It's unlikely that your startup will generate a profit immediately. So what are some KPIs to gauge how your startup is performing?
Wait, three “what”, now?
KPIs, or Key Performance Indicators, are the key figures calculated or located within your startup’s financial data. Digging into them reveals how well a startup is performing. They’re very useful.
They help you monitor performance and measure or compare it. Straight-up examples are comparing this month’s sales to last month’s. They can also be used to track trends and changes, such as staff absence rates or even to generate predictive data, such as holiday sales.
How many KPIs should I select for my startup?
It depends on the nature of your startup, its size and complexity but as a rule it’s better to select fewer of the right KPIs than too many. Having the right KPIs helps you to focus on key areas. Let’s pick out three examples of KPIs that successful startups use to measure performance.
1. Customer Acquisition Costs (CAC) Your CAC is a critical metric in the early stages of growing your startup business. You need to gain customers to make money but in order to acquire customers, you have spend money. Your CAC is the amount of money you need to spend on marketing, on average, to engage a new customer. Essentially, your CAC is equal to your marketing expenses divided by your number of customers.
2. Life Time Value (LTV) Life time value is an estimate of how much a single customer is worth to your startup. How much will a given customer spend over the course of their time engaged with your product or service? If you charge a monthly or annual fee for your product – virus software, for example – you need to know how long the average customer stays with you. LTV is also important in comparison to your CAC. If your CAC is higher than your LTV, your startup is losing money.
3. Product Metabolism (PM) Product metabolism is a relatively new metric that’s fairly specific to the startup culture. The concept is that your product metabolism is a measure of how quickly your leadership team makes decisions and rolls out updates to your product. Slow PM demonstrates that your team is slow to react and loses customers when problems go unaddressed. On the other hand, speedy product metabolism leaves both your team and your users in a constant state of panic. Striking the right balance is key.