Key metrics to measure in startup businesses
Startups are a gamble. You never really know if you’re going to make it or not.
But while there are no guarantees in the startup world, there are a few key startup metrics you can watch to increase your chances of success.
There are a variety of different metrics that startups can measure in order to gauge their progress and success.
Some of the most important metrics to track include:
This is perhaps the most obvious metric to track, as it directly corresponds to a startup’s bottom line. Increasing revenue is essential for any business, and startups need to be especially vigilant in growing their top line.
There are different ways to measure revenue. For example, revenue can be measured on a monthly basis or yearly basis to understand how the business is performing in the short and medium term.
2. Website traffic /Mobile app installs
For digital startups, website or app traffic is a key metric to monitor. If user numbers are low and stagnant, that could signal trouble down the line.
Also, traffic represents the top of the sales funnel (acquisition). If you’re not able to gain significant traffic, you won’t have many sales conversions.
Most websites die because they are not able to drive traffic. The same applies to mobile apps as well.
3. The north-star metric
Startups should also identify and track their “north star metric”—the one metric that best captures the overall success of the business.
This can be anything from total revenue to new user sign-ups, depending on the company’s goal.
The north star metric should be tracked closely and adjusted as needed.
4. AARRR Metrics
Also known as the pirate metrics, this holistic approach to startup metrics was popularized by Dave McClure in 2007. The AARRR framework stands for Acquisition, Activation, Retention, Referral, and Revenue. This comprehensive set of metrics guides startups in tracking their progress throughout the customer lifecycle.
By monitoring these five key areas, startups can get a better understanding of their performance and the effectiveness of their marketing efforts.
-Acquisition: How many new users are you able to bring in?
-Activation: How many of those users take the desired action?
-Retention: How many of those users stick around?
-Referral: How many of those users refer others?
-Revenue: How much money are you making?
5. Cost of Customer Acquisition(CAC)
The cost of acquiring new customers is another key metric to track.
It’s important for startups to keep their CAC within a reasonable range if they want to be profitable and sustainable.
The CAC should be lower than the lifetime value (LTV) of the customer.
6. Life Time Value (LTV)
This metric measures how much value a customer brings in over their lifetime.
A high LTV is a sign of success, as it means that customers are staying with the company for a long period of time and generating more revenue.
The LTV should be higher than the cost of customer acquisition (CAC). An LTV lower than CAC means that the business is spending more on acquiring a customer than the amount of revenue it is generating from that customer.
7. LTV/CAC ratio
This is the ratio of a customer’s lifetime value to their cost of acquisition. It indicates whether your company is able to attract and retain customers who will generate enough revenue to cover their costs.
A 3:1 lifetime value (LTV) to customer acquisition cost (CAC) is considered good. For example, if it costs $100 to bring in a customer, their LTV should be at least $300.
8. Net Promoter Score (NPS)
NPS measures customer satisfaction levels. It is an important metric for startups, as it can help identify issues with customer service or product quality. An NPS below 0 indicates that customers are more likely to recommend competitors than the company’s own products.
NPS scores above 0 are “good” because it shows that the audience is more loyal than not. Bain & Co, who created the NPS system, says that a score above 50 is excellent, and anything above 80 classifies as world-class.
9. Gross Margin
Startups should also track their gross margin or the difference between their revenue and the cost of goods sold.
A high gross margin indicates that a company is generating significant profits on each sale, while a low gross margin can indicate that a company is struggling to make a profit.
10. Employee attrition
Startups need to monitor employee attrition or the rate at which employees are leaving the company.
A high attrition rate can indicate that a company is having difficulty retaining its talent, which can hamper growth in the long run.
The attrition rate should be monitored on a regular basis in order to keep a firm grip on the workforce.
11. Burn rate
Burn rate refers to the rate at which a company is spending its money.
Startups need to be mindful of their burn rate in order to ensure they stay within budget and don’t exhaust their funds too quickly.
Runway helps measure how much time your startup has before it runs out of money.
A runway metric helps startups assess their financial situation and determine how long they can continue to operate before needing additional funding.
A runway of at least 6 months is a good ballpark to start raising funds.
13. Customer Churn
Startups also need to pay close attention to their churn rate, or the percentage of customers that cancel or discontinue their service over a given period of time.
A high churn rate can indicate that a company is losing customers at a faster rate than it is acquiring them, which can ultimately lead to stagnation or even decline.
DAU is Daily Active Users and MAU is Monthly Active Users.
This metric helps measure user engagement – the higher the ratio, the better.
The ratio should be tracked on a monthly basis to understand how engaged users are with the product.
By keeping a close eye on these metrics, startups can get a better understanding of their performance and make adjustments accordingly.
Monitoring key startup metrics is an essential part of running any successful startup.
What are some common mistakes startups make when measuring success?
There are a lot of ways to measure success in your startup, but there are a few common mistakes that startups make.
One mistake is only looking at financial metrics. While financial metrics are important, they don’t tell the whole story.
Another mistake is comparing your startup to others. Every startup is different and has different goals, so comparing yourself to others is not an accurate way to measure success.
Finally, some startups focus on short-term success at the expense of long-term success. While it’s important to have short-term goals, you also need to think about the long-term health of your business.
The most important metric to measure in a startup is growth.
This can be measured in a number of ways, including revenue, number of users, and engagement.
However, it’s important to remember that not all growth is created equal. For example, a startup that is growing quickly but has a low conversion rate may not be as successful as one that is growing more slowly but has a higher conversion rate.
The key is to find the metrics that are most important to your particular business i.e the North Star metric/s and to track them closely.
By doing so, you will be able to make the necessary adjustments to ensure that your startup is on the path to success.