Updated: May 22, 2020
A startup is a company which is beginning its operations. It is created by entrepreneurs who think there is a need for an appropriate solution for a market need. They design it in a way that it can grow at a rapid pace, that’s what makes it different from a traditional company.
When you are starting a business you can’t just think about the product or service you are going to provide. There are many metrics which you need to track. Many people just care about the profit but a business is a lot more than this. You need to know the customers’ response to your product, changes in the market, and how your company is growing. Here are 10 startup metrics that you must track:
1- Customer acquisition cost
Customer acquisition cost (CAC) is the complete cost of acquiring customers. For any company to grow customers are required, especially in the early stages of the startup. This metric is important for both organizations and investors. Investors analyze what the profitability of any business i.e. how much money will be spent to acquire customers and what the customers will return.
CAC is not difficult to measure. You just have to divide the sales and marketing cost by the number of customers you acquired in a specific time.
So, if you have spent 5000 $ to acquire 50 customers, the CAC will be 100. Of course, every company wants lower CAC because higher CAC means you are spending a lot of money on acquiring customers. And, if this is the case you need to revisit your business strategies.
Churn is a measure of how many customers have unsubscribed your service. It is an important measure for those companies whose customers pay on a weekly or monthly basis. It is measured for a given period of time. It is also called as attrition.
Churn is also a measure of how many customers have stopped buying your products. A higher churn rate means your company is in trouble and you need to find why customers are losing interest in your products or services. You need to satisfy customer from the beginning because once they leave you it’s very unlikely that they would return.
3- Lifetime Value
Lifetime value is the measure of what you will earn from a customer for the total time he will stay with you. It’s a very important measure for organizations that are in the early stages of growth. It tells them how long the customer stayed, the total cost and the total revenue they generated from him.
It’s easy to calculate, you just have to multiply the total time for which the customer was related to your business by the total revenue generated. LTV should be higher than CAC for your business to be successful.
4- Burn rate
Burn rate is the rate at which your business is losing money. In the early stages of a startup, this metric is important to know what the loss-profit scenario is. It basically tells you at which rate you are spending money. You can calculate it by subtracting expenses from revenue. By calculating the burn rate you can know when your business will run out of money. This is important for the investors as well.
5- Revenue growth
Revenue growth means how your company’s revenue is increasing month by month. It is very important for you to measure if you have just started your business, so, you could know where your business stands.
It tells you how your business is growing.
6- Return on Ad Spend
Returns on advertisement spend (ROAS) is a measure of how much a business earned by spending money on advertisement. It is the easiest startup metric to measure. You just have to divide the total revenue by the money you spend. If you spent 2000 $ in advertising that generated 3000 $ in revenue, the ROAS is 1000 $.
7- Monthly recurring revenue (MRR)
Monthly recurring revenue is a very important metric for subscription-based businesses. It’s the total revenue you generated from customers in a month. Every new customer gives you recurring revenue. By tracking MRR you can know how well your business is doing, as it directly tells you the money which customers paid.
It not only allows you to track business growth but also helps you in predicting the future business growth which is important for making many decisions. If you have clear data of your growth it is easy for you to motivate your team.
8- Annual Recurring Revenue
Annual recurring revenue is also a very important metric for subscription bases startups. It is total revenue generated from customers through subscriptions in a year. It gives you a wider view of how your business is growing. You know in which area the revenue is growing and in which area you are losing revenue. It helps you in forecasting future revenue which could play a great role in attracting investors.
9- Activation rate and active users
Activation rate is a measure of how many customers started using your products or services on a daily basis. For websites, it could be how many visitors engaged with your websites. Activation could be when a user signs up, download your app or watch your video. This is an important measure to know how your product is attracting new users and if it is good enough for them or not.
Active users mean how many users are active on your website, app, or game. It’s a metric to know how successful an internet product is. It could be how many people interacted with your business or how many bought your product.
10 - Gross margin
Gross margin is the most basic measure of a company’s performance. It’s the difference between the cost of goods sold and the total revenue generated from them. It tells you everything. What level your business has reached. How’s the performance of your team and if marketing strategies are working or not.