Startups are a risky business. Why? Because startups have an extremely high rate of failure. In fact, statistics show that 68% of all new businesses will fail within the first five years. This is why it’s so important for founders to measure the right metrics and share them with their team if they want to succeed with their startup.
We’ve put together three important metrics for founders to measure in order for you to be successful with your startup.
The first reason for a startup to fail is the lack of market need. A startup can be very innovative and efficient, but if there’s no demand for their product or service they won’t be able to survive. As startups usually start with unknown customers and an unknown solution, it’s important their search for ‘product-market fit’ is guided by the right metrics.
Founders need to measure the right metrics in order for them to understand if they are moving closer or further away from their goal. If a startup doesn’t know what its goal is, it won’t be able to achieve it.
Usage-related metrics are those that measure how customers use your product. Usage-related metrics help founders understand how closely their developed solution fits the customer’s problems.
There are several usage-related metrics founders can measure, but we’ve picked the most important ones:
1. Product Analytics
Founders should monitor which actions are leading to conversions. For instance, how often do users of our product visit certain pages? Which actions are they taking within your product?
2. Engagement Analytics
Engagement-related metrics measure the customer’s level of satisfaction with your product or service, their level of engagement and how loyal they are towards your brand. Look for metrics like
3. Net Promoter Score (NPS)
The Net Promoter Score is a metric that measures customers’ willingness to recommend your product or service. This means the NPS helps founders understand how loyal their users are and whether it’s worth spending time and money on keeping them as customers for longer periods of time.
Revenue-related metrics are used to measure how much money is being made from your product. Without revenue, it’s very hard for a startup to survive the first years of its existence. Revenue-related metrics can be divided into two parts;
Customer acquisition cost (CAC)
Customer Lifetime Value (CLV)
Customer acquisition cost is the amount of money you need to spend in order to acquire a new customer. The total Customer Acquisition Costs are divided by the number of customers acquired over a specific time period, which gives us the CAC.
The CLV is the profit made from one customer during their entire lifespan as a customer. Again, this is divided by the total number of customers acquired over a certain period of time to get the average CLV per customer.
As founders aim to increase their revenue, these are two very important metrics for them and they should be measured on a regular basis.
Retention-related metrics measure how many customers are staying with your company. Retaining a customer costs less than acquiring new ones, so measuring the retention rate can help founders make better business decisions and improve their revenue.
The most common retention-related metrics are:
Churn rate (customers lost over time)
Customer lifetime value (CLTV)
Having a low retention rate usually doesn’t mean that you need to completely change your product or service. It might just mean that your users are not getting the value they were promised or expected. If this is the case, you should either reevaluate and change your product or service to be more attractive to your clients, or look for another market need and think about a new startup.
It’s important for founders to measure these three metric types in order to see if the startup is heading in the right direction. If the metrics aren’t great, it doesn’t necessarily mean your startup will fail. It might just show that changes need to be made and improvements should be implemented.
In general, if your startup is growing and these three metrics are on the right track, it’s time to celebrate. The key here is not to stop measuring your metrics as this will show you how well you keep up with growth and whether or not changes need to be made.
Twitter is an example of a startup that used social media to grow its platform. Twitter’s monthly active users skyrocketed as people began to use it and share it. As Twitter grew, so did its price and market value. They managed to do this by measuring the right metrics in order for them to succeed with their startup.
Another example is Airbnb. This company’s monthly active users have increased dramatically, especially now that the sharing economy has become so popular. On top of having a lot of monthly active users, it also has high retention rates as people like sharing via this platform and want to keep coming back for more.
Another example of a startup that has used the right metrics successfully is Evernote. By measuring their monthly active users and retention rates, they were able to see how many people continued to use their product. In order to expand and grow their business, they even started offering services for businesses. They became successful with this decision because SMBs are loyal to them.
Before you start a startup, it’s important to measure the right metrics that will help you grow and succeed with your business idea if you want it to be successful. It’s a good practice as a founder to always check how these things are progressing because this enables you to take action when necessary. By measuring the right metrics, you can avoid winding up in failure.
Further, it’s important to make relevant metrics accessible to your entire team. This will help everyone understand how the company is progressing and empower them to make necessary changes.