When it comes to watching numbers, a lot of the business owners I talk with have the basics covered. They’re watching things like revenue, ad spend, conversion rate, and cost per sale. Those are all super important. It’s a great way to pick up on trends early. But that’s not enough to drive massive growth.
Want to get serious about sales? Then, you need to roll up your sleeves and take a deeper dive. You need to pay attention to a few key numbers that will let you really drill down on how your business is doing and whether your marketing is effective. More importantly, these numbers give you a different way to think about your business and how to make decisions about what to do next.
This is a virtual alphabet soup of numbers commonly known as the CLV, AOV, and ROAS. For the most part, the info is readily available, it’s just a matter of taking a little time to do the calculations.
Let’s take a look at what they are and how to use them.
Return on Ad Spend (ROAS)
Gross Revenue of Ad Campaign/Cost of the Ad Campaign
If you’re doing any paid marketing, you really want to know this one. It’s a way to measure whether all that money you’re spending is having an impact. Basically, it’s how much each dollar you spend on advertising generates in revenue.
For example, if you spent $5,000 on the campaign and generated $50,000, the ROAS is $10. That means for every dollar you spent, you generated $10 in revenue.
This number is great for comparing different ad campaigns based on results rather than revenue. Suppose you have two campaigns on Facebook. One generated $30,000 while the other generated $10,000. On the surface, the $30,000 campaign seems to be the winner.
But let’s look behind those numbers. On the first one, the spend was $15,000, so the ROAS was $2. On the second, the spend was $1,000, for a ROAS of $10. Now, you have a better idea of which one to replicate.
Average Order Value
Total Sales/Number of Orders
If sales are going up, the business is doing well, right? Maybe. But maybe it could be doing even better. Rather than focusing on overall sales, you need to focus on each individual sale. You do that by watching the average value of sales. Here’s why. Each sale costs you a certain amount. That amount stays about the same regardless of how big the order is. So, if it costs you $2 per transaction and you have 100 transactions, it costs you $200. If the average cost of a sale is $50, you take in $5,000. But, if you can increase that average cost to $75, you’re still spending $200 on marketing, but you will make $7,500.
Once you know the average cost of sales, how do you increase it? Look at things like offering bundles. If someone is buying a remote control car, they’ll probably want batteries to go with it. Give them a deal if they buy both. Or, use AI to suggest other items once a shopper has put something in the cart. It’s the electronic version of having quick sale items at the checkout.
Customer Lifetime Value (CLV, sometimes called the LTV)
Average Transaction Size x Number of Transactions x Retention Period
This one is a little more complicated to calculate, but it’s extremely helpful to think about in trying to make decisions about things like ad spend and promotions.
This goes beyond looking at how much a person will spend on one transaction to getting the big picture of how much they’ll spend with you over the entire time they do business with you. A couple of things matter about this.
First, it costs less to keep a customer than to get a customer. The more return customers you have, the less you will spend per sale. For instance, it might cost $10 per sale on marketing to bring a customer onto your site or into your store. But it may cost as little as $0 to get them back if they’re satisfied. Even if you spend $2 or $3 to get a customer to come back, you’re still ahead.
What Numbers Can Do for You
A lot of this is about getting comfortable with the numbers and learning how to look at them. The more you know about what is happening with the numbers, the better you will understand what is happening with your business. This information is powerful in terms of being able to make the best decisions and take the best approaches. It doesn't replace taking time to understand customers and what drives them, but it will help you see the big picture.
