Metrics are fundamental for any type of business. They indicate whether an activity is working in the enterprise.
In the case of startups, these metrics are even more important. Firstly, because companies in their origin cannot run the risk of wasting resources on poor actions.
For a CEO, it’s essential to have a summary of the company’s progress. However, it can mean different things for every step of the business’s life.
Several metrics are positive to look at but add a few strategically. Others are important to show potential for investors, such as metrics for startups.
In this article, you will find out what are the best metrics for Startups. Also, you will see how you can measure your results with each one of them.
What is a metric?
Metrics are sets of measurable values, described in the form of indicators and indexes. Thus, managers and professionals can assess, measure, and control the performance of actions.
You can use metrics in the marketing sector to track the results of campaigns and actions. However, you can drive this concept to all sectors of a company, such as general management and Human Resources.
They are necessary for the goals and team’s focus on the most important results for the business.
Where to start?
The first thing you must keep clear is that you can control metrics. Analyzing metrics without actions doesn’t make sense, it’s not even effective.
Metrics should always serve as a parameter for you to be able to make decisions based on them.
When an entrepreneur introduces us to their startup, and therefore their metrics, they alone should tell us a story. With that, you can already understand how it works, and what the profile of the partners is according to the actions they take.
The importance of metrics for startups
A set of metrics serves to measure the company’s success. So that the decisions taken by managers are based on facts and not on assumptions.
They must be simple to contain information that is easy to understand. Also, to allow for data comparison and have a high capacity to generate changes.
Therefore, it’s easier to know if your startup’s idea is really good if it’s scalable. There would be features you should focus on, and which customers are more profitable.
As there are many indicators to check different results, it’s important to use the ones that matter to your startup, according to the paths you want to take.
How to define a key metric for a company?
This indicator is very important, as it will show how you are generating value for your customer.
From your core metrics, it’s easier for you to set which ones will complement your analysis. So you can create scenarios and hypotheses and see where they connect.
It’s important to analyze what makes sense for your business. It is not because a company uses a certain metric that yours should also use it. We must always look at each case individually.
The 5 Great Metrics
1 – Customer Acquisition Cost (CAC)
This metric allows you to measure the amount needed to gain new customers. To calculate the CAC, add all the amounts involved in the acquisition of new customers and divide by the number of new customers reached by the company.
2 – Lifetime Value (LTV)
LTV measures how much your startup will earn with a customer in a given period. In addition, it allows you to identify which consumer profiles are more profitable. In this way, you focus your acquisition efforts on more profitable customers. Furthermore, you can develop loyalty actions in specific segments of the public.
To calculate LTV, identify how long the majority of customers remain in your base. After that subtract expenses related to installation or preservation of products and services. Finally, calculate the result by the monthly revenue of customers for the same period.
Also, it is important to compare how much time you spend on acquiring a customer and the average amount. The LTV must be at least three times greater than the CAC. With that, the customer’s revenues must cover the company’s other costs.
3 – Churn Rate
The churn rate indicates how many customers are leaving your base in a specific period. With that, you can check if the exit is within the standard to develop retention actions.
Divide the number of customers who canceled a negotiated service by the total number of active customers in the same period. Calculate every 90 days at most so you always have up-to-date customer churn data.
4 – Monthly recurring revenue (MRR)
This metric shows how much the startup bills with fixed customers. You can calculate the value of prices. There is a monthly charge for subscribers less the value of membership prices, discounts.
This metric is necessary for companies that work with monthly plans or subscriptions, such as gaming businesses. In addition, it offers extra features for paying users. Also, it is important for startups with the Software as a Service (SaaS) model that works with software sales.
5- ROI
ROI stands for “Return over Investment”, which can be translated as “Return on Investment”. This metric allows you to monitor how much the company is earning on each investment made.
The best formula used to calculate ROI is:
ROI = (Return on Investment – Cost of Investment) / Cost of Investment
Extra Metrics for Startups
Net Promoter Score (NPS)
This indicator is responsible for collecting information from customers and determining the degree to which they are.
NPS consists of a series of questions that are sent to customers. Therefore, that they can assess their satisfaction with your company:
Detractors
Consumers who gave scores from 0 to 6 and tend to speak wrong of your product or service;
Neutral
Grades between 7 and 8 and are in the range that is ignored for not taking a position;
Promoters
The ones who have chosen 9 and 10 and tend to actively recommend their product or business.
Based on this classification, this can be an NPS formula:
NPS = (% of promoting clients) – (% of detracting clients)
Therefore, an NPS above zero is considered a positive result.
Burn Rate
This metric reveals how fast your reserves are spent concerning the investments and costs for a given period.
It is common to reduce the financial statement at the end of the year. In addition, with the financial statement at the beginning of the year.
Break-Even Point
This metric indicates that your company is already able to support itself, as its revenue and expenses are balanced.
Advantages of Metrics
It’s important to remember that following these indicators is essential for you to be able to keep the business sustainable.
Failing to control the results is giving up knowledge about the progress of the business. Thus. this fact allows you to be able to predict or avoid problems that could compromise the entire company.
To apply these metrics well and boldly, there are some options.
One is to hire a platform to automate your financial processes. This is because it is possible to adapt their operational activities and identify bottlenecks.
In addition, metrics for startups are also important to manage actions and explain investments. With this, it is possible to direct processes and avoid waste, aligning the company with a lean startup.
Finally, these metrics for startups also allow us to understand customer behavior and customer satisfaction with your product or service.
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