By Sreeram Sreenivasan
Entrepreneurs are so busy juggling day-to-day tasks & decisions that it’s easy to lose track of what’s working well for their startup, what needs to be improved and how to grow their business.
Growth KPIs are the key trends & metrics that tell you if your startup is growing fast enough, and if it is headed in the right direction. It’s essential to monitor them regularly to track progress, spot winning tactics that you can repeat, identify problems up front and address them as soon as possible.
Here are 5 Growth KPIs every startup must keep an eye on.
Revenue Run Rate
Revenue Run Rate is the revenue your startup generates every month. When you’ve just launched, you can simply set monthly revenue targets and measure your monthly sales performance against them. As you gather enough data, you can start comparing your current month’s revenue with those of previous months, to see how your business is growing over time. It will also help you discover the effects of seasonal as well as market trends on your revenue.
Initially, you may start off with a single revenue source, say, email marketing. As your startup grows, you’re likely to add more revenue sources, such as social media and SEO. If your startup has multiple sources of revenue, then you should also track revenue growth for each source. This will tell you which sales & marketing channels are most effective so you can put more resources behind it.
Conversion Rate is the percent of visitors who perform a specific action on your website or app. This action can be anything such as registering for your service, subscribing to your newsletter, or even purchasing your product. It’s important to measure conversion rate for each action (such as signup, download, purchase) separately. This will help you understand how effectively you’re able to persuade users to perform those actions. For example, a signup conversion rate tells you what percent of visitors are interested in your product or service, whereas a download conversion rate will tell you what percent of your blog readers find your ebook/white paper useful.
Conversion rates also tell you the effectiveness of your growth activities. For example, you can see how your marketing campaigns are performing, what percent of your target audience is turning into customers, how people are responding to your promotions and offers, and more. The higher your conversion rates, the better it is for your startup.
Customer Acquisition Cost (CAC)
Customer Acquisition Cost is the average cost incurred by your startup, to acquire each customer. You can calculate it by dividing the total cost (including marketing cost, salaries and overhead expenses) incurred to acquire your customers during a specific time period (e.g 1 month) by the total number of new customers you acquire during that time. For example, if you spend $1,000 to acquire 25 customers in a month, then your CAC is $40 for that month.
It’s important to track overall CAC every month, to ensure that your startup is not spending too much money to acquire its customers. Otherwise, your cost per customer will exceed the revenue per customer and you’ll quickly run into losses.
You can also break down CAC for each source of customers (such as social media, SEO, blogging), to identify inexpensive ways to acquire new customers and pull the plug on the costly ones. For example, during the early days of Dropbox, its founder Drew Houston realized that paid ads were too costly to get new customers for their freemium product. So they switched to referral marketing. It not only reduced their CAC but also made their product go viral. And the rest is history.
Burn Rate is basically the total amount of money your startup spends every month. It’s one of the most important growth metrics that you need to monitor regularly. Otherwise, your startup may run out of money and have to shut down. The lower your burn rate, the longer your startup can survive.
While calculating burn rate, it’s important to clearly identify all the sources of expenditure so that you don’t leave out anything. When you’ve just launched your startup, you can begin by simply tracking the overall burn rate every month. As your business grows and expenses increase, you can monitor burn rate for each source of expense. This will help you understand where you’re spending most of your money and how you can streamline it.
Every startup aims to build great products & services to make customers happy and eventually increase profits. You get to use your profits to provide more value to your customers, hire great people and explore new ways to grow your startup even further. So it’s important to keep an eye on the profits your startup is able to generate every month.
While calculating profits, it’s essential to take into account all the sources of revenue & expenses for your startup. Otherwise, you may end up with inflated (or deflated) profit values and be misinformed.
You can even compare each source of revenue with its associated costs, side-by-side, to find the most profitable sources for your startup. This will help you track the return on investment (ROI) for each source, spot cost-saving areas and increase profits.
To begin with, you can create a simple dashboard to track these KPIs regularly and share them with your team. You can monitor it 1-2 times every week to see how your startup is doing, where it stands with respect to your business goals. If your startup is growing at a fast pace, it would be a good idea to review it daily. This will enable you to quickly spot issues and take action, as well as discover new growth opportunities. It will also help you measure the impact of your latest marketing campaigns. As your startup grows, you can always include more KPIs & metrics to it, if you feel the need to track more information.
Growth metrics provide at-a-glance status of your business, help you figure out what’s working & what can be improved. They empower your team to achieve business goals and drive your startup in the right direction.
For more than 8 years, Sreeram Sreenivasan has worked with various Fortune 500 Companies in areas of Business Intelligence, Sales & Marketing Strategy. He regularly writes at the Fedingo Blog about a wide range of business growth & marketing topics. He’s also the Founder & CEO of Ubiq BI, a cloud-based BI Platform for SMBs & Enterprises.