Does Growth Hacking work? The KPI you should use to measure results
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LinkedIn, Facebook, Airbnb, and Uber earn millions of dollars a year and are leaders in their industry. They owe a lot to Growth Hacking. But revenue is not the only measure of success for a company that implements a strategy based on Growth Hacking. There are many other interesting KPIs that every business owner can apply to tell whether Growth Hacking works. Let’s see which ones.
Over the last 10 years, Growth Hacking has proven that it’s not just a trend in the world of marketing. Large Silicon Valley companies, born as startups with a great idea but few resources, achieved global success in a few years thanks to this new mindset.
Why everyone wants to use Growth Hacking?
In 2010, marketer Sean Ellis coined this new term to invite marketers and business owners (startups especially) to change their approach to marketing goals.
According to Ellis, a great product is not enough to succeed. Every company needs a “hack”, something to spurs the public to buy and drives customer base growth to support the investment made on the product and make the business profitable.
What Growth Hacking is and what we mean by this term
Growth Hacking is a working methodology aimed at finding ways to accelerate company growth quickly and at a minimum cost.
Whatever your business, you can leverage Growth Hacking to grow. It involves a continuous process of experimentation and analysis of customer response to identify the most effective growth strategies.
Having an intuition, finding the growth hack and developing it is the goal of the Growth Hacker, the professional figure who deals with planning and implementing Growth Hacking techniques.
Growth Hacking: how it works
Growth Hacking methodology helps marketers put secondary aspects aside and focus on achieving what matters most: customer base growth.
Growth hacking is an approach used mainly by new startups to grow quickly with reduced budgets. Growth Hacking is not based on standard techniques such as traditional marketing. Every business is different and need to find the creative hack that will promote its growth.
To properly set up a Growth Hacking strategy, you need to study your target user base, the tools and channels of digital marketing and deepen the mechanisms that stimulate social relations between people, users and companies.
The Growth Hacking funnel
To create a successful Growth Marketing Strategy for your business, you need to define a growth funnel.
The funnel image conveys the idea of a strategy that leads users to slide towards conversion. Many get lost by the wayside, but some follow the flow and realize the desired action: a purchase, subscription to the newsletter, sharing content, etc.
This process begins with an awareness phase and ends with purchase – which can include subsequent customer loyalty activities.
Growth Hacking use the so-called pirate funnel (or AAARRR), invented by Dave Mcclure, divided in the following phrases:
Defining KPIs for Growth Hacking
KPI stands for Key Performance Indicator and represents a value that measures the success of a given marketing action or strategy in a predetermined way.
KPIs can be applied to any level of Growth Hacking strategy and growth funnel. Let’s look at a few examples.
Examples of KPIs at various levels of growth funnel
You can optimize your marketing and sales efforts at six levels of the Growth Hacking funnel by measuring some specific metrics:
- Awareness: website visits, visitor page time, CTR
- Acquisition: % growth of the user base in x months, conversion rate from visit to lead, cost of acquisition of a customer (CAC)
- Activation: number of registrations, number of active users, number of qualified leads, time from registration to active use of the product/service
- Retention: retention rate, abandonment rate, customer lifetime value (CLV)
- Referrals: number of product reviews, social sharing, social media traffic
- Revenue: recurring monthly revenue (MRR), recurring annual revenue (ARR), average value of the deal.
10 Growth Hacking KPIs to measure your strategy
There are no standards KPIs or key performance indicators valid for all companies in Growth Hacking.
A KPI is useful and meaningful only if it leads to the achievement of a strategic objective. This means that in order to correctly define your KPIs you will first have to think about your business’s characteristics, the goals you want to achieve and the critical factors of success.
You then apply SMART logic to your purposes to define specific, measurable, achievable, and relevant objectives, defined over time.
Let’s delve into some of the most useful KPIs to establish the success of a Growth Hacking strategy:
1. Cost per acquisition (CPA)
This is the best approximation of the total acquisition cost of a new customer. To calculate it, the marketing and sales expenses (including advertising and management costs) are divided by the number of customers acquired. It can be a cost per click (CPC) or a thousand views (CPM).
2. Lifetime value (LTV)
This is the total revenue, on average, you expect to receive over the estimated lifetime of a customer. LTV is the monetary measure of your customer’s long-term value. If the value is negative, your business model is not profitable.
3. Churn Rate
Indicates the abandonment rate, which is the monthly percentage of customers who end their relationship with your company, who do not return or cancel the subscription. This KPI allows you to understand how many customers you have lost in a given period of time.
4. Daily Active Users (SAD) / Monthly Active Users (MAU)
Key performance indicator in the activation phase, the number of active users shows the percentage of acquired customers who are actually using a company’s product or service. If you can monitor this metric daily, it will tell you who your most engaged customers are. Depending on the features of your product and your Growth Hacking strategy, you can measure your active users on a weekly or monthly basis.
5. Lead Velocity Rate (LVR)
The Lead Velocity Rate compares the percentage of growth in acquiring quality leads from month to month. It’s an important KPI because it measures the monthly growth percentage of customers interested in your service.
6. Customer Involvement Score
This metric monitors customer interaction in a multichannel context. Also referred to as the Customer Happiness Index, this KPI relies on user behavior to define the channels, tools and actions that bring the most value.
Once all the processes and the various components of the customer journey, and defined priority channels and target actions, such as number of clicks, time spent on the site, visits, etc., have been mapped, a numerical value is assigned to each. Then, the benchmark representing the customer engagement score is calculated. The higher the number, the happier the customer and vice versa.
7. Renewal Rate
The renewal rate lets you know how many of your current customers renew their subscriptions. It is calculated by dividing the number of customers who renew by the total number of customers.
8. Viral coefficient
The viral coefficient indicates the number of new consumers or customers generated by a current satisfied customer. This metric measures the viral effectiveness of a brand, or the ability to go viral and reach new potential customers. It’s a fairly new metric that is very useful for evaluating online marketing campaigns.
9. Quick ratio
This KPI is often used by investors to quickly assess the financial success and potential of an asset. It measures how much a startup or company can increase recurring revenue by assuming the abandonment rate.
10. Recurring monthly revenue (MRR)
Monthly recurring revenue (MRR) is one of the most relevant KPIs for a subscription-based business. In the case of Netflix, for example, subscribers pay a recurring specific amount each month until they unsubscribe.
Important: Everything that you improve with the Growth Hacking funnel will immediately be reflected in this KPI.
Setting KPIs to measure the success (or failure) of an action or marketing channel is the foundation of any Growth Hacking strategy. You can define the KPIs you prefer and change them over time according to the stage of development of your business or your priorities.
Classifying performance metrics according to the different steps of the Growth Hacking funnel can give you a more accurate overview of the situation and help you immediately understand where to focus your efforts to improve the results you are getting.