Book Summary 48 — Lean Analytics — Use Data to Build a Better Startup Faster

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Lean Analytics builds on Eric Ries’ Lean Startup book/principle, where build / measure / learn / iterate is everything. This book covers the ‘What to measure’ part, as it is crucial to measure the meaningful metrics to make informed decisions.

How to dig into data?

1. Clean the data
2. Normalise / Standardise data
3. Analyse outliers seperately
4. Exclude outliers from your mainstream model
5. Consider seasonality
6. Consider size/base when reporting growth
7. Think through what numbers you want to surface — don’t data vomit
8. Calibrate metric alerts to make sense
9. If you don’t measure it, consolidate data from different places
10. Look at the bigger picture — don’t focus on noise / vanity metrics

Finding the Right Metric

Classic — Pirate Metric AARRR

Acquisition, Activation, Retention, Revenue, Referral

Discipline of One Metric That Matters

At any given time there should be ONE metric, which matters above all else

• aligns/focuses the whole company
• inspires culture of experimentation

This metric will change depending on the stage and the current focus of the company.

1)E-Commerce

Conversion rate, purchases/year, avg shopping cart, abandonment, CAC, CLV, top keywords to the site, recommendation effectiveness, virality, email marketing effectiveness

2) Software as a Service (SaaS)

Attention, Enrollment, Stickiness, Conversion, Revenue/customer, CAC, Virality, Upselling, Churn, CLV

3) Free Mobile App

Revenue sources — downloadable content, customisation, advantages, saving time, elimination of countdown, upselling to paid version, in-game ads

Downloads, CAC, Launch Rate, % of active users, time to first purchase, Monthly avg users, % who rate, Virality, Churn, CLV

4) Media Site

Audience, Churn, Ad inventory, Ad rates, CTR, Content/Ad balance

5) User Generated Content

# of Engaged, Content creation, Engagement funnel change, Value of created content, Content sharing and Virality, Notification Effectiveness

6) Two-sided Marketplace

Buyer/Seller growth, Inventory growth, Search Effectiveness, Conversion funnel, Ratings and signs of fraud, Pricing metrics

1st Stage — Empathy

Finding a problem worth tackling — you see the below signs

• users want to pay you (straight away)
• have tried to solve the problem themselves
• demonstrate a passion by asking and talking a lot
• lean forward and are animated

2nd Stage — Stickiness

• Key: Engagement — rate of return, time spend on site
• Make sure people do what you want them to or pivot so you do what they want you to, before going viral/marketing

3rd Stage — Virality

• Key: viral coefficient (how many people does each user invite) and viral cycle time

4th Stage — Revenue

• Key levers: revenue / customer, more customers, more efficiencies, greater frequency

5th Stage — Scale

• Key: enter new markets, differentiation, competition, channel relationship
• Earlier all of those were just distractions

Baseline of some Key Metrics

Average is not good enough, that’s how you fail

Use the below as Lines in the Sand, not absolutes — they differ by industry and product.

Growth

5% of active users/week (early stage), 5% of revenue/week (later stage)

Engaged Visitors

• 30% MAU
• 10% DAU

Pricing

Once you find sweetspot (what users are willing to pay) aim for 10% lower to increase user growth

Customer Acquisition Cost (CAC)

Not more than 30% of the profit you make of each customer

Click-through Rates (CTR)

• varies widely
• 20–30% open rate
• 5% CTR

E-commerce conversion rate

• 2–10%

Shopping Cart Abandonment

• 65% will abandon the shopping cart

Credit Card Requirement — upfront signup

• Required: 2% signup, 50% use it
• No Required: 10% try it, 25% buy (more users to test on)

Churn

• below 5% a month before focusing on anything else (2% = great!)

App Download Size

• Below 50MB to avoid having to use Wifi to download

App Install CAC

• Paid @ $0.5
• Organic @ $2.5

App Initial Dropoff

• Free App: many won’t even open once
• After initial use, big drop off

App Free to Paid Conversion

• 2% convert to paid version
• 1.5% will make in-app purchases

App Avg. Revenue per Paying User (ARPPU)

• Aim above $0.05 as minimum

App Avg. Revenue per Paying Customer

• Whales: 10% of payers, ARPPU $20
• Dolphins: 40%, ARPPU $5
• Minnnows: 50%, ARPPU $1

Everyone else is Fodder

App Review Rates

• Expensive app: 1.6%
• Cheap app: 0.5%

On Page Ads CTR

• 0.5–2%

User Generated Content Sites — Time spent

• 17mins / day — good!

Engagement Funnel

• 90% lurk
• 9% contribute
• 1% heavily contributes

You can find all my book summaries — here.