Owning a start-up can be fun, exciting, and extremely lucrative, but only if you know what to look for and can capitalize on your opportunities, but how can you track your growth and find where you need to focus to expand and increase profits? Well, it can be tricky, because as a business, it is hard to show constant, especially when you are just starting out. Fortunately, there are certain ‘key performance indicators” or KPIs for us shorthanders. In order to understand the reason we need to track and follow certain KPI, we will need to understand what a KPI is.
A KPI, longhandedly written is known as a key performance indicator, and what that essentially means is that it is a measurable piece of data that collects, gathers, and interprets certain information that can be altered, set, or changed to achieve certain progress, goals, and levels of production by observing the quantitative statistics of a group of managed KPI.
KPI is not industry-specific and only pertain to a certain niche. Literally, every portion of life can have KPIs attached to it, and in a way, it does. From consumer trends to business growth and even school activities can be assigned a KPI, which is why it is important to know exactly what key performance indicators you need to track in your business to ensure you are getting the most out of your growth. So, as a start-up, what KPI do you need to track in order to find the best growth hack solution for your business?
Luckily, we’ve taken care of the hard work and are using our years of experience to provide insight to the KPI tracking myth. With 1000s of trackable KPIs for any given business, narrowing down the ones that matters can be tricky. This is the driving force for this list because time is precious and so is your business.
Now stop pulling your hair out, relax, and enjoy this inside look into 8 Growth KPIs every start-up should track:
You’d be crazy to think that a gross profit KPI was not going to appear on this list. While growth charts, shipping manifestos, and an increase in booking sales are all great and of great importance, investors are looking for that sweet spot. They want to know how much money is coming in and guess what? The gross profit KPI measures just that.
While the actual analytical KPI will vary depending on the type of business, most will at least include metrics that are associated with cost, like manufacturing, delivery, support of product or service, and several other can also be linked when presenting the gross profit KPI.
Detailed reports will provide a series of breakdowns of what metrics are included and which are not—from the gross profit figures.
Here is another extremely important metric to follow and for a good reason. It follows the money and tells you the final totals that are generated from every customer relationship over the course of their business with a company.
In order to find your Customer Lifetime Value, you will need to do some number crunching before finding this number out. One of the first values we would need to find, would be how long the typical customer retains their relationship with the company before cancelations or switching away from your service. Obviously, the longer they hang in there, the more value they bring to the table. Customer retention is a big factor.
Find your monthly cancelation trend. For instance, if you have 100 new customers every month and an average of 2 cancellations, then your cancellation trend is 2 percent. Invertedly applying this metric (1/ cancel trend), you will be able to figure your monthly retention rate or how long customers are going to use your service before canceling. In this example, it works out to roughly 50 months.
You would also need to know Gross Margin %, and how much each customer brings in monthly, in terms of profit. Your ending equation will look something similar to this:
CLTV= Gross Margin % x (1/Monthly Cancelation Trend) x Avg. Monthly Customer Revenue
Let us see a live example:
Okay, so, you have a gross margin of 80% and a monthly cancelation trend of 2%, with each customer spending $50 on your service every month. Your math would look like this:
80% x (1/2%) x $50 = CLTV ($2,000)
So every customer is expected to bring profit equal to the CLTV. Things can get complicated, but the bottom-line is profit, and this KPI helps prove value.
Another extremely important KPI that investors and start-ups need to track in order to find that perfect balance between profit and customers. This metric measures how much you spend to in a sense, “hook ‘em!”
Your customer acquisition is measured by three main components, and typical equations will look similar to this:
Customer Acquisition Cost (CAC) = Total Cost of sales + total marketing expenses for certain time frame / how many new customers were obtained during the time frame.
Essentially, this number adds up everything it takes to make your customer say, “yes.” So if you spent $300 in marketing for a 3 month period, your total sales cost for that time frame was $500, and you gained 30 new customers during that time, then your CAC would look like:
$500 + $300 /30 = CAC ($26.67)
This means it took over $26 to get one customer to say yes, Is it profitable. It can be, but there will be some changes that would be made. Either way, this shows the importance of this metric. The CAC KPI is valuable and tracking what you spend for the “Yes” is just as important as the ending balance on your account.
