11 Startup Metrics to Grow Your Vision Into a Real Business

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Paying attention to a number of essential startup metrics is critical if you want to succeed and transform your ideas into a real business.

Having a great vision for your company, chasing funding and hiring the best talents are vital to managing a startup, but if you do not have developing metrics to measure your success, you will be lost. It will be hard to grow your revenues if you do not have frames of reference to measure your progress with.

In this article, we will discuss the 11 key metrics for startups worth using and learning from as you make your startup venture reach its full potential.

Startup metric #1: Customer Acquisition Cost (CAC)

Customers are important to any business. They bring money in exchange of a product or service they wish to have, but for them to even consider buying what you are offering, you need to dedicate a significant amount of resources first to encourage them to buy. Hence, a variety of consumer metrics are at the core of any business model whether for a startup or a long-running firm.

One of those consumer metrics we will discuss is the Customer Acquisition Cost (CAC) or the cost of convincing a customer to buy your product or service. It is considered one of the crucial key metrics for startups because of the significant portion of resources it requires.

In a business model, the CAC is balanced with another important KPI for startups – Lifetime Value of a Customer (LTV) which we will discuss as we go along.

Why is this important?

Because it costs money to acquire customers and if your CAC is too high (you are spending too much to get new customers), you need to lower it down by optimizing your pages, such as your sign up and landing pages.

How is the CAC computed?

Divide all your marketing expenses (all costs spent on acquiring new customers) in a given period by the number of customers you were able to acquire within the same period.

If your marketing expenses for 3 months is 10,000 dollars and you were able to acquire 10,000 new customers, your CAC is 1 dollar.

While a reasonable CAC for ecommerce is 30 – 60 dollars per user, it will depend on the type of industry your startup is in, the channels your new customers are joining from and the type of acquisition you used. Zero CACs or free acquisition is possible if your growth is purely viral.

Startup metric #2: Customer Retention Rate (CRR)

Customer Retention Rate (CRR) is the number of your customers you were able to keep in a particular time period with respect to the total number of customers you had at the beginning of the said time period. This does not include newly acquired customers.

Why is this important?

Because acquiring new customers is not enough to increase your customer base and retaining them is equally important.

When you are focused too much on acquisition, you tend to neglect your relationships with your current customers. And when they get frustrated, they’re likely to leave you so you end up spending more on marketing to replace them with new customers.

Remember it is more costly to acquire new customers than to keep your current ones. It is also less expensive to upsell to current customers than to new ones.

How is the CRR computed?

To calculate CRR, you need to have the following information at hand:

  • the total number of customers at the end of a period (A),
  • the total number of customers acquired during the said period (B)
  • and the total number of customers at the start of the period (C).

Since we are interested to know the total number of customers you were able to retain at the end of the period without counting the number of new customers acquired, we need to subtract B from A. The value will be divided by C then multiplied by 100.

Let’s say you started the month with 1,000 customers (C). You acquired 50 customers (B) and at the end of the period, you have a total of 250 (A).

Following the formula for CRR = [(A-B)/C]*100
CRR = [(250-50)/1000]*100
CRR = [200/1000]*100
CRR = 0.2*100
CRR = 20%

Is 20% CRR a good rate?

It all depends on the industry your startup is in, the market you are targeting and the goals you have in mind, but in most instances, the goal is to keep CRRs as high as possible.

Startup metric #3: Activation and Churn Rate

The opposite of CRR is the Churn Rate – an essential KPI for startups that tells you how many of your customers have stopped paying you for your product or service.

There are startups that calculate their Churn Rate after 30 days while some do the math after 90 days so they won’t confuse a customer who may be inactive in the first 50 days, but will start buying again on the 55th day. A 90-day period is considered enough to isolate inactive customers from customers who do not have any intentions of coming back.

Why is this important?

Because whether you like it or not, you will lose customers. Given that not all customers will stay with you forever for different reasons, you need to find out the level of attrition that is still profitable for your startup.

How is the Churn Rate computed?

You need to know two things:

  • the total number of customers at the end of a particular period (X)
  • and the total number of customers you had at the beginning of that period (Y)

Since we are interested to know the rate at which you lost customers, we need to subtract X from Y.

Let’s say you ended the year with 5,500 customers (X) and you started the same year with 6,000 customers (Y).

