Failure to monitor the progress of your business can bar it from scaling. It’s no use pitching for business, scouting for the ideal candidates, or even looking for investors if you don’t consider adopting the ideal metrics to analyze your achievements. In this article, we shall try to understand the most essential metrics that startups need in order to measure. The following metrics cover three categories which include:
- Customer metrics
- Sales metrics
- Finance metrics
These metrics will help you as a startup entrepreneur to keep a tab on the progress of your business. You’ll also be more alert to identify and correct any shortcomings before they escalate.
The following sales metrics will help you generate a growth engine
Revenue Run Rate
Once you’ve launched your startup, there are various things you’ll be looking to achieve. They are:
- Implementing your plan
- Acquiring customers and
- Growing an operational product
To accomplish this, you will have to begin calculating the scaling pattern of your business. Remember, your income run rate calculates the evolution of sales over time. It will play a major role in analyzing your ability to accomplish your projections, captures patterns as well as directional trends, and can identify any problems you may have with your pricing system even before they happen.
Average Revenue Per User(ARPU)
Your average revenue per user is a calculation on the impact of the customer to your income. An increase in income is an indication that every customer is buying more and that you have priced your products appropriately. But that is not where it ends seeing that an average cannot clearly indicate the standard of your sales.
In every startup, some customers will be more valuable compared to others which is why you will want to analyze your sales break down according to the customer type and channel. This will help you to understand trends and strive to optimize your customer needs in a bid to increase your revenue.
The activation rate calculates the number of visitors visiting your application or website. The description of activation depends on your business and various other factors such as; the specific pages viewed, the time spent on the website, the number of clicks per page, trial signups, blog or email subscriptions, and downloads.
The activation rate is likely to be any action that can convince visitors to return to your website often (this tactic is also known as retention.) the startup metric calculates a potential customer’s or even visitor’s first impression or experience with your application, services, or products.
Why is Activation Rate Essential?
Activation rate helps you establish the optimization level of your app or website. It also comes in handy to identify and alert you on potential opportunities to increase your sales. A higher activation rate indicates that;
- Your business is engaging the right customers for your service or product
- You have made your website or app more persuasive and intuitive and
- Your audience identifies with your messaging and copy, your graphics of choice, and your call to action
Improving your user experience is the first step towards improving your activation rate.
A low activation rate, on the other hand, can be due to various reasons such as a broken form, slow page load, unrelated or unappealing copy, and targeting the wrong audience. By monitoring your activation rate, you can be able to identify areas where you need to improve.
Cons of Activation Rate
When your application or website numbers are low, you might as well forget about the activation. This is because it may not be the ideal option to highlight the impact of different changes. Rather, you can consider expanding sessions before finding the right strategy to implement activation rates.
Daily Active Users and Monthly Active Users Ratio
The DAU and MAU users ration calculates how clingy your product is. In simple words, it seeks to understand how frequently people are attracted to your product. DAU describes the number of exclusive users who will view or even purchase your product within a one day window.
The MAU user ratio describes the number of exclusive users who are attracted to your product within a thirty-day window. The percentage of DAU to MAU is the fraction of monthly active users who are attracted to your product within a one day window.
The DAU/MAU ratio helps startups to understand how much users value their product. Further, it offers an overview of user retention. For new startups, this can be an essential metric to help analyze customer absorption and compare the same against the potential revenue.
One of the cons of the DAU/MAU ratio is; you are unable to view the type of users being retained and those that are churning. In such a case, you’ll need a cohort retention evaluation. This can be any comparable group of users an entrepreneur outlines
These customer metrics are intended to help you enhance customer absorption.
Your churn rate will indicate your ability to retain customers. While the ultimate value is necessary, the trend is also important. The trend should not elevate or drop suddenly and if it does, then you should be keen to understand the reason behind it. However, if the trend descends over time there may be no cause for worry.
Custom Acquisition Cost (CAC)
As a startup entrepreneur, you should know how much it takes to attract every customer. The CAC will come in handy in this case. This metric is an ideal method for evaluating the efficiency of your sales team and sales processes. If the percentage of impact to spend does not seem to improve with time, you should consider making some changes.
Financial Management Metrics
Financial management metrics help you understand you understand your cash flow. They include:
Understanding the amount of money your startup spends each month is essential. Studies suggest that a big percentage of startups will fail due to lack of money. What’s more, potential investors will want to know this factor.
The burn rate involves understanding how long it will be before your startup runs out of money, knowing how long it will be before your startup can break even, and gauging how long it will be before you start earning profits.
Burn rate is an essential metric when it comes to establishing how much money and for how many months a startup has in their bank account. Often, this is known as X months of runway.
Various factors can influence your burn rate. They include; production cycle conversion and fluctuation of the economy. The burn rate is also a method of stopping you from spending and instead strive to manage your expenses. Remember, costs can accumulate if you are not keen. As a startup, you want to keep your spending as low as possible.
Your gross margins calculate the operating profitability of your business. In this case, both the trend and the level are essential. You will need to figure out the gross margin in your industry to get an idea on where you need to concentrate on.
Operating margins will not be necessary if the startup is not yet making profits but you should aim at them. Your gross margins will indicate the effectiveness of your sales, management, and customer teams in terms of managing the business.
You will be able to figure out the operating levers you can adopt to promote growth, understand the stage of your startup curve, and establish your closeness to the inflection points.
What’s the operational efficiency of your startup? Are you getting a return on investment? Is your business suffering from your decision to under invest in low profile yet essential areas? The sales ratio to selling, general, and administrative expenses will help you answer the aforementioned questions. You’ll be able to understand a variety of areas such as; marketing and payroll, and sales. However, you can’t use this ratio to gauge expenses such as utilities and overhead.
Low margins will be an indication that you are spending more than you are earning. This could be due to low pricing, or a poor cost structure. In order to improve the startup, you can consider outsourcing where possible.
This way, you will be able to understand the strategies you need to boost your sales. Failure to outsource will see you spend more to market your business in a bid to stabilize it. If you apply the right strategies in your spending you are sure to stabilize the startup and the results will reflect in your increased sales and cash.
metrics are necessary for a startup business. However, they represent just but
a fraction of what businesses should do to succeed in their venture. It’s
normal for startups to compare themselves with other startup businesses running
similar ventures, and which are in almost the same development stage. However,
this can only be possible if they can get hold of comprehensive data. Still,
you’ll need to have appropriate measures specially designed for your business
to remain valuable and accomplish your milestones.