Business Metrics & KPIs¶
As a data analyst, you must go beyond querying data to understanding what the data represents. Key Performance Indicators (KPIs) measure the strategic health of a business.
Types of Metrics¶
| Type | Description | Examples |
|---|---|---|
| Leading Indicators | Predict future outcomes (harder to measure) | Free trial signups, website traffic |
| Lagging Indicators | Measure past performance (easier to measure) | Monthly revenue, churn rate |
| North Star Metric | The single most important metric for the company | Airbnb: Nights booked; Spotify: Time spent listening |
Common Business Metrics¶
1. Customer Acquisition Cost (CAC)¶
How much it costs to acquire a new customer.
Formula: Total Sales & Marketing Expenses / Number of New Customers Acquired
2. Lifetime Value (LTV)¶
The total revenue a company expects from a single customer throughout their relationship.
Formula: Average Revenue Per User (ARPU) × Average Customer Lifespan
Note: A healthy LTV:CAC ratio is generally considered to be 3:1 or higher.
3. Churn Rate¶
The percentage of customers who stop using a product or service over a given period.
Formula: (Lost Customers during period / Total Customers at start of period) × 100
4. Retention Rate¶
The opposite of churn—the percentage of customers a business retains over a given period.
Formula: ((Total Customers at end of period - New Customers during period) / Total Customers at start of period) × 100
5. Active Users (MAU / DAU)¶
- MAU: Monthly Active Users.
- DAU: Daily Active Users.
- Stickiness Ratio:
DAU / MAU(Measures how often users return. A ratio of 20% means users engage 6 days a month).
Pitfalls to Avoid¶
- Vanity Metrics: Numbers that look good on paper but don't inform future strategies (e.g., total registered accounts vs. active accounts).
- Averages without Distribution: Always look at medians and distributions, as a few "whales" can skew averages like ARPU.
- Correlation vs. Causation: Just because two metrics move together doesn't mean one causes the other.