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Measuring the success of your technology platform
Building the right technology platform depends on measuring how effectively it is performing. But what is the best way to do this? And which metrics should you consider that will indicate success?
A key part of the journey to becoming a platform driven business is defining, tracking and managing the key performance indicators (KPIs) that demonstrate the platform’s value proposition. Although financial metrics are critical drivers and should continue to be a measure of the business, the ability to measure a platform’s value proposition beyond purely revenues is critical.
In the case of payments, because the solution is something that you sell and a platform is the common infrastructure that you use build the product on, the KPIs and the ways you define what good looks like must be quite specific.
You need to look at both ends of the spectrum. At one end you must have a set of growth KPIs to measure the ability to support growth. At the other end, by virtue of being a common infrastructure, they must be able to deliver capabilities at a more optimal cost point, which requires a set of efficiency KPIs.
Defining these KPIs early and building out the instrumentation to capture, measure and drive insights from them also enables you to make platform KPIs integral to the product development process, and establishes a data driven product development culture.
The key growth metrics that a business might use to drive the maturity of a platform and measure success include the following:
- Monthly Active Users (MAU): a number which demonstrates how many users there are of your service during a certain period. This is a metric which can serve both B2B or B2C service providers and is insightful for understanding engagement from both businesses and consumers.
- Lifetime Value (LTV) or Annual Revenue Per User (ARPU): While a metric like MAU talks to customer engagement, ARPU can be a secondary or derived KPI, and LTV (which ARPU is sometimes substituted with) provides an insightful metric to help drive growth. ARPU can be more relevant to subscription services, and LTV is a particularly helpful measure for payment platforms. Ticket volume is an equally important driver. For example, a customer who completes one transaction of $150,000 in a year is clearly more profitable than a customer who completes 30 transactions a year of $20 each.
- Total Annualized Volumes (TAV): A good generic indicator of the health of a platform is the volumes which flow through it. Usually, if the LTV and MAU KPIs are trending upwards, this is reflected in an upward trend for the TAV too. If this is not the case than it can be a leading indicator of symptomatic issues. For example, a growing MAU base but falling TAV would suggest that customer acquisition is working well but getting them to complete the first transaction or complete repeated transactions isn’t.
The key efficiency KPIs which you would want to see downward trends on are as follows:
- Customer Acquisition costs (CAC): This is simply the amount it costs to acquire a new customer, which is seldom zero. Like MAU, this is a KPI that’s applicable to both B2B and B2C facing businesses. It can also cut across customer segments within these focuses, such as enterprise, SMB, Micro Merchants in B2B, or consumers and VIPs within B2C audiences. It’s a great way to gauge the platform’s network effect, particularly on the B2C side as new customers are typically won through word of mouth or referrals.
- Customer retention and activation costs: For a payments business, particularly in more mature geographies, CAC can exert significant margin pressures. Adopting a laser-like approach to directing precious platform resources towards getting customers engaged and using the platform can be very beneficial. Regulatory and compliance resources tend to form a significant part of capex spend in payments or financial services companies. Capturing such costs under this umbrella is important, as being compliant not only contributes to driving customer retention, but also allows teams to review spend and drive the right culture in terms of decisions over whether to build or partner.
- LTV/CAC Ratio: Put very simply, this is the point at which the cost of acquiring the customer has been recuperated. It is a compelling KPI to measure for payment platforms, particularly as you start to identify and test new revenue models. Customers with an LTV/CAC of ~3.0x are typically indicative of an engaged audience segment that is well monetised. So, they see the value in the services you offer and are the most likely to engage in new propositions because they see your platform as something that is of value to them.
The benefits of platform metrics
As effective as it is to have a data-driven product development culture, it’s also important to zero in on a handful of key metrics – perhaps three or four – and not chase 20 different metrics which can then make instrumentation harder to implement and decision making more complex.
There’s no ‘one-size-fits-all’ approach to measurement, as the usefulness of metrics can vary so greatly depending on the focus of the business. However, much can be gleaned from tracking non-financial metrics which can in turn support critical decision making and trouble-shooting to make a business run more effectively and ultimately improve your bottom line. There is plenty of information at your fingertips to ensure that a platform is delivering on its promise.