What are the 10 most critical metrics of startups? What are the top metrics your startup should be tracking? Watching your metrics is a key part of any truly sustainable and successful business.
This is even more important among startups that desire to go big. Or even those just hoping to survive long enough to make it.
Of course, there are now many more tools to help business owners to capture data, track it, and report on it.
There are vastly more data points that can be gleaned than ever before. So, which are the most critical metrics startups should be watching?
Here are ten of them…
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Here is the content that we will cover in this post. Let’s get started.
- 1. The Importance Of Metrics
- 2. Critical metrics for startups to track should help:
- 3. 10 Important Metrics For Your Startup To Track
- 4. Customer Acquisition Cost
- 5. Customer Retention Rates
- 6. Recurring Revenue
- 7. Lifetime Customer Revenue
- 8. Conversion Rates
- 9. Profit Margins
- 10. Growth Rate
- 11. Burn Rate
- 12. NPS
- 13. Overhead Costs
- 14. How To Track Your Metrics
The Importance Of Metrics
Before launching yourself and your whole team (and maybe a new team) on a mission into your metrics, it is wise to recognize their pros and cons, dangers, and benefits.
Firstly, respect that there is no reason for executives, leaders, and stakeholders to ignore the data. It’s flat-out irresponsible.
That is like just trying to run your company blindfolded and refusing to acknowledge what is really happening in it.
You certainly would have some opinions about that if you invested your money with someone. And they chose to ignore any information on how they were operating and running the business, right?
Or like someone putting duct tape over the dashboard of their car to purposefully ignore their speed, gas gauge, oil temp, and other metrics.
However, it is true that metrics can be dangerous too. Especially, getting lost on focusing on the wrong metrics.
Or more often, having tunnel vision on lower-level metrics, without regard to the end results and bigger picture.
Still, the metrics are critical to watch. One of the big reasons for that is, what gets measured gets improved.
If you don’t know your numbers, you have no way of knowing whether your business is doing well, or is already bankrupt.
You don’t know what’s working, or not. Or how to appropriately allocate your time, attention, financial, and other resources.
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Critical metrics for startups to track should help:
- Guide you in regular decision making and budgeting
- Validating there is a viable business there
- Reporting to investors
- Attracting and justifying new funding
- Securing the best possible exit for your startup
- Gaining PR and attention
- Securing great business partnerships
So, be wary of getting lost in the weeds, without keeping your focus on the big picture and the relationship between the two, and if there is one.
Do, have a healthy respect for your responsibility to know the data, and use it for optimizing, and maximizing the potential of this venture for all involved.
Work on understanding the 10 most critical metrics of startups.
Keep in mind that in fundraising, storytelling is everything. In this regard for a winning pitch deck to help you here, take a look at the template created by Silicon Valley legend, Peter Thiel (see it here) that I recently covered. Thiel was the first angel investor in Facebook with a $500K check that turned into more than $1 billion in cash.
Remember to unlock the pitch deck template that is being used by founders around the world to raise millions below.
10 Important Metrics For Your Startup To Track
1. Customer Acquisition Cost
How much does it cost your business to acquire a new customer?
Without this information, you really have zero ideas if there is a commercially viable business here. You don’t know if your business model is sustainable.
Or if you really have an actual business model. You certainly don’t know how profitable each customer is for your company, or not.
Most companies sadly have little idea of what it truly costs them to acquire a customer. This is likely one of the reasons that so many fail and go bankrupt.
This is especially true in startups and among first-time entrepreneurs.
There can be many numbers involved in your total customer acquisition cost. There are probably both static overhead figures to be alive to serve customers.
And also variable expenses involved with securing and servicing each new customer.
Your upfront cost per lead or Cost Per Action (CPA), is not your total customer acquisition cost. You might get clicks from an ad to your website for $1 per piece.
Though between all of the creative work, lead handling, and conversion rates, that lead might still end up costing you $350 to $750 by the time they become a paying customer and put cash in your bank account. That’s a huge difference.
You can’t work the rest of your numbers accurately, have a workable budget, or stay in business long without knowing these figures.
2. Customer Retention Rates
This can also be expressed as your customer churn rate. This is all about understanding how long your customers stick around after you acquire them.
It is crucial for accurately stating your other financial metrics, and for accurate financial forecasting and modeling.
This is becoming even more important as more startups have come to rely on recurring revenue, and utilize lifetime customer value to justify their expenses and grow fast.
So, does your average customer stick with you for one month? Six months? 30 years? For multiple generations?
3. Recurring Revenue
Subscription business models have become very popular. As has SaaS. Investors love recurring revenue.
It gives them a lot of confidence in their valuations and risk assessments. As it also does for potential acquirers.
More and more startups are at least partially incorporating recurring revenue to complement larger ticket items.
This is how they build a more robust and sustainable business that is attractive to venture capital firms and potential acquirers.
This can be a great metric to breakout when creating your pitch decks and pitch books in these scenarios.
Even when planning to stay private and to bootstrap all the way, this type of revenue can help support your company and fuel growth, with more predictability.
