5 key metrics every startup should focus on in 2016
Increase in appetite for data is one prediction for 2016–2020, and entrepreneurs are no exemption to this. In fact only the ones crazy about data will survive.
However, before you go metric-crazy here are the 5 you should focus:
Customer Acquisition Cost (CAC)
This is also dubbed the startup killer, as getting this wrong means closing shop long before you think scaling. At the core of any business model is the Cost of Acquiring Customers (CAC) and the Life Time Value (LTV), with the latter needed to be significantly higher (at least 3x) than the former to consider such venture viable.
However, like any other early-stage metric all you need is an estimate on how much it’d cost you get one customer, e.g. if $100 worth of Google Ads, gets you 10 customers, your CAC is $10 = $100/10. You can drive down CAC with an effective referral system.
Are you making money? This is one of the most important questions for any startup — whether short term or long term. While profitability may be out of reach as we’ve seen with a number startups especially the funded ones like Konga, Jumia, Paga, and iROKO, it is essential attain positive cash flow for survival, and that only happens when you have increasing month-on-month or year-on-year revenue.
Early stage startups especially those bootstrapping fall into the habit of not tracking this metric since revenue is usually ploughed back into working capital, but this only cause troubles down the line when estimating valuation for funding.
Net Promoter Score (NPS)
A startup the offers products that sit at the intersection of what people love and need have better odds at succeeding. Not only do such startup get these people as loyal customers, they go on to become advocates or in the marketing term, promoters. That’s why it’s always good to check your NPS from time to time.
You can find out your Net Promoter Score by simply asking the likelihood of customers recommending your products/services to friends and family on a scale of 0 to 10. Not only does this help identify prospective influencers, it helps deal with issues raised by detractors. In all you should be aiming for 7–10 ratings.
This is also know as attrition and is another metric you want to keep an eye on. In layman terms, this is a measure of how many customers stop paying for your product, or if you’re in the media space unsubscribe from your newsletter — you get the drift.
Fret not, you will always lose customers but what you need to find out is what a profitable level of loss is to you. Perhaps a silver lining is knowing you are 2 times more likely to re-acquire with a lost customer than you are to acquire a new one. So while focusing on customer acquisition and retention, spend some time and resource on managing churn.
You can take a horse to the river but can’t force it to drink. This applies to startups when you consider prospective customers. You can have your bunch of leads but they only become valuable when you are able to convert them. In a nut shell, activation is a measurement of conversion rate.
While Google Analytics can show you impressive stats on number of visitors coming to your landing page credit to your wonderful marketing campaign, your focus should be on how many become active users — in form of sign ups or downloads. A high conversion rate means visitors have a good first user experience while low activation rate usually reflects poor user experience or your product isn’t just interesting enough.
There you have it, 5 metrics for your startup to focus on in 2016 and beyond. Do share your thoughts on these metrics or any other metrics you think should be added to this list.