March 28, 2017
When you first release an app, the number one thing people will ask you is how many downloads it’s gotten. It’s a reasonable question — on the surface, downloads seem like an excellent metric to gauge people’s interest in your product and its continued success.
Certainly, as the CEO of a members-only mobile application for discovering and booking curated nightlife and special events around the world, I was thrilled by the number of downloads our app was getting upon its initial release. Its popularity validated the hard work we had done in choosing the right brand identity, building relationships and creating the right brand voice with our advertising and content. The high download numbers certainly helped us secure partners, contracts, and additional investors as well.
But after a few months, we began to notice something: Many of these downloads weren’t actually leading to fully qualified, revenue-generating users. Our brand power was strong enough to get people to sign up, but when it came to long-term engagement and retention, we weren’t where we needed to be.
We didn’t want to be the app you’d rather have and not need than need and not have. We needed to be a functional staple of people’s event planning and travel lifestyle.
We realized then that, when it came to actually building a sustainable business, these vanity metrics were almost completely useless on their own. To have any value at all, they needed to be presented alongside percentages of users converted, retention rates, and other key performance indicators that could tell us not only where our users are coming from, but also which ones were staying on for significant lengths of time.
The Importance of Digging Deeper
To gain traction, startups must be able to quickly recognize the best sources of consistent customers. One of the biggest problems with focusing on vanity metrics is that it causes you to overlook the systemic patterns and trends in your business that can lead you to these sources.
For instance, when we began to go beyond vanity metrics to see where our business truly stood, we quickly saw a big difference in the conversion and retention segments of our members — especially when it came to social media campaigns.
Sure, we could usually get a user for one or two dollars. But these would often be fringe users, such as young girls in Russia or grandparents in China — not really the type to stick around. It pumped up our total download numbers but did nothing for us in the long term.
Instead, we learned early on which marketing channels worked for us by forcing each new member to tell us how they heard about us. Our system would even detect common words and phrases — such as “Instagram” — and get the member to provide the name of the Instagram account itself. That process was necessary for us to track effectiveness of our advertising dollars or ambassador’s efforts.
What we found was that a post shared by a nightclub promoter generated more valuable and engaged members than a post by a random travel blog — even if that blog had millions of followers and gave us tens of thousands of downloads.
How to Focus on the Right Numbers
Dismissing vanity metrics is easy; the hard part is focusing on the right numbers that are meaningful to your business. We used three main strategies to keep our focus — and the focus of our investors — where it needed to be:
- Measure actionable metrics. As entrepreneur Eric Ries contends, all metrics should be “actionable, accessible and auditable.” Create a KPI dashboard that measures all the truly important metrics of your business. At first, we at InList created this manually, and then we moved to automate the important parts. You’ll need metrics such as cost-per-acquisition, lifetime value and churn. We also tracked the number of monthly reservations that came from repeat customers, divided into groups of how many times they had booked before — our most important metric.
- Talk to customers. Pick a handful of customers from each phase of your conversion process and get them on the phone. Find out what got them into their current life cycle phase and why they haven’t gone further. For us, it was finding out why downloaders hadn’t registered, then finding out why registered users hadn’t applied for VIP status, then finding out why VIP members didn’t book, and then finding out why booking VIPs don’t book more often. The answers were always surprising and enlightening.
- Make sure your investors and peers see (and understand) these metrics. Investors often look to vanity metrics such as total downloads for excitement. As a founder, it was sometimes hard for me to ignore the pressure from the outside to focus and report on top-line “vain” numbers. The best way to counter this was to extrapolate metrics like retention and conversion ratios to keep them excited while staying focused on numbers that truly matter.
Vanity metrics are great for the “wow” factor. But when it comes to building a financially viable customer base, they just don’t cut it. Don’t let you your investors be fooled by these superficial numbers: Dig deeper, and you’ll find the true value of your company just underneath the surface.
This article is courtesy of BusinessCollective, featuring thought leadership content by ambitious young entrepreneurs, executives & small business owners.
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