Metrics are not about vanity. It’s about monitoring what’s working and what’s not working so you can adapt and evolve as you go.
“Mistakes will not end your business. If you are nimble and willing to listen to constructive criticism you can excel by learning and evolving.” – Meridith Valiando Rojas
Here are our 4 startup growth indicators that all new businesses must measure in order to track their growth and protect their success.
Read on to learn more about the 4 key start-up growth indicators, as well as:
- Which metrics to start with?
- Why you need it
- How to calculate them
- How they fit with other metrics
Let’s dig in.
Never lose sight of the fact that cash flow is the king. If you do not make money, you do not have a viable business. It starts by keeping a close eye on the amount of money coming in; and, whether it’s up or down.
As a metric, revenue is simple: it is the total amount of your sales or invoice value for a given period. The time you use depends on your type of business, however.
If you offer a subscription service, for example, it will be much more useful to calculate this amount each month, because it gives you a clear idea of sales growth.
If this sounds like your business model, also be sure to measure your Average Revenue Per User (ARPU) on a monthly basis as well. This divides your monthly turnover by your total number of users. You can determine how much each customer represents for you and the subscription contracts or offers that are most interesting.
If, on the other hand, you sell high-value products or services, work with a relatively small number of customers or work on large consecutive contracts, it will probably make more sense for you to focus on your quarterly or even annual earnings. Otherwise, you could end up with deceptive or unnecessary values that would make it seem like you have trouble working when you are working on a huge contract that can not be billed until the end.
That said, if you belong to this last category, it may be useful to check revenue statistics at shorter intervals. Indeed, if your larger contracts mean that you have whole months without billing, you may be facing serious cash flow problems. After all, in the meantime, you still have to pay normal salaries, operational costs, and so on.
Controlling the numbers will alert you to potential problems on the horizon and allow you to begin to find solutions. For example, ask customers to pay a percentage initially for large commissions or divide large projects into small billable pieces.
2. Customer Acquisition Cost (CAC)
This is one of the growth indicators of start-ups that measure how much it costs your business to attract new customers. You calculate it by taking the total sales for a given period, subtracting your marketing expenses (salaries, tools, expenses, etc.) for the same period, then dividing it by the number of customers you acquired during the same period.
For this metric to be really meaningful, you need to reference it with your Customer Lifetime Value (LTV). The LTV tells you the amount of revenue generated by each person during the time they remain your customer.
In the end, for your business model to be successful, you need your CAC to be significantly higher than your LTV. However, for early-stage start-ups, chances are this is not the case – and you will not have to panic.
Remember, this is lifetime value. Therefore, if you started, you would not have had time to recover your investment from each customer. In addition, you may have been introduced to all kinds of tools and marketing platforms, or to expanding your team.
Just keep a close eye on this measure as your business evolves; and, work to keep it below your LTV.
3. Customer Retention Rate
Monitoring (and improving) retention is vital because attracting a new customer is much more expensive than reselling or upselling to an existing customer.
This means that focusing on building loyalty and retention of your current customer base will be more useful than attracting new ones.
Here is a formula you can use to calculate your customer retention rate over a period of time. be monthly, quarterly or other:
A = How many customers you have at the start of the period
B = How many customers you have at the end of the period
C = How many new customers you onboard during the period
Customer Retention Rate (CRR) = ((B-C)/A) x 100
You can also check your churn rate, which indicates how quickly you eliminate your customers. Pay attention to the trend and the absolute value.
4. Operational Efficiency
This calculates the ratio between your sales, general and administrative expenses (SGA) and your sales figures. This is extremely important because it essentially reveals if the cost of running your business is much higher than the income you generate.
You can calculate this in different ways. The simplest method is to divide the total of all your expenses for a given period by the total revenues for that period.
Related indicators include Gross Margins (your revenue minus the cost of goods sold) or COGS, which tells you how much you keep for each pound you earn in sales), as well as the Burn Rate (how long will you run out of money). , how much you reach the breakeven point and when you will become profitable).
That’s what you need: 4 startup growth indicators to get you started. Remember that monitoring and evaluating the interaction of these factors is just as important as following them individually. By looking at them side by side, you will get a complete picture of the health of your business.