By regularly diving into the metrics on performance and revenue, your business stands a better chance of maintaining a strong business strategy and assist in future planning.
Here are the 3 key metrics every startup should be tracking:
Customer Lifetime Value to Customer Acquisition Ratio
Are you aware of how much it costs you to attract your customers individually?
By calculating your CAC, you can uncover what is working (and isn’t) within your sales strategy. Ideally, your spend will be proportionate — but if it’s not, don’t panic. By tracking this metric over time, you can modify where possible and implement necessary changes to ensure it improves.
The ratio you should be measuring against to ensure you are optimising your strategy is the Customer Lifetime Value. CLV measures the relationship between the cost of acquiring customers and the lifetime value of the said customer. This can be a challenge and often misleading, even at aggregate levels — how much of your monthly ad spend and sales budget can you reliably attribute to one win?
To optimise profit, it’s important to quantify each step of your process and dive into your funnel: how many visits turn into leads? How many leads become opportunities? How many opportunities become customers? When you optimise this funnel, you can start tracking your LTV:CAC in real-time.
Retention/Churn Rate
Are your customers sticking around? The ‘churn rate’ will let you know. Whilst the value in itself is important, much like the CAC, the more important value is the trend. You want to do what you can to ensure your customer retention is ascending (or your churn rate is descending).
To calculate this rate, you need to evaluate the percentage of customers who are staying, and the ones that are leaving — and after how long. Again, you can use a timeframe to track this, by totalling the number of new customers and subtracting them from your total customers within the given timeframe. Then, you can divide that number by the amount you started the timeframe with. It might sound complicated, but it will be invaluable.
Margins
Even those who don’t track metrics are more than likely aware that they should be tracking their margins. When you’re looking to expand or progress, your margins will be that deciding factor.
Simply put, your revenue should be exceeding your outgoings across the business. If it isn’t you need to investigate why. Is it your sales pitching? Your marketing? Or is it the product itself? Maybe you need to further establish the market for your product.
Essentially, your margin will tell you what stage your business is at, and how you can optimise it for the future.
As a product manager, Alex Weekes works with tech startups to ensure they are tracking the necessary metrics for success and not wasting valuable time. You can email him for advice: [email protected].