Following the formula for Churn Rate = [(Y-X)/Y]*100
Churn Rate = [(6,000-5,500)/6000]*100
Churn Rate = [500/6000]*100
Churn Rate = [0.083]*100
Churn Rate = 8.33%

Is 8.33% a good Churn Rate?

You need to establish a trend of your churn rates first whether on a monthly or a quarterly basis. What’s important is your trend descends over time. If it spikes or plateaus at a high level, you need to do something about it.

Startup metric #4: Net Promoter Score (NPS)

Net Promoter Score (NPS) is a measuring tool you can use to gauge the loyalty of your customers to your business. It is a fantastic alternative to the usual customer satisfaction surveys, research and claims, which are correlated with revenues.

Why is this important?

Because over time, you want to know if your customers are loyal to you or not and if they are helping you grow your business. Social proof or word-of-mouth marketing is powerful especially in a startup environment. Knowing the likelihood that your customers will speak good about your products or services is a huge lift to your growth as a young enterprise.

How is the Net Promoter Score computed?

First, you need to create a survey asking your customers how likely they will promote or recommend your products to other people on a scale of 1 to 10.

The breakdown of the scores will be as follows:

  • 0 – 6 are detractors
  • 7 – 8 are passives
  • and 9 – 10 are promoters

For instance, 100 customers participated in your survey where:

  • 10 responses were in the 0 – 6 range (detractors)
  • 20 responses were in the 7 – 8 range (passives)
  • And 70 responses were in the 9 – 10 range (promoters)

To calculate the percentages for each classification, you will get the following results respectively – 10%, 20% and 70%.

To finish the computation, subtract your detractors (10%) from your promoters (70%), which will equal to 60%. NPSs are shown in absolute values so your NPS is 60.

How is the Net Promoter Score computed

NPSs can be negative as your score can range from -100 to +100. A good Net Promoter Score will depend on how you measure up against your industry competitors. If you got a score of 60 and your competitors are in the 80s, you need to figure out where your startup can improve. And if your competitors are in the 40s, then you know you are doing just fine.

Startup metric #5: Revenue Run Rate

Revenue is a major factor in any business. It is the income that your company is bringing in, which is usually reported as “sales” or “sales revenue”. However, do note that revenue can also include other forms of income like registration fees, late fees and interest.

How much is your startup earning? How will you know if you are meeting your goals and your startup will soon turn into a fully-operating growth engine?

To this, you need to have specific startup metrics that will measure how your business will scale and how your sales will develop over time. This can be measured by Revenue Run Rate.

Why is this important?

Because it can tell you the profits you can expect in the future based on where your sales goals and profits are currently positioned.

As a KPI for startups that can help you see how likely you are to hit your predictions, it is very helpful in creating patterns and preventing potential issues with your pricing strategy. Most companies base their estimate on how well they will perform for the year based on its Q1 returns.

How is the Revenue Run Rate computed?

Getting your Revenue Run Rate is a quick way of “annualizing” data generated from a short period of time. If you are using quarterly data, simply multiply the figure by 4 to get projections for a year and multiply it by 12 if your data is monthly.

If your earnings for Q1 is 50,000 dollars, you can say that your Revenue Run Rate is 200,000 for the year.

While it can be useful in certain scenarios, use this metric with caution as it can be deceptively used to make results look better than they actually are.

But if you want to have a closer look and a greater control of your revenues and profitability, calculate your Revenue Run Rate on a weekly basis. You can understand clearly what is happening weekly and you can do something about it fast than wait for the end of the month (or year) to make corrections to your strategy.

Startup metric #6: Average Revenue Per User (ARPU)

Average Revenue Per User (ARPU) is the revenue generated by each customer. It is a common metric used in startups and companies offering subscriptions. ARPU tells you how much a customer is worth, and therefore applicable in almost all industries.

Why is it important?

Because you need to know how much your customers are contributing to your growth. A rising level in ARPU means you are getting more revenue from each customer or you have great pricing power in your hands.

Using ARPU is also helpful if you want to track your revenue growth as a result of the promotions, add-on services or supplemental products you offer.

Although an average won’t give you the whole picture of your customers’ share of wallet, calculating it is a good starting point when looking at the quality of your sales. Make sure to complement your ARPU with a breakdown of your sales per channel and / or customer type because some customers may be more valuable than others.

How is the ARPU computed?

