The Instrumentation Pyramid is a visual representation of how metrics cascade through an organization.
Level 1 Metrics – Key Metrics Required for Forecasting
Level 1 Metrics are the minimum required set of metrics to accurately forecast the business. As an example, in direct to consumer businesses which we studied at Assembled Brands, the Level 1 metrics are ad spend, web traffic, conversion rate, average order, repeat purchase rate product margin, gross margin. From these metrics we can accurately predict near term revenue and calculate your LTV:CAC ratio.
Level 2 metrics, for example
- break the web traffic metric from Level 1 in to sources of web traffic.
- break the gross margin down into margin by product,
- break the LTV into cohorts,
Level 3 metrics are the real time transaction metrics of your business.
Each department, each customer, each employee may also have 3 levels of metrics.