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Finding key metrics is like panning for gold (DeltaMike photo)

Like most Internet-centric companies, we find ourselves engaged in an ongoing (never ending?) search for the core metrics that will truly matter for our business. In today’s digital world, we can record and report on just about every single bit that is flipped – but the deluge of data that ensues is rarely informative or directly actionable.

So we all sift through our data in an attempt to uncover what can truly make an impact on our business. This is a process that reminds me of my early attempts at panning for gold along the Rogue River as a child.

I regularly produced sand, periodically got excited over fool’s gold, but only rarely found genuine (and most often, tiny) flakes of real gold.

While I crouched for hours in the cold river, hunched over an unproductive little pan of (mostly) sand, I would stare with envy at the mechanical sluice box just upstream that ran 24 hours a day – effortlessly sifting through a mountain of sand to produce far more gold than I could ever hope to get from my painfully manual process.

In an attempt to simplify the data sifting process, at BigDoor we’ve developed a key performance indicator (KPI) framework that has helped us as well as our more than 300 partners to discern the sand and fool’s gold from the true gold in the rushing river of data we all deal with.

Think of this KPI framework as a sluice box for your data, enabling you to be more efficient in uncovering your own golden metrics. These are simplified, high-level audience metrics that pick-up where the user acquisition funnel leaves off, and are meant to be meaningful whether you have 100 users or 100 million users.

The Four Golden KPI Categories

Loyalty: Woody Allen is often credited with the quote: “Ninety percent of life is just showing up.”  That is certainly true with online audiences. Competition for attention is ever-increasing, and the switching costs for consumers are close to zero. As such, we measure loyalty based on the frequency with which your users show up (go to your site, launch your mobile app, play your game, check-in, etc.). Daily unique users (DAU) compared to trailing 30 day unique users (MAU) is a simple, yet effective measure of loyalty.

Loyalty Score: % of DAU ÷ MAU

Engagement: Now that your users are coming back, engagement is all about measuring what they do when they are there. Most of us have a set of Premium Actions on our site or in our app that are more valuable than other actions. These Premium Actions might include: contributing content; curating content; commenting; watching an ad-supported video (with much higher CPM rates than the display ads cluttering up most sites); logging in; making a purchase; clicking on an ad; or providing feedback. Each site and app has their own list; the point is that not all user actions are equal.

Engagement Score: # of Premium Actions ÷ DAU

Virality: The ubiquity of the social graph is one of the greatest gifts we in the digital marketing world have ever received (Thanks Zuck!). But like previous gifts of this ilk (think SEO), the social graph can be a double-edged sword that we must learn to wield properly or it may do more harm than good. The pace in social is like nothing we’ve seen before (Can you believe that the “Like” button was launched only 17 months ago?).

Everywhere your users go they are bombarded with requests to Like/Share/Tweet/+1, and while users are rapidly embracing social sharing, the demand has outstripped the supply.  It is now difficult to rise above the noise to convince users to share your content with their social graph, and if they do share your content it is difficult to know how effective the shares are. Users need to be given a reason to tap their social graph, and they should be rewarded based on how influential they really are.  We can all learn from the geniuses at Dropbox. Their referral mechanism seamlessly tracks the shares and referrals that their users make, and then they reward new recruits and the person who influenced them.

With the Dropbox model as inspiration, and with a desire for simplicity, we’ve created a virality score that assigns a value to each of the three critical actions in the referral process; Shares (any Like, Tweet, +1, etc. that results in content or links being shared outside of your site), Influence (any unique click on a shared link), and Recruits (a unique signup from a shared link).  The value of each should be roughly equivalent to your relative value of an impression, a click and a registration – so feel free to edit the values to fit your reality.

Virality Score: (# of Shares x 1) + (# of Influence x 25) + (# of Recruits x 200) ÷ DAU

Revenue: Walt Disney is credited with the fantastically pragmatic quote: “We don’t make movies to make money. We make money to make more movies.”

Without proper monetization, no site can continue to create amazing content and communities. Measuring average revenue on a per user basis (ARPU) is important as it gives you insight into your per-unit economics without being masked by either growth or shrinkage in audience size. Using total Monthly Revenue as the numerator and Average DAU as the denominator is an important way to smooth out daily abnormalities and provide you with a consistent ARPU metric.

ARPU Score: Monthly Revenue ÷ Average DAU

The simplicity provided by these 4 golden metrics allows us to focus on the key drivers of our business, no matter the size and scale of our audience.

We hope that this framework can help you sift out the sand and fool’s gold from the true nuggets of actionable insight waiting to be plucked from your never-ending stream of data.

Keith Smith is CEO of BigDoor, a Seattle startup that builds game mechanics into online publisher’s Web sites. You can follow the company on Twitter @bigdoor.

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