The Monthly Active Users KPI is typically used to determine if users have actively engaged with something, whether it be logging into an account, collecting a daily reward from an app, or by forming a connection with another user. The point is, there are several ways to measure if your users are active. For instance, Facebook considers a user active for the month, if they have logged in at least one time and have shared, commented, or clicked through on a link. The real deal behind this metric is to see how frequent your service, product, app, or platform is being used and if there are ways to make users return more often, to increase retention rates.
User Activation Rate is another metric worth looking into as it actually shows whether or not your customers are using your services, what is catching their attention, and what will form a bond; resulting in gaining valuable retention.
Ultimately, the UAR looks to see how users gain value from your product or service, by looking at certain criterion and each business parameters are different, but the intent is all the same. The UAR can be determined by ways like number of visitors, what pages are viewed, downloads, signups, and so many other metrics can be used to determine UAR.
Another side of UAR is the clicks made. These are actions performed that will turn visitors into returning guests and users, so monitoring what works is key, would you say?
How can you establish any type of growth chart without consulting Mama G., the growth monitor? Your MoM growth is essentially a building block to prove your value over a period of months. As a start-up, tracking your month-on-month growth is vital to make sure you are progressing and not regressing.
These changes track your monthly growth and show a directional output for your business. There are equations that can become complicated, or that need extra figuring in order to find your growth, like a CMGR or Compounded Monthly Growth Rate, which focuses on periodic growth.
Imagine the Consumer Price Index reporting and how it is formulated monthly. For instance, say we wanted to look at the beginning of the year’s growth and hone in on the growth from January to February as a percent growth:
February – January
___________________ x 100 = MOM Percentage Growth
Clear and straightforward, MOM growth KPIs can be extremely beneficial, when tracking fluctuations in business.
Want to know exactly how good your copywriter is and see just how effectively your marketing message spreads across your platforms. Well, that’s not exactly how it works. You can’t just hit the submit can cross your fingers, there are channels, verticals, and other outlets that need to be considered, but that’s something completely different.
When we speak to ‘Virality” we are referring to the efficiency of your marketing efforts. How quickly does your marketing output bring in a new customer, prospect, or converter? To determine this, the Viral Coefficient needs to be found by multiplying your existing customer base by your average user-sent invitations, multiplied by the invitation conversion rate, divided by your existing customer base. If your ending calculations result in anything above a coefficient of 1, then you are definitely witnessing exponential growth. Let’s see it in action:
Example: You have an existing base of 200 customers and received 120 referrals and closed 10 of those with newly opened accounts, it would look like: “(100/200=.50)” This means that for every two existing customers, you are gaining successfully referred customers to your business. Sounds good right and it is good, but remember viral growth is a whole new ballpark, and you may need the help of a few growth tools to help expand your start up’s efforts.
If you’re in the biz and know anything about what draws, convert, and brings value to your marketing efforts, then you know that one of SEO’s largest purposes it to generate nonpaid or organic traffic. This is referred to as natural traffic resulting from a click from a source that was not purchased for exposure.
This is one of SEO’s most daunting KPI and can make and break campaigns as organic traffic, needs to be drawn in some way, but how? It boils down to creating content that matters. Not overloading your articles with BS, trying to sell products or market a service. Real organic content is the only non-automated sector in SEO that has yet to be algorithmically figured and curated. It takes real people to drive real traffic.
Whether you are just starting out in your business ventures or a seasoned veteran returning back to the basics, following the right KPIs can show you ways to grow and keep your start-up or business moving in the right direction: Forward.
From keeping a watchful eye on your gross profit to display your value to potential investors, to generating MoM charts and organic traffic, knowing where your company stands is important and following the right data gets you to where you want to be. Therefore, in closing, we would like you to ask yourself one question, “What do my KPI reports say about my Start-up?”