For startups, it is imperative that progress towards the laid out objectives and goals be tracked and communicated to all parties concerned. Not only does this help to point out areas that are doing pretty good and those ones that could use improvements, but it also serves as a road map that, more or less, keeps the members of the team in line and abreast with how much work they’d need to put in.
Startups need to be on top of metrics because they are indicators of what’s working and what isn’t since they monitor the results of the activities and processes undertaken by the startup in an effort to achieve certain objectives.
If a business is derailing from its proposed path, metrics do not only do a good job of flagging these deviations. More than diagnosing the source of the problem, they could also inspire actions that could get the business back on track. Thus, defining the right metrics to pay attention to is crucial for any business – startups, most especially.
As a startup founder, you’d want to have some key metrics at your fingertips if you wish to grow your company and see it achieve its long-term goals.
Also, we get it; fussing over every little detail and crunching numbers while also managing the day-to-day demands of the business can be difficult and time-consuming. And as a matter of fact, it’s easy to lose touch with tracking your progress while you’re engrossed with actually planning your progress.
Of course, there are other details like product development, team-building, investor-courting, and many other important things required to get the business into lift-off. Rest easy, we know you have enough on your hands as it is. And that’s why we’ve put together ten of the most important metrics that startups should not ignore.
1. Gross Margin
- What’s this? – A company’s revenue after subtracting only the direct costs of producing the goods for sale.
- What does it indicate? – How production costs relate to your revenue.
- Why bother? – A low margin implies that your startup will not have enough income left over to cover fixed expenses or the other costs of running the business. In order for a business to be successful, it needs to be able to cover fixed costs because they cannot be avoided, regardless of production or sales.
2. Customer Lifetime Value (CLV)
- What’s this? – A prediction of the total amount of money a customer will spend throughout their relationship with your startup.
- What does it indicate? – The profit your business makes from any given customer.
- Why bother? – CLV can act as a benchmark for future growth and expansion. It demonstrates the significance of repeat business and helps you to better understand your customers.
3. Customer Acquisition Cost (CAC)
- What’s this? – The amount of money you need to spend in order to gain a new customer.
- What does it indicate? – The efficiency and return on investment (ROI) of your marketing efforts.
- Why bother? – In order for a startup to gain traction and become profitable, the customer acquisition cost needs to be lower than the customer lifetime value.
4. Customer Retention Rate
- What’s this? – The percentage of customers that stay with you over a given time period.
- What does it indicate? – How much your existing customers like the product.
- Why bother? – High retention rates are a good sign for growth, whereas, low retention rates may signal something is wrong with your product. It costs less money to retain your existing customers than to acquire a new one.
5. Cash Burn Rate
- What’s this? – How much cash you are spending during a given period of time (typically measured by month).
- What does it indicate? – How much time is left before you run out of money, how close you are to breaking even, and when you will start generating profits.
- Why bother? – Some 82% of startups fail because of bad cash flow management skills or a poor understanding of cash flow. This is also a metric that investors focus on.
6. Conversion Rate
- What’s this? – The percentage of people who take action after seeing an offer.
- What does it indicate? – This is a very broad term, but conversion rates can tell you anything from how successful your advertising and marketing is to how many website visitors are actually making a purchase.
- Why bother? – You can focus on improving processes with low conversion rates and see if the changes you are making have an impact.
7. Month-Over-Month (MoM) Growth
- What’s this? – The average monthly growth rates.
- What does it indicate? – You can measure the growth rate of monthly revenue, active users, number of subscriptions, or anything else that is considered a key factor in the success of your company.
- Why bother? – MoM growth can help you benchmark where you are in relation to your competitors and attract investors.
8. Inventory Size
- What’s this? – The amount of raw materials and partially or fully finished goods a company has.
- What does it indicate? – What portion of the company’s assets are ready or will be ready to sell.
- Why bother? – Inventory is one of the most important assets that a business possesses, but it can be hard to find a good balance. Many entrepreneurs find that they either have too much inventory (which can lead to cash flow problems) or not enough (causing lost sales).
9. Operational Efficiency
- What’s this? – Operational efficiency is the ratio between everything going into production (like money, time, and labor) and the end result.
- What does it indicate? – The most cost-effective way to deliver your product, while still ensuring quality.
- Why bother? – As a business grows, so do the related inputs. It is important to figure out what inputs are dispensable and streamline your processes early on.
10. Relative Market Share
- What’s this? – The percentage of a market controlled by your business.
- What does it indicate? – How your company is performing when compared to its competitors in the same space.
- Why bother? – Knowing your market share can help you make strategic adjustments to your product and service offerings, so you don’t get knocked out by your competitors.
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