Business metrics guide founders and decision-makers to make the right call to push their ventures towards their goals. However, as a founder, you will face many data insights. Find out which metrics startups founders should pay more attention to.
Today’s businesses run on data insights. From managers to CEOs, these decision-makers rely on data to make sound and accurate business decisions. Startups and small business enterprises are the same.
However, unlike big businesses, your startup still lacks resources. As a founder, you are juggling several things right now. During these times of growth, you need to focus your time and resources on the right business metrics to be timely in implementing business decisions to improve your startup.
Before identifying the critical business key performance indicators (KPIs), you should first know what business metrics are and how they affect your startups. Read on to know more.
What are Business Metrics?
Simply put, business metrics are the data used to track, measure, analyze, and quantify components of your business. These are your business’ KPIs. These data show how your company can effectively achieve specific goals.
Nevertheless, it is very critical that business metrics are defined, aligned, and measured to certain business goals. In this way, the said KPIs are used to make informed decisions, which will help achieve specific business goals. For example, your startup has set an annual sales goal. Specific business performance metrics will allow you to check if your strategies are working to achieve the set goal. With the data gathered from the KPIs, you will be able to decide to adjust, continue, or replace strategies.
That is why KPIs should always be actionable, clear, and relevant to communicate them clearly to the entire organization. As such, business performance metrics can also become a communication tool to organize and align the whole organization for the same goals.
What are the Benefits of Tracking Business Metrics?
Business metrics will give you direct insights into the core of your business. In addition, your KPIs will let you address different stakeholders of your startup, such as customers, vendors, managers, employees, investors, and more. Therefore, mastering and understanding business performance metrics are valuable for a startup founder like you. Listed below are some of the advantages that you can get by using the right business metrics.
It is very helpful to have a map when you are trying to reach a goal. Business metrics will serve as your map. The KPIs will tell you where you are in achieving your goals. For example, your Sales Win Rate metrics will tell you the percentage of how many sales opportunities that your sales department has won. Hence, you can track where your business is in achieving your sales goal.
KPIs will help in keeping the performance of specific sectors of your business visible. Thereby, allowing your management team to track project progress.
Timely Identification of Problems
By incorporating business metrics in your reports, you can quickly identify trends and catch problems before they cause more damage to your company. For instance, your sales metrics show that sales are declining. By identifying the problem, you can quickly delve into why it is happening and create appropriate measures.
Entrepreneurs, founders, and business leaders should always be objective in making business decisions. And to avoid bias, you need to base your decision-making on business data.
Making decisions using business data will put you in a better position to achieve your goals. It will also help you develop revenue strategies on how to take care of your business and customers using facts instead of opinions.
Monitoring business performance metrics are advantageous. Hence, you need to recognize which KPIs are more important to startups.
10 Business Metrics that Matter More to Startups
There are quite a lot of metrics that can measure certain performances of your business. Yet, for a startup with limited resources, you must select the right metrics to track so that your company will not waste resources.
Here are a few ways to identify the right KPIs to track:
- It should be related to objectives that will help achieve business goals,
- That the metrics should provide your managers with information that will allow them to formulate an actionable response,
- The metrics’ data points should correspond to your overall business goals, and
- Its data should point out areas that can be improved.
With these criteria, founders like you can determine which metrics to monitor. It is important to note that the right metrics depend on your business objectives, which industry your startup belongs to, and other circumstances. Listed below are some startup KPIs that should pay attention to:
This metric will show you how much your company’s negative cash flow or how much and quickly it is spending money. By tracking this KPI, you know how much cash your business needs for its operation and even for expansion. This performance measurement is calculated in two ways:
Net Burn Rate = Total Monthly Expenses – Monthly Revenue, and
Gross Burn Rate = Total expenses per Month
Investors study a startup’s Net Burn Rate as it is an indicator of potential growth.
Almost all startups today operate using their websites. With this performance tracker, you can monitor the engagements of your website visitors. From this KPI, you can study the number of clicks, pages viewed, subscriptions, and more to develop appropriate strategies and marketing campaigns.
Customer Acquisition Cost (CAC)
CAC refers to the money that you spend to acquire a customer. This will include your spending on marketing, sales, and distribution of your products and services. CAC will be high when launching a new product or service for startups. Though, as you study this KPI and understand your customers’ behavior, you can bring down the cost by adjusting your strategies like finding new marketing channels.
This metric shows you the percentage of paying customers your business lost in a given period. By monitoring this KPI, you will see where you lost the client (canceling subscriptions, requests for refunds, not making any repeat purchase, etc.).
The performance metrics provide feedback on customers’ response to your pricing, type of service, and competition. In addition, this KPI will also tell the average time your business retains a customer.
Opposite to Churn Rate, this metric will indicate the number of paying customers your business retains. For subscription-based startups, this performance metric is one of the most important KPI to track. From this performance measurement, you will know if you are delivering and providing product or service value to your target market by knowing the recurring revenue, customer satisfaction, and business growth.
Lifetime Value of Customer (LTV)
LTV refers to the revenue you can generate from customers throughout their subscriptions or memberships. This is an important metric to track for startups offering subscription and membership programs. You should have a clearer view of how much to invest in customer retention programs.
This business metric shows the flow of cash in and out of your startup. By measuring your cost versus revenue, you will determine the liquidity of your business. Having a positive cash flow, in turn, will help your startup when looking for funding.
Return On Investment (ROI)
A metric that measures that you gain or lose from investments. To put it simply, you can calculate your ROI of your new venture or project by using the formula below:
ROI = (Total Loss/Profit ÷ Total Investment) x 100
This performance measurement will tell you how efficient and profitable your investment was.
Revenue Growth Rate
This is the most common metric that startups monitor. It measures your company’s monthly, quarterly, or annual sales growth. Revenue growth rate signifies how much your company can grow, especially against your competition.
As a founder, you should always make sure that your Revenue Growth Rate is in line with the industry average. You can do this by analyzing this business metric in sections. For example, you can review growth by customer type. This way, you will determine which types are increasing sales and which are declining. Knowing this information will allow you to direct your resources in the right direction.
Net Profit Margin
This financial KPI measures how profitable your business is. It can tell how effective your venture is at generating profit for every revenue it brings. By understanding this KPI, you will have an advantage in the pricing war against your competition and lead you to better short- and long-term decisions.
Why Track Business Metrics?
Always remember that as a startup, you still can fail even if you offer an effective product or service. A startup can only attain value if it meets its business metrics. By using these KPIs, you can take care of the financial aspects of your venture. And, through understanding these business performance metrics, you will make better business decisions in every stage of your startup.
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