Get your total revenue and divide that by your number of customers.

Suppose you are making 60,000 in revenue and you currently have 200 customers.

Following the formula for ARPU = Total Revenue / Number of Customers
ARPU = 60,000 / 200
ARPU = 300

Let’s say you ran a promotion and it boosted your revenue to 82,000 dollars. This will also increase your ARPU.

Following the formula for ARPU = Total Revenue / Number of Customers
ARPU = 82,000 / 200
ARPU = 410

Plot out your ARPU based on specific time periods. An upward trend in ARPU means you are getting more sales from your customers.

Startup metric #7: Product Metabolism

One of the first and popular startup metrics for young businesses is product metabolism – a concept developed by Dustin Dolginow that measures how fast your startup moves and makes decisions.

Similar to the human metabolism, product metabolism is usually high at the early stages of a startup, and as it matures, metabolism begins to slow down.

Why is it important?

Because it is the best thing you can do when growing your customer base, making your startup interesting to potential investors and in building a lasting value for your company.

At the early stages of your startup, it would be normal to make tons of gut-level decisions, but as you grow and expand your company, these kinds of decisions should be lessened as these can hurt customer retention and investor satisfaction.

To measure your product metabolism, ask your organization – are we moving too fast? Are we moving too slow? Why are we responding like this?

Keeping a healthy product metabolism is at the center of making your company fit into the market or industry you want to be a part of. And it’s purely a balancing act – if you create decisions fast, you might create instability. If you’re not quick enough, you might irritate your customers, your employees and your investors and lose some potential gains.

Startup metric #8: Burn Rate and Runway

Burn Rate is the rate at which money is spent in your company. It gives you an estimate of when you need to refuel (runway) or how long you can still go before you run out of cash. Refuelling can be in the form of getting more investments or it can also be a sign that you are finally breaking even and begin seeing that slow yet profitable growth curve.

Why is this important?

Because it tells you how efficient and effective you are in running your startup.

Regularly review and manage your burn rate by deducting your weekly expenses from your weekly income. If there is no income coming in, control your expenses. Think twice before making major expenses and make sure to add up the small ones.

When raising money, add a buffer and instead of paying huge salaries at the onset, consider paying at the amount you are comfortable with coupled with equity or future revenue.

Controlling your burn rate gives you the confidence and the resources to grow your startup venture the way you want it.

How is the Burn Rate computed?

Find the difference between your starting and end cash balances for a particular period. Then divide the total by the number of months or days in your selected time period. The result will be your burn rate.

Suppose your starting cash balance for the week is 10,000 dollars and you are left with 2,000 dollars cash balance at the end.

Following the formula for Burn Rate = [(Starting Cash Balance – Ending Cash Balance)/number of months or days in selected time period]

Burn Rate = [(10,000-2,000)/7 days in a week]
Burn Rate = [(8,000)/7 days in a week]
Burn Rate = 1,142.86 dollars

To know your cash runway or how long your startup will last before money runs out, divide the ending cash balance with your burn rate.

Using the same example and the formula Cash Runway = Ending Cash Balance / Burn Rate

Cash Runway = 2,000 / 1,142.86
Cash Runway = 1.75 days

Always strive for a low burn rate.

Ideally, have a negative burn rate because this means you are building cash reserves and you’re not depleting them. Investigate your direct costs and reduce or defer your other expenses. Remove unprofitable revenue streams and have a way of raising additional funds.

Startup metric #9: Lifetime Value (LTV)

Lifetime Value (LTV) is how much you expect to earn from your customers during the time they are with your company. It’s a great startup metric to use as a benchmark against your goals and your perceived company value.

Why is it important?

Because you want to know who among your customers are contributing most to your revenues and what turns a customer into a repeat and satisfied one. As not all your customers are alike, you need to know who is more profitable for you so you can reward them and treat them differently from others.

And beyond treating them well, it is critical to know the cost to keep repeat customers constantly and happily engaged. Knowing your LTV is also helpful in identifying which of your campaigns, interactions or decisions brought in your best customers.

How is Lifetime Value computed?

Calculating LTV is a tedious process. KISSmetrics provides a detailed account of calculating for it and we will use their example here. The case study they used is Starbucks and its 2004 sales figures.

The first step in calculating the LTV is to average your variables – the expenses per visit (or purchase), the number of visits (or purchases) and the product of both. In their example, they calculated the average expenses per visit and number of visits per week of five random customers.

