CPA, LTV, Churn, NPS: 4 KPIs To Grow Your Business

Use data to learn how to improve your product or service

João Vítor de Souza
Better Marketing
Published in
6 min readMar 16, 2021

Photo by MayoFi from Pexels

Trying to guess what your users want is a great way to destroy your business. Using data to learn can help you to do the opposite.

For the past couple of years, we have listened to many stories about security and data collection. Companies like Facebook and Apple want to collect as much data as they can. They have an endless list of different Key Performance Indicators (KPIs) to analyze.

The truth is they want to learn how you interact with their products. They want to find ways to improve your experience with them. It’s not by chance that Facebook or Instagram releases new features.

I founded a gaming company in 2012. Using data to learn helped me build a profitable business. I spent most of my time seeing how I could improve my company KPIs.

There are a bunch of data you can analyze. Yet, I believe there are four KPIs that you need to pay attention to if you want to grow your business.

1. CPA (Cost Per Acquisition)

You need to have users paying you money if you want to build a profitable business. It doesn’t matter if you created a product or are providing a service. Everything you do is to generate value for someone. You must know who your customer is so that you can give the best experience for them.

After you know who your customer is, you have to acquire them. There are different ways to do that.

You can try acquiring users organically by creating content on YouTube and Instagram, for example. When you work that way, you have less control over the number of users to acquire. You become dependent on the reach you have in the platforms you are creating content with. It’s harder to scale your business with this strategy.

You can also pay to acquire users by using tools like Google Ads or Facebook Ads. When you work that way, you have more control over the number of users to acquire. You become dependent on the money you have to spend to acquire new users. It’s easier to scale your business with this strategy.

In my company, we paid to acquire users. We also acquire users organically, but that was not our focus. Knowing our CPA helped us understand what audiences were better to keep investing money.

CPA means how much money you spend to acquire one user. To lower it, you can improve your free content or your creatives for paid user acquisition. That involves a lot of testing to find out what works best for your audience.

There is no better strategy between organically and paid, though. You need to understand what is best for your business. Nevertheless, both strategies have a CPA. Different profiles and regions have different CPAs too.

A cheaper CPA isn’t necessarily a better one. It depends if your CPA is lower than your LTV or not.

2. LTV (LifeTime Value)

You may have millions of users and still are not able to make money from them.

I once talked to an entrepreneur behind another gaming company. He told me that his new game had 10 million downloads. That looks good, right? Then I asked how much money the game had made. His answer shocked me: “not that much.” He was happy about the number of downloads. That didn’t make any sense to me.

LTV means how much a user spends with your product or service. A user can spend a lot of money once or small amounts many times. Each business works differently.

When I started with paid user acquisition, I was focusing on users from South America. They were cheap to acquire, but their LTV was lower than their CPA. Later we tried to acquire users from the US. They were more expensive, but in the end, we found that they had a much higher LTV than CPA.

To increase your LTV, you have to improve your product or service. You can also look for ways to increase the number of paying users or the average revenue per paying user. There is no correct answer here. You need to know what are the benchmarks for your industry.

In my company, I knew what a good percentage of paying users was. After achieving that, our focus was to increase the average revenue per paying user.

If your users spend more money with you than you pay to acquire them, you can have a profitable business. Pivoting from South American to the US market allowed me to achieve a much higher ROI (return on investment). I had a few thousand loyal users playing my games every day. Many of them played my games for years.

Another way to increase your LTV is by decreasing your churn rate.

3. Churn Rate

You may have acquired millions of users on day one, but they didn’t come back on day two. There is no way to build a profitable business like this.

Churn is the percentage of users that leave your business after some time. Again, different industries have different benchmarks. You need to know the one for your business and work to have a number lower than the benchmark.

One of the reasons users don’t come back to a product or service is that they are not the right users. You may have acquired them, but they are not a good fit for your business. You can look to your acquisition strategy to reduce the churn rate by acquiring the right users.

Another reason for users to not come back to what you are providing is because they didn’t like what they saw. That hurts, but it’s true. You may have acquired the right users, but they don’t like what you are providing. If that’s your case, you have to find ways to improve your product or service.

In my company, we follow the benchmarks for churn rate for 1, 7, and 28 days. Each day meant that we had to improve something different in our products. You start improving the top of the funnel (day one) to achieve the market benchmark. After that, you keep working to improve the KPIs for the other days.

Churn is like a hole in a bucket. It doesn’t matter if you put a lot of water (acquire many users) if the hole (churn rate) is enormous. Most of the time is better to reduce the hole (churn rate) first. That will increase your LTV. Decreasing churn by 10% can double your LTV.

Another way to decrease your churn is by increasing your NPS.

4. NPS (Net Promoter Score)

Walmart’s founder Sam Walton said:

“There is only one boss. The customer. And he can fire everybody in the company from the chairman on down, simply by spending his money somewhere else.”

Understanding how your customer is experiencing your product or service is vital for your business.

NPS is a management tool used to measure customer loyalty. The more a customer uses a product, the more likely he is to refer it to other people.

To learn your NPS, you have to contact your users and send them your NPS survey. The ratings go from 0 to 10. There are three types of customers:

  1. Promoters (9 or 10)
  2. Passives (7 or 8)
  3. Detractors (6 or below)

Having more people referring to your product or service can decrease your CPA, as you can acquire more free users. The NPS is also an excellent indicator of how your customer views your product or service. That can increase your LTV.

If your rating isn’t good, you have to find ways to improve what you’re doing. That is not a survey you do once and forget about it. You should run it frequently to keep providing the best experience for your users.

At my gaming company, we had a close relationship with our users. We had a Facebook group in which we asked for feedback and talk to them frequently.

Always remember who you are building your product or service for. Keep in touch with your customers so you can keep improving their experience. That can help you build a profitable business.

Final Thoughts

It’s much more challenging to build something valuable for your customer by guessing. That’s why you must use data to learn. You need to pay attention to these four KPIs.

I stopped every discussion in my company about our users’ wants if we didn’t have data to analyze. There is no time to be guessing. We need to be fast and use data to learn to provide a better experience for our users.

Different KPIs affect different KPIs. Remember to improve the experience of your users. That will help you increase your NPS and, with that, increase your LTV. If your users spend more money with you (LTV) than you pay to acquire them (CPA), you can have a profitable business.

Free

Distraction-free reading. No ads.

Organize your knowledge with lists and highlights.

Tell your story. Find your audience.

Membership

Read member-only stories

Support writers you read most

Earn money for your writing

Listen to audio narrations

Read offline with the Medium app

Published in Better Marketing

A publication by and for marketers. We publish marketing inspiration, case studies, career advice, tutorials, industry news, and more.

No responses yet

What are your thoughts?