Business metrics can be the best example of information overload doing more harm than good. If you try googling this topic, you’ll find a dime a dozen of essays titled something like “essential KPIs, important business indicators, key startup metrics that every organization needs”.
That’s enough material to learn all the ins and outs of the topic, so what’s not to like? Well, it turns out an excess of information can easily puzzle, haze, and overwhelm business managers and owners. Since we’re talking startups, this effect is all the more powerful.
So we at Goals by KeepSolid figured that, while it’s still worth it to chime in to this discussion with our top 5 key startup metrics, we’ll first cover some of the undeservedly ignored grounds. Such as, why startups need business metrics in the first place, should they be solely financial indicators if you’re just starting your business, and how to choose KPIs for your startup. And only then will we proceed to the actual top list of key startup metrics.
Why startups need business metrics
The correct answer to this question heavily relies on the understanding of the differences between a full-fledged business and a startup. Obviously, there are many, but for this discussion, two are especially relevant:
- Startups have more room for trial and error.
With less to lose and simpler structure, it’s easier for a startup to try something new, test different approaches, implement innovations. Thus, it should employ metrics that are granular enough to show the influence of said innovations, yet not so detailed as to get bogged down in the minutiae. - Startups have to react faster.
Startups have to be flexible to survive, considering they don’t have the kind of financial leverage that is available to large corporations. This means startups need to review their current status and strategy on a monthly, weekly, or even daily basis. Key startup metrics ought to support this and allow managers to get the relevant information within short timeframes.
How to choose key business metrics for startup in 4 simple steps
There exist dozens of business metrics, so how does a startup manager or owner pick the ones that will benefit their organization? It depends on what your startup’s yearning to achieve, what your overarching grand goal is. After all, metrics are only good for evaluating your progress towards your objectives - without a clear understanding of the latter you can’t have the former.
- Define your overarching Objective, the success that you want for your business to reach in the future.
- Look at the current state of your organization to identify potential opportunities and threats using SWOT analysis.
- Once you understand your “now” and your “perfect future”, you can see the gap between them. Now think what activities (tasks) are required from your startup and your team to bridge that gap.
- Now it comes to determining your startup metrics. They should be based on the tasks you’ve set at step 3, and focus on the Objective from step 1. Never set KPIs for the sake of tracking - you must know how exactly this data will help you meet success and achieve a specific Objective.
We recommend doing these steps in dedicated planning and management apps such as Goals by KeepSolid. Such software provides features (e.g. Mind map, Kanban board, Sprints, Roamdap, etc.) that help streamline the process and visualize your project in a concise manner.
Also, consider getting yourself acquainted with the concept of Objectives and Key Results (OKR). It offers an alternative way to look at business metrics for startups and other organizations.
5 Key business metrics for startups
Finally, here are some startup metrics that you might want to use in most situations (though we’ll also explain if you should avoid some at times).
1. Customer Acquisition Cost
CAC, or the cost of acquiring a new customer, is a metric vital for any business, be it a multi-billion corporation or startup. To calculate Customer Acquisition Cost, divide your cost of marketing and cost of sales by the number of new clients you acquired over a certain period.
You want to keep CAC as low as possible. How low? It depends on your industry. Keep in mind, though, since you’re a startup, that operating at higher-than-average Customer Acquisition Cost at the beginning can be fine if you’re just trying to get the initial momentum and traction. Also, developing a new product will always naturally cause CAC to rise.
2. Customer Lifetime Revenue
This indicator evaluates a business’ revenue from standing customers. It’s worth mentioning that, while CLR is quite helpful, it might not be for every startup. It requires a reasonable amount of info before you can measure Customer Lifetime Revenue. If you have such data at your disposal, CLR will prove pivotal, but oftentimes startups will not care about it that much.
3. Retention Rate
This KPI combines well with Customer Acquisition Cost. Retention Rate measures the ratio of customers that stay with your startup to those that leave. RR is a key metric for any subscription-based organization. But even if your startup has a different business model, you still want to keep Retention Rate high, as your first and foremost objective is to grow your user base.
4. Return on Investment
ROI is among the most famous (and commonly misunderstood) metrics. It comes in various forms, from taking the organization’s total investments into account, to counting return on specific parts of it. Startups will likely see advertising spending among their most serious investments, so their managers would do well to keep a close look at Return on Investment of marketing and advertising.
5. Gross Profit
The bottom line is everything, be you a startup or a transnational corporation. Different ways exist to calculate GP, but in general it takes deducting all costs of goods sold and operating expenses from your net income. Obviously, keeping Gross Profit high is your top priority, although as a startup you may want to focus on RR first at the earlier stages.
With these 5 key business metrics for startups combined with ultimate capabilities of Goals by KeepSolid, your startup will be destined to succeed. Good luck!