How is Lifetime Value computed

Next step is to calculate the LTV using the following constants – Average Customer Lifespan, Customer Retention Rate, Profit Margin per Customer, Rate of Discount, and Average Gross Margin per Customer. The values of these constants will be based on your sales data, but for illustration purposes, reference the values used based on Starbucks’ 2004 sales figures.

variables in calculating customer lifetime value

There are three ways to calculate the LTV. You can use these separately or in combination so you can determine your marketing budgets and cost of acquisition with certainty.

A simple LTV equation follows the formula LTV = 52(a) x t where 52 refers to 52 weeks in a year.

There is also a custom LTV equation that follows the formula LTV = t(52 x s x c x p)

And there’s also a traditional equation that follows the formula LTV = m[r/(1 + i – r)]

When used with Starbucks’ 2004 sales figures…

formulas for calculating customer lifetime value

When these three LTVs are averaged, it will yield 14,099 dollars. This means Starbucks cannot spend beyond 14,099 dollars to acquire new customers and if they spend more over the course of an average customer lifespan (which they determined as 20 years), they might lose money.

When calculating your LTV, consider breaking down average numbers further and compute separate LTVs for different customer segments. By classifying your customers according to their total purchases over a period of time, you can determine the LTV of an ordinary, one-time customer and a repeat and satisfied one.

Startup metric #10: Viral Coefficient

Viral Coefficient is a quantitative KPI for startups for virality. It measures the organic growth of your company and is often referred to as the K value.

Why is it important?

Because there is no better way to promote your business than other people’s recommendation of your products and services. And when your friends or customers invite other people they know and these people start buying from you too, they are another source of potential revenues for your business.

Aside from word-of-mouth marketing, other ways to measure your virality is through social pushes like sharing, invitations and promotions on Facebook, Twitter or Instagram.

How is Viral Coefficient computed?

You need to know three things:

  • the number of your current customers
  • the number of invites your current customers sent to their friends
  • and the percentage of their invited friends who converted

Suppose you have 150 current customers. Each of them sent out 20 invites to their friends. 50% of those new invites converted into customers.

150 current customers x 20 invites = 3,000 invites
3,000 invites x 50% = 1,500 new customers

Divide your total number of new customers by the number of your current customers.

1,500 new customers / 150 current customers = 10

10 is your viral coefficient. As time goes on, you would want to increase your viral coefficient by asking your newly acquired customers to invite people they know and so on.

Always aim for a viral coefficient value greater than 1.

A positive value means you are able to give your customers a positive user or shopping experience, your product fits perfectly with the market you are targeting, your cost of acquisition is low and your chances of earning more is high.

Take advantage of the snowball effect of word-of-mouth advertising, invitations and even rewards programs. More often than not, what you need to grow your startup is not in the bulk of paid advertisements you are willing to set up, but how often people talk about and recommend your business to others.

Startup metric #11: Referral

Referral is a spin-off to the viral coefficient because it tells you the percentage of your new customers who came from your current customers.

Why is this important?

Because you need to identify how you were able to acquire your new customers – from what channel did they come from? Were they recommended by your current customers? Did they know about your business all by themselves?

Knowing your referral rate helps you add substance to your referral program and what marketing channel you need to optimize for better conversions.

A good way to separate a referral as a cause of virality versus a recommendation from an existing customer is to ask a new customer “how did you hear about us?”

Similar to viral coefficient, the higher your referral rate, the lower your cost of acquisition. Push your referral rate higher by reminding your customers to recommend your business or product to someone they know.

Now’s your turn

We just covered 11 startup metrics that we hope you can put to use as you study how your startup venture will reach its full potential.

As you are working your way up, begin with a few metrics first namely your CAC, revenue, burn rate and runway and LTV. As you grow more, use the other metrics, such as your CRR, activation rate, viral coefficient, referral and product metabolism. Pretty soon, you will see that these key metrics for startups are all connected to one another.

Are there other key metrics for startups that you are using? We’d love to hear about them in the comments below!

About the Author

John Komarek is the founder of Pixelter. He helped over 63 e-commerce businesses boost their mobile sales by up to 183.5%. He uses advanced UX research, A/B testing, and AI-driven personalization to deliver the results. Learn more about how he can help you grow your sales.

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