What’s Worth Measuring in Your Startup?
It is common to think, that startuppers are nice guys, who in their companies run lean methods of management. Not necessarily worrying too much about some kind of procedures, documents, summaries, or forecasts. They are simply like that and work like that, how their hearts tell them.
From the outside, it actually looks like that.
Though deep down, every entrepreneur with his head screwed on — startuppers, or old-school business owners — are interested in figures. Stats. Rates. And there are many of those… from which a large portion is totally not worth our attention.
Let’s start with these…
Vanity metrics
According to Jesse Littlewood:
We define vanity metrics as a number that indicates improvement but is disconnected from the progress of your organization’s mission.
Visitors & users (unique, page viewers, etc)
Nowadays no one is especially interested in these metrics (or at least they shouldn’t be). Because it doesn’t give any specific image of our business. Even if we have a plan to sell ads on our site, a real measure of our content should be its virality and an ability to engage people — what’s really important is how users behave (if they are interacting, or commenting, or coming back, or sharing, etc).
Percentages of growth based on low basis
As long as the only one reason for calculating percentage increase (of whatever) is to grab media’s attention, that’s how long it’s worth counting. However, he who is seriously interested in such a figure; who wants to represent something specific on its basis — it is he who is making a mistake. Especially if he’s doing it out of context, without a basis (e.g. concealing a small basis).
Because who would be interested in increasing the numbers of users from 3, to 6 within a year? No one. But increasing the base of users by 100% within 12 months? Yes, that sounds a lot better.
It blurs our eyes. And nothing more.
The amount of data in our database
What can we do with such information, that so many many people are posting some posts on his wall within an hour? What does it mean to us, that some anonymous users downloaded so many files within a month? The more data in the database, the more powerful servers we need for its service. The more powerful the servers, the higher the costs. What really counts, is if these increased costs somehow mean increased income.
Interested users
In my mind there is one (and only one) reason, why it’s worth counting the number of interested users: email lists. The more people signed up to our email list, the more receivers of our emails (their “quality” is obviously a separate issue). And that is that.
What a specific number of registered users means to us? Nothing. What a large amount of users with trial accounts means, since none of them want to pay later for our service? What counts is how many of these users later do what really counts for us. How many of them have an effect on our income.
What metrics really count?
The only metrics that entrepreneurs should invest energy in collecting are those that help them make decisions.
Financial rates
Your business should earn money. What really counts is the financial result of the company. Income, costs, profit, loss. Like it or not, in business, that’s exactly what counts.
Users doing that, what we “require of them”
Do you sell ads on our sites? So what matters above all for you is commitment of your users. Do they comment? Do they like, tweet or share?
Do you have a web-based application? What should really matter to you is whether users convert their accounts from free to paid, or if they upgrade their accounts, or maybe ask for refunds.
Online shop? Let’s check whether users add products to their baskets, go to the checkout page, if they pay, if they want to return the products back to you.
Conversion rates
Do you need people who go onto your site to sign up to your newsletter? Or set up a trial account? Let’s measure how many of these visitors of our site do so. Not how many trial accounts you have, but how many of your unique users sign up to your service month by month.
Do you need paying customers? Of course you do! Let’s check the percentage of how many unique users decide to buy.
The cost of reaching the user/customer
We have our first paying customer. Great. We’ve earned $20. And how much did it cost to get him to use our service? In fact, where do we get our users from? Do they come from our ads? How much do these ads cost us?
And is our one paying customer a customer which we will earn more from? Will he come back to our site? Will he pay in the style of contract/subscription? If so, his value increases.
LTV (user’s Life-Time Value) and ARPU (Average Revenue Per User)
Wouldn’t it be lovely to find out what kind of income we can expect from one customer? Not average value of transaction in the service, but the actual income, including even if the user will come back to our service or not; if he will make another purchase, or not. Sure, it would be lovely. That kind of information could give us the answer to the question of how much money we can spend on gaining a new user, what marketing budget we should administer.
So let’s count it. Let’s count LTV and ARPU.
A/B tests
Could something be better than checking a specific hypothesis? From testing your own idea?
Using the A/B tests we get a specific answer to the question… Which approach is the best? What generates better conversion? What works better in a specific case?
We get a precise (and so much more valuable) answer to specific given questions.
If we want to measure something in our startup (and we should want to!)…
… we should count, analyse and obtain results from these metrics, which are really significant for our business. The rest… hmmm, so we should leave them alone. Because all other figures are only good for blurring our eyes.
More on B2B marketing metrics that matter? Take a look at this infographic.
