Strategy What indicators must your startup measure?
Are you tracking the wrong KPIs (Key Performance Indicators?)
If you have a startup chances are you’re enthusiastically tracking KPIs. But are you tracking the right ones?
Many startups obsess over revenue (which is usually a good thing) and cashflow. These are definitely important because revenue validates your product in the marketplace and enables your startup to grow. Cashflow is the oxygen that keeps our business alive. Without cashflow, we are bankrupt.
But there are so many more metrics that you could be tracking in your startup, especially when revenue isn’t growing as expected. It’s easy to identify lots of interesting data points in your business. An online search can yield even more fascinating metrics, but are they relevant to your business?
Find the specific metrics that really matter to your business. Don’t overwhelm yourself with extra, less important metrics which will distract you from the main goal. The metrics that really move the needle for your business are typically called your key performance indicators.
If you have an interesting metric but you wouldn’t do anything if it changed by 10% or 20%, then it isn’t a key performance indicator.
I work mostly with B2B SaaS startups, and usually the key performance indicators are tracked at the month level and include:
a) MRR – monthly recurring revenue
b) CAC – customer acquisition cost
c) Churn – the rate at which existing customers are lost
d) ARPC (average revenue per customer) or ASP (average sales price)
e) Number of inbound leads
f) Number of demos
g) Conversion percentage of demos to sales
h) Average sales cycle length
There are many variations and complexities to these KPIs, and others you could include, like website metrics, pay-per-click numbers, public relations (earned media) success, and outbound campaign numbers. The secret is finding the ones most important to your business and keeping it a simple as you can, especially in the early days.
Tips for tracking KPIs
- Document each of your KPIs and note why it is important to you.
- Decide what represents a significant change in your KPI. Is it 10%? 20%? 30%?
- Highlight each step you would take to investigate and understand the cause of the change.
- If you’re able to identify the cause of the change, document all actions you take as a result, corrective or otherwise, as well as the outcome of those actions. For example: CAC dropped due to refining PPC keywords by weeding out some low conversion but high cost keywords. Note that PPC keywords can dramatically affect CAC.
This useful information will grow over time helping you gain further insight into how the KPI reflects your business health and the typical causes when things go wrong.
Once you have a set of KPIs for your startup, generate and update them automatically using available reports or a dashboarding tool (I have used Geckoboard in the past and we are currently using Databox at LogicBoost Labs). Then communicate the importance of the KPIs across your team and focus your performance objectives on those KPIs.
When last did you review your startup’s KPIs?