting company, training company membership site, we bundle, different ways to help customers get results. So think about the models out there, and add two or three of those modalities on top of yours stack the value.

So again, if I have a simple membership, or say of course, that’s 300 bucks, I’m not scaling it because I can’t make the numbers work because LTV isn’t great enough.

08:39 If I add a simple, if I iF I take some of the deliverables or frameworks in my course, build is very simple SAS application, or even more simple and a coaching component where Hey, I’ll jump on a call once a month, twice a month, answer all your questions, I could double the price of that course. And get people better results and advertise and scale or quickly.

So assignment number one is how can you instantly double the lifetime value of a customer for your business? And secondly, simply do this exercise, go through your sales funnel and reverse engineer the numbers and say, Okay, what is a customer worth to me in one year? And how can I back that out to know that I could give you know, I could double or triple the value per lead, so I can scale more quickly.

09:20 And if you’re using things like Facebook ads, We use a framework to help folks scale and know what metrics to pay attention to. But The bottom line is there’s a lot of BS out there about the way Facebook’s algorithms work. It’s very, very simple.

Facebook is on the side of advertisers as long as you have a high relevance score. And most of my campaigns, Clients campaigns are the most successful, I’ll put one to $3,000 a day and one asset, one asset.

And once you get past the learning phase, So let’s just say I’m optimizing for leads or webinar registrations.

09:54 Once you get 25 to 45 conversions, Facebook’s can come out of learning phase where things are very tumultuous and very sketchy. And they’re going to start to scale your answers are going to optimize for your desired conversion. If you have no idea what I’m talking about, you know, nerd, That’s Okay.

Just understand that everything is forgiving when you focus on the lifetime value of a customer. Because you can spend a ton more on advertising and not have to micromanage your campaigns every day, which is usually counterproductive, frustrated. So you go work on scaling your team and your deliverables and creating more content product and not have to act like a day trader when it comes to advertising.

I think you figured out by now that I’m going to say lifetime value is what you need to be doing to massively scale your business.