That’s one of the 10 most critical metrics of startups.
4. Lifetime Customer Revenue
This is where your customer acquisitions, customer retention rates, and recurring revenue all come together.
This is where you figure out how much a customer is really worth. As well as what you can reasonably afford to pay to acquire a customer.
Even if you and your investors are happy taking losses upfront to buy up market share and subsidize prices to gain traction.
The great news here is that lifetime customer value is also typically far higher than most immediately estimate. At least it can be.
In many cases, if served well, customers should become lifetime customers. In fact, they should become brand ambassadors and lead sources, which provide exponential growth.
They should become multigenerational customers. Easy examples of this may be seen in insurance, real estate, and the food and beverage industry.
Your lifetime customer revenue is one of the 10 most critical metrics of startups to keep in mind.
5. Conversion Rates
This is a pivotal part of your customer acquisition costs, marketing plans, and competitiveness. It is also a metric that often gets sorely neglected.
Even in, or especially with online advertising and lead generation. This is one of those metrics which can fall foul of other lessor valid metrics and distraction metrics.
Such as likes, ad clicks, bounce rates, or Yoast smiley faces, and traffic light icons. You can buy or generate all of the likes and website traffic you like.
It may not help your conversion rates and bottom line at all. Or you can dictate that your call center reps make 200 calls per day or hit a certain amount of talk time per day, and not yield a single extra conversion.
Conversions are where leads become actual paying customers. Be sure you are watching and benchmarking your conversions.
As well as understanding where the real issues are, and how you can improve them. All of your other most important metrics will thank you for it.
6. Profit Margins
Profit margins are very important. Perhaps even more so than the dollar amount of profit you are realizing at any one moment in time.
There are many variations of this metric. Depending on whether you are counting gross or net profits, and exactly how you are counting your revenues and costs into this metric.
Just understand that it is a pivotal metric for your venture.
Firstly, if your projected profit margins in your pitch deck are complete guesswork and unrealistic, you are going to blow your chances of getting funded.
Nothing else you worked so hard on in your deck may matter. This one number can cost you all of your credibility.
Secondly, profit margins are great for benchmarking. While trying to compete on price alone typically isn’t the wisest strategy, it can be a powerful differentiator.
Not only for customers, but investors, potential hires, and acquirers. Your profit margins need to be large enough to give you a cushion, competitiveness, and scalability.
7. Growth Rate
Your rate of growth is incredibly influential. It can make a big difference in gaining attention across everyone you want to reach.
It certainly makes a huge difference when it comes to fundraising. It can be a substantial factor in M&A deals. Ultimately, it will impact your stock price and value.
Especially in early-stage startups, you can have your pick of what you count as your primary gauge of growth.
You may be focusing on customer count, market share, revenues, or profits. Just make sure you pick one that you can focus on and excel in.
8. Burn Rate
How much cash is your startup burning through every month? Your burn rate tells you how much you are spending to stay in business.
As well as how much capital you’ll need to keep you in business. Not only until your breakeven point or next round but in crisis moments too.
Your capital divided by your burn rate is how much longer you can afford to stay in business. Also called your ‘runway’.
This is vital to stay on top of for counting down your actions for your next close of funding. It can have a notable impact on your position in negotiations for more funding.
So, understand these numbers as the 10 most critical metrics of startups.
Are you looking for more information on how to present financials for a startup with no revenue? Check out this video I have created with practical tips on how to get it done. You’re sure to find it helpful.
NPS stands for Net Promoter Score. Put simply, your NPS is a measure of customer experience and a predictor of future business growth.
For those new to this metric. It’s like online reviews. It is how much your customers love you, and will refer others to you.
This can have direct tangible value for your business. It will show you if you are getting it right. Or despite other recent positive metrics, you may actually be headed out of business pretty soon.
If there is one number that predicts the future for your company this is probably it. Providing you can afford to keep it up.
10. Overhead Costs
How much are your static overhead expenses? These directly relate to your burn rate and profit margins. They dictate how much it costs to keep operating as you have been.
They may also dictate your ability to scale up and down to take advantage of the market or correct your business in a contraction.
Static overhead costs are dangerous. They can sink you faster than concrete boots. They are harder to shake off.
Just as many have been learning with office space, heavy static salaries, and other antiquated business practices and tools recently.
How To Track Your Metrics
Some entrepreneurs and startup founders thrive on metrics. They live and breathe them. Others refuse to check or listen to them.
But every smart business owner should understand the 10 most critical metrics of startups and how to use them.
In many cases today your software tools are already compiling huge amounts of data and stats for you in the background. It’s all there for you to take advantage of.
Success is typically found in the balance of pulling together your most important metrics in easy and fast-to-digest visuals.
Then deriving the most important insights and actions from them. As well as displaying the most important ones in your communications with others.
Optimizing this may take a combination of the right technical talent to bring it all together, experienced human talent to interpret accurately in ways that AI can’t do yet, and focusing on using it to take the right actions.
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