Startup business goals should be measurable. How? Take a look at the common startup KPIs that will help you measure your success. Read on.
Key Performance Indicators are used to show progress, especially for startups. It is essential to measure progress and create your own startup KPIs. Additionally, KPIs help you determine the areas where you need to improve.
Startup KPIs also help you keep focused on your goals. Keeping track of milestones and opportunities is one strategy for continuous improvement. Thus, the startup KPIs you determine early on will also serve as your guide. But what makes it important? Let’s explore.
KPIs, What are they?
KPIs are critical indicators of progress to reach a goal. Also, this provides the startup business an opportunity to improve on operations and strategy. Startup KPIs help founders make informed decisions as to where they will shift their focus.
It is important to note that KPIs are different from startup metrics. The latter focuses on results from a particular activity, and startup KPIs look at metrics related to reaching objectives. How else would you define startup KPIs?
Navigational Tool for your Startup
KPIs help managers understand the big business goals. In other words, the KPIs help you navigate the path, the critical aspects of your performance and shine the light on matters that need to be addressed.
Startup KPIs help you assess the situation. What is working? What didn’t work? Then you will be able to build out a strategy moving forward. You need to adapt accordingly to the ever-changing situation of the business or market. Your startup KPIs will alert you so you can create the necessary fixes and move forward.
Decision-making made easier
Startups will face many challenges; what better way to navigate these challenges than having a tool to help you make big decisions more straightforwardly. Startup KPIs give you information on focus areas. Rather than measuring random data, KPIs are tied to strategic objectives.
Developing your startup KPIs helps answer critical questions when needed. Again, KPIs help you keep track of big business goals. Start with answering questions that decision-makers or even external stakeholders might ask. Once you’ve done that, you can develop a meaningful, strategic, and relevant startup KPI.
Getting the correct data to launch any startup business helps you get the right results. There are quite a lot of common startup KPIs out there. Finally, we’ve determined the KPIs that most startups use to grow their business.
Common Startup KPIs for Sustainable Businesses
Here are the most common KPIs that help startups measure business outcomes:
Customer Acquisition Cost (CAC)
When attracting customers, businesses spend money on sales & marketing. With efficient and effective marketing efforts, you determine the costs per customer. This KPI is more meaningful when combined with the other metrics we will discuss later on. Getting a comparison between your CACs and your competitors’ will get you a clearer picture of how you can improve your strategies.
Customer Retention Rate
Attracting customers is one thing; retention is another. The customer retention rate determines the percentage of your current customers vs. the ones you lose over time. This data will show you that you are keeping your customers happy. The customer retention rate also indicates capital efficiency.
Lifetime Value (LTV)
Your lifetime value also measures your relationship with your customers. LTV is the net value of your customer over the estimated life of the average customer with your company. The ratio between CAC and LTV is valuable data if you aim to build a sustainable business.
CAC Recovery Period
This KPI helps you determine how long it will take your customers to generate net revenue to cover costs. This has a direct impact on money flow and, eventually, the runway.
This key performance indicator measures cash flow over an amount of time until the cash runs out. To compute the runway, you divide your remaining cash against the monthly burn. It is advisable to have an absolute runway projection of at least 12 months. Doing so will help you create adjustments along the way.
Startups must consider this KPI. Rather than worrying about the next fundraising round, create strategic adjustments to stabilize your runway.
This KPI measures the total expenses to run your business. Overhead, when relative to revenue, shows a reflection of capital efficiency.
You need to understand revenue and the monthly overhead to get your business’ monthly burn. This is the net cash flow per month when net income is negative. To put it simply, if you start with $150,000 in cash and end the month with $140,000, then your burn rate is $10,000. If your net cash flow goes positive, then you’re not burning money.
The profit margin reveals the “mark up” of the product or service you are selling. This will allow you to determine in numbers your return on investment (ROI). The profit margin data will also help you understand if your business is scalable and sustainable.
Now here comes the exciting part, getting money for your product or service. A conversion rate is a combination of your selling skills and your customer’s need. It is essential to track and review the customer journey to improve your strategies around what works eventually.
Considering Startup KPIs for Business Growth
When it comes to managing your startup, it is important to have a tool to track and measure your progress. Startup KPIs help you determine where your money is being spent, strategize getting customers, and maximize your resources. All of these are essential in building and growing your business.
You also need to stay focused on your business goals. KPIs keep you in check about where you are headed. With the many challenges you face as a startup founder, KPIs allow you to navigate through them. Using the common Startup KPIs is a sure-fire way to avoid certain money pitfalls, among other things.
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