Revenue is the most important metric when it comes to starting a business. But it’s not the only metric you should be concerned with.
You can use different types of metrics that could help you convince investors about the status of your startup, but at the end if you’re looking for startup success you need performance and growth metrics.
The first thing you should focus on is avoiding vanity metrics, the ones that always look good and become a drug that’s killing you.
The basic and important metrics are:
1. Customer Acquisition Cost (CAC)
At the beginning, the most important goal is getting users because you need them to survive. This cost money, but how much? The CAC is that metric that tells you the cost of getting a new customer/user.
CAC = Sales & Marketing costs in a period / Customers you picked up in the same time.
The universal rule says is more expensive to get a new customer than retain the existing one. The numbers that you must have in mind for this metric are:
- Current customers: People who is using/buying your product.
- Inactive customers: People who used to use or buy your product.
Both are important and are an excellent source of information: What else they need? Why did they stop using your product? etc.
This number indicates how many users have stopped paying for your product. They are different from inactive users, and represent a loss for your startup. You need a strategy to interview them and try to get them back, or at least to know why they left.
4. Life Time Value (LTV)
You need to identify the time when a customer/user will use or buy your product and estimate the money they will pay for it. This will depend on your revenue model.
- LTV = The period of time a customer will stay with you * the money they will pay on that time
The rule to be profitable is obvious: LTV > CAC
5. Viral Coefficient
One of the best ways to grow is the organic growth, which means that because your product is really awesome it gets you free costumers. This metric identify how viral is your startup. The inputs to calculate it are:
- Initial set of customers.
- Number of invites sent to each new customer
- Percentage of invites that convert
This percentage is your viral coefficient. If the coefficient is > 1.0, you’re likely to have a viral hit on your hands.
This is one of the most important metrics, and shows if you’re really making a business or you’re just getting fun building products.
Known like sales or sales revenue, this metric is the money that customers pay for your product.
This metric is a conversion rate that measure the amount of visitors or prospective customers that become active users/customers. It is strongly related to the first user experience.
This number is part of your viral coefficient and focuses in the number of people using your product that share it.
If the number is high, it means the users are really enjoying the experience and finding your product useful.
Any startup needs a dashboard with at least these metrics for making decisions, otherwise they can lose themselves over time.
Any other important metric?