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Last updated on 12/21/23

Prepare Metrics to Measure Long-Term Success

In the previous chapter, we explored how to create a business case to win the right to carry out the digital transformation project. Now comes the hard work: you don’t just need to get the project underway, you need to secure and maintain ongoing support.

For this to happen, you’ll also need to prepare ways of convincing those around you that the project is worth in the long term. For this, you'll need data.

Change the Way Your Organization Measures Success

As we’ve talked about throughout the course, a digital transformation project often has a very long-term payback - a major business shift. It can take three to five years to see success. 

To succeed, your organization’s senior stakeholders have to:

  • Wait for years to see the return on investment in your project.

  • Accept that the digital transformation project could cannibalize revenues and profits from their existing business models.

  • Understand that the traditional metrics they use for gauging the organization’s success might not show the benefit of the digital transformation project.

Nothing like a challenge, right?

Use Digital Traction Metrics to Measure Success

Part of the solution lies in defining more appropriate digital traction metrics, as used by leading Venture Capital and Private Equity funds, such as General Atlantic, Monashees Capital, DFJ and Andreessen Horowitz.

Digital Traction = Scale x Active Usage x Engagement
Digital traction equation is used by venture capital and private equity funds to measure success.

In this equation, scale refers to the numbers of:

  • Visitors

  • Unique users

  • Registered users

  • Monthly growth in registrations

  • Organic user acquisition

Active usage drills a little deeper to include:

  • Active users - (daily and monthly)

  • Ratio of new users to repeat users (or customers)

  • Number of repeat users (or customers)

  • Conversion rate

  • Abandon rate

Finally, engagement encompasses:

  • Net promoter score (NPS)

  • Customer satisfaction index

  • Downloads

  • Cohort retention on metrics specific to the business

  • Time on site 

  • Bounce rate

  • Traffic sources

  • Customer concentration risk

  • Churn or exit rate

  • Photos or videos uploaded, shared, viewed

  • Number of likes and shares

You’ll see from this list that not all of these elements are appropriate to every organization’s situation; however, the ideas behind it are drawn from studying the growth and success of some of the world’s leading digital pioneers, from social networks like Facebook, Instagram, or Twitter, to technology companies like Apple who are making the leap from manufacturing to a digital-first business model.

Measure Potential the Way Venture Capital Does

These digital traction metrics feed into crucial financial measurements that help determine how well a digital organization is performing - and act as a predictor of its future growth prospects:

  • CAC, which stands for cost to acquire a customer, is the sum of all sales and marketing expenses divided by the number of new customers.

  • LTV, or lifetime value of a typical customer, is the average monthly recurring revenue (MRR) multiplied by the average time a customer remains a customer.

  • LTC:CAC ratio, which is derived from the first two, is a crucial measure of time to profitability and cash flow.

  • Months to recover CAC is calculated as CAC divided by the average MMR.

Let's Recap!

  • Your digital transformation project will require a new set of metrics to measure success. Silicon Valley's investment machine assesses success in challenger organizations.

  • Apply the digital traction formula to assess potential future value:
    Digital Traction = Scale x Active Usage x Engagement.

  • Adopt the new financial metrics based on cost to acquire customers (CAC) and customer lifetime value (LTV).

So far, in Part  2 of this course, you’ve been learning how to win (and to maintain) support for your digital transformation project from a range of different stakeholders within your organization. There’s just one more piece of this jigsaw puzzle left to learn about: How can you protect the project in the face of changes to senior management? On with the next chapter to find out!

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