VideoPartner firms, too, can provide a wealth of information. As Willem Ackermans, CFO of KPNQwest, the E462 million ($431 million) data communications company based in the Netherlands, notes: "E-commerce is all about being open, building closer partnerships, and integrating with your customers. When that happens, you have to share information."
As such, KPNQwest is currently preparing a system so that its customers are privy to the same performance metrics that the company uses. "We'll let our clients see exactly what sort of service we're providing," declares Ackermans. "They'll know the speeds of our network and the efficiency levels, just as I will."
Of course, coming up with useful metrics isn't a one-off exercise. Just ask Massimo Cristofori, CFO of Tiscali, the Italian Internet service provider that recently bought Dutch rival World Online.
As he sees it, one of the biggest challenges for CFOs trying to monitor an E-business is the rapid pace of change on the Internet. "Trying to keep your finger on what the drivers of the business are is tricky because they change all the time. Six months ago, I was using different metrics to those I use today, and I'll be using different ones again in six months from now," he sighs.
This Month's Metrics
Currently, Cristofori focuses on four key Web metrics. Three of them — the number of active subscribers, the average number of minutes each subscriber spends online, and the number of pages they view — drive revenue, given that Tiscali makes its money by charging for connection time to the Web and by selling advertising on its portals. The fourth metric is the cost to acquire a new customer. Before the merger, World Online had an average customer acquisition cost of E70 ($65), while the figure for Tiscali was just E18 ($17). Now that the two companies have joined, Cristofori has set a target of E40 ($37).
As the CFO of a new-economy company, Cristofori probably has a head-start on many fellow finance chiefs. But, as the Web continues to evolve, that's likely to change. In the future, even CFOs of traditional businesses will have a toolbox of Web metrics by their side.
Justin Wood is the managing editor of CFO Europe.
A Matter of Meaning
Web measures should come with a warning label: What you see isn't necessarily what you get. Consider these definitions.
Abandonment rate. The number of people who start but don't complete the buying process.
Acquisition costs. Advertising and promotion costs divided by the number of click-throughs.
Attrition rate. The percentage of existing, converted customers who have stopped buying from a site and have gone elsewhere during a specific period of time. The awkward-sounding verb form is attrite.
Churn ratio. How much a firm's customer base "rolls over" during a given period of time. To calculate churn, divide the number of customers who attrite during the given period by the total number of customers at the end of the period. Take, for example, an Internet service provider that has 2,000 customers at the start of the month, gains 200 new subscribers, but loses 50. The churn ratio is 50 divided by 2,150, or 2.3 percent.
Cost per conversion. Advertising and promotion costs divided by the number of sales.
Duration. How long a customer spends on the site. Short visits may be better than long visits for certain companies.
Frequency. How often a customer visits the site. For newspapers it could be daily, while for florists it might be quarterly.
Recency. How long it's been since a customer last visited the site. As recency diminishes, the potential for future purchases decreases. After a previously specified period of time elapses, the user is considered to have attrited.
Stickiness. The total time spent viewing all pages divided by the total number of unique users. (More exactly, it equals the total frequency (the number of visits in a certain period divided by the number of unique visitors in that period) multiplied by total duration (the time spent viewing all pages in a certain period divided by the number of visits during that period) multiplied by total site reach (the number of unique users who visited during a certain period divided by the total number of unique users).)
Stickiness is a composite measure of how well and how consistently a site's content holds users' attention and allows them to complete their transactions. Some parts of a site should be slippery rather than sticky.
Velocity. How quickly a user moves from visiting a site to completing a transaction on a site.
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