If you’ve tried using the unit economics calculator we shared earlier, you might have noticed that one of its main features is presenting a list of the core product and marketing metrics. When you change certain elements of the unit economics formula, you can see how it affects your business’s performance. This way, you will know what to focus on to increase your profits.
Analyzing metrics can feel complicated, but we have an idea how to make it more practical. You can view your metrics hierarchy in two ways, down-up or up-down.
Down-Up means you gradually go from the smallest indicators to bigger ones.
For example, you launched an ad campaign with banner advertising targeted at a certain group of customers. After it’s finished, you know the Cost per Click and the conversion rate. With this data, you can calculate the customer acquisition cost (CAC). The difference between the margin and the CAC is the profit you get from a client. Then, you multiply the profit by the number of clients and this gives you the gross profit. Gross profit minus fixed expenses is your net profit, and so on.
Up-Down means working with bigger indicators and “going down” parameter by parameter.
Let’s say you want to calculate CAC again. You take the gross profit and divide it by the number of clients to calculate CAC. However, in this case you consider all clients in general and do not look at specific targeted activities. The main risk is that accounting fluctuations may spoil the numbers, as the number of clients may vary from period to period. Using this method of calculation, you are less likely to understand whether a business experiment is successful or not.
JetStyle’s CEO Alexey Kulakov dedicated a chapter of his book about product development to metrics and how they help you increase your business’ profitability. You can find the book on Amazon for free: https://amzn.to/3XpSb7Z