An obvious metric that shows the total amount of money that the app generates through sales or in-app purchases.
The percentage of revenue that is left after accounting for the costs of running the business, such as marketing and product development expenses. This metric is important when considering investing in paid campaigns (e.g., Google search ads) as it will help you calculate how many clicks are profitable before a conversion takes place.
Customer lifetime value (LTV)
The total value that a customer is expected to generate over the lifetime of their relationship with your business. A high customer lifetime value suggests that users are returning to the app and making multiple purchases.
To calculate LTV:
- Calculate the average order value for one calendar quarter minimum (the longer the retention period the better).
- Check the average number of transactions per that period: how often on average does a customer make repeat purchases with you?
- Calculate customer retention: how long on average does a customer stay with your brand? These numbers will be different across industries.
Now calculate the LTV by using this formula:
LTV = Average transaction value x number of transactions x retention period.
Customer acquisition cost (CAC)
The amount of money that you spend to acquire a new customer, such as through marketing and advertising efforts. In other words, how much you pay for every customer. For your marketplace to make a profit, this value has to be lower than LTV.
You can calculate customer acquisition costs by dividing the total cost by the number of customers. This will give you a ratio — a good ratio is 3:1 or higher. Anything below is a sign you should take action.
Gross merchandise value (GMV) and gross transaction value (GTV)
Gross merchandise volume or value measures the total dollar value of everything sold through a marketplace over a given period of time. It is calculated by multiplying the number of transactions by the average order value (AOV). For example, if a marketplace had 100 transactions with an AOV of $50, the GMV would be $5,000.
If your business model is based on commission, you may want to track gross transaction value (GTV) instead of GMV. GTV is the total amount of money generated by the transactions made through a marketplace, including the commission that is charged to the customer. It’s calculated by multiplying the number of transactions, the AOV, and the percentage of the transaction that is charged as a fee.
For example, if a marketplace has 100 transactions with an AOV of $50 and charges a 10% fee for each transaction, the GTV would be $5,500.
GMV and GTV can be useful metrics for measuring the performance of a marketplace, but it's important to keep in mind that they are raw figures and should be considered in conjunction with other metrics to get a complete picture of the business.