How do you know if your startup is going in the right direction?
- How excited are your customers about your product?
- Monitoring the financial health of your startup
- Asking all the right questions
- Tracking metrics to ensure long-term success
Taking your business from a small startup to a successful corporation is no easy feat. It requires a lot of hard work – finding investors, hiring the right talent, and dealing with customers in an increasingly competitive market. But at the end of the day, how do you determine whether your efforts were successful? Fortunately, tracking success doesn’t have to be complicated. There are several key metrics that you can use to indicate the health of your company and its prospects for growth.
Customer retention costs, profit margins, burn rates, and other financial metrics help you to not only monitor profit and loss, but also to decide which customers aren’t worth your time and to estimate when your funds could run out. Product and online engagement metrics like daily active users, activation rates, and share rates show how much customers like your product compared to those of competitors. But while these data points are a good way of tracking the success of a startup, they can’t really fully explain why your business is booming or failing. That makes it harder to solve problems and optimise sales and customer service operations. Overcoming this obstacle requires that managers dig deeper and discover what specific metrics tell you about user behaviour and how that information can be used to improve your business.
How excited are your customers about your product?
The number of annual active users on your app or the number of products sold in a given time period are the metrics most startups should track. This helps managers, as well as investors and partners, to get a macro view of the company’s potential. But such data should be much more granular to provide key insights. Ozoda Muminova, a business expert at Kandu, an innovation mentoring company, argues that metrics such as monthly active users (MAU) and average daily active users (DAU) help companies to further understand just how engaged their users really are. For instance, an increase in the DAU metric is a much better indication of users’ passion for a product than the simple number of annual active users. And to observe trends in this data, it’s important for businesses to track month-on-month growth of active users and compare it to the industry average or their own targets.
Having a lot of active users is clearly a positive sign, but you need them to talk about your product and support its organic growth. Tracking this behaviour is therefore crucial, and it can be done through the share rate metric, which shows the number of shares on social media per user. Finally, Muminova also recommends tracking the customer retention rate, which is the percentage “of customers who have purchased your product, signed up to a service or downloaded your app that come back within a specified period of time”. This helps you estimate the number of loyal customers.
Monitoring the financial health of your startup
Meanwhile, monitoring financial metrics will ensure your business remains profitable and avoids bankruptcy. The first data point you need to track is total revenue, as well as recurring revenue, further divided per customer and per month. Experts from Andreessen Horowitz, a private venture capital firm, suggest that “Investors more highly value companies where the majority of total revenue comes from product revenue”, as revenue from services is usually non-recurring. In addition to this, the profit margin is a crucial metric, too, since it reveals whether you can make a healthy profit and how much value customers think you provide.
Naturally, if your product creates a lot of value for customers, they’ll be willing to pay more. Also, improving the product with additional features and finding new ways to impress people can help reduce the cost of acquiring and retaining customers. Furthermore, if you want to increase profitability, the average revenue per user metric is a good place to start, but you have to dig deep and discover which products and services yield the most revenue. This will help you to fine-tune the sales process and decrease payback time, a metric that tracks how soon you recoup the costs of acquiring a single customer. Lastly, it’s important that managers pay close attention to the burn rate, which basically shows how fast a company will deplete its cash reserves and will be forced to seek more financing.
Asking all the right questions
Collecting data and observing metrics can help you measure the success of your startup and notice problems before they escalate. But solving those problems and understanding why they happened requires a bit of ingenuity from managers and founders. For instance, when the growth of the AreYouInterested dating app began to drastically slow down, its CEO, Cliff Lerner, decided to act. But instead of analysing hundreds of data points, he focused only on three metrics: unique selling proposition (USP), net promoter score (NPS), and user retention. The reason he opted for these was that they could help him answer three critical questions, including whether his product is remarkable, whether people will tell others about it, and whether users will keep returning.
Lerner then conducted a survey that showed that his users didn’t share his own view of what’s unique about the app. They were also not overly keen on promoting the app to their friends, and this indicated that the stagnating revenue was the result of a bad product, and not an underperforming sales team. Finally, he analysed high-retention users and this led his team to discover that replies to messages were the single most important factor in motivating people to use the app over and over again. With that in mind, his team optimised the app and this increased the number of replies by 400 per cent. Revenue and retention rates were also up, and the company was in a much better position than before.
Tracking metrics to ensure long-term success
Tracking key financial and product metrics can help managers to get a clear understanding of where their companies are heading and the problems they’re facing. As a result, businesses will be able to react on time and solve issues before they escalate. In addition to this, the sales process can be optimised, ensuring the company is focusing on attracting and retaining customers and improving its product. This will ensure the long-term survival of a startup and its chances of thriving in an increasingly competitive environment.