Launching a new business can be both intimidating and overwhelming experience. For starters, tracking the data as soon as the business is launched might seem sterile, but not having substantial strategic planning only serves to create more confusion and penetrate the risk further. In simple words, you’re lost!
Not having a clue on how your launch went, or how it is proceeding, is one of the worst mistakes any business owner could make in his startup journey. The sooner you realize the significance of having KPIs or key metrics for each and every area of business, the better your chances will be at creating effective long term growth strategies that will help you make better decisions in the long run. Understanding these metrics and making necessary improvements can really help your business take the leap onto the next business gradient.
So what are these important key metrics? How do you monitor business performance in real time? And what are the tools that can help you drive winning strategies? Let's dive in:
Customer Acquisition Cost
How many small components of business contribute to acquiring a customer? CAC or Customer Acquisition Cost is a metric that matters the most if you are an early stage startup. The reason is simple, if you want to survive the competition, you need users and since it costs money to acquire users, you might as well start tracking optimization and profitability of your efforts.
How to Calculate CAC?
Divide the sales and marketing costs by the total number of new customers acquired on a given period of time. The former must include overhead expenses of your business of that period.
For instance, if you spent $10000 on marketing in November and acquired 50 customers in the given time frame, your CAC is $200, which is a reasonable deal!
Monthly Churn Rate
Do you know how sticky is your customer base? Are you able to hold onto your existing customers? The Churn Rate metric will show this to you. Also known as attrition metric, as a startup owner, this is one metric you should keep an eye on at all times. While you are acquiring new customers, it is also important to know when and how many customers stopped paying for your product. Monthly churn rate enables you to measure recurring revenue that you lose in a month when a particular number of customers stop buying your products or services.
How to Calculate the Churn Rate?
It's a fairly simple calculation. Take the number of customers lost in a quarter and divide it by the number of customers you started with last quarter. The percentage obtained will be your churn rate.
Gross Profit Margin
This metric measures the operating profitability of your business. This particular metric lets you analyze the trends changing at different levels of operations. Thereby reflecting how effective your management teams are at driving the business, and how you can improve processes and production.
How to Measure Gross Margins?
The Gross Margin is calculated by subtracting the company’s total sales revenue with the cost of goods sold. The resultant number is then divided by the total sales revenue.
Life Time Value
How does LTV contribute to your business? LTV or Customer Lifetime Value is a measure of the net profit or net earnings derived from the entire relationship with the customer. This metric helps you make important business decisions on many aspects such as sales, product development, marketing, and customer support. It also helps to identify the "All-Star" customers, people who contribute 80% to the overall revenue and are extremely valuable to your business.
How to Calculate LTV?
When calculating LTV there are many factors to consider based on specific goals. But the most common and straightforward way is to subtract customer acquisition cost from total revenue earned from the customer over specific time periods.
Activation Rate Metric
How effective was the last email campaign? How many attempts did it take for a campaign to convert a prospect into an active user? Activation rate Metric is the answer to all such queries. Activation Rate can be defined in several different ways depending on your goals. This may include a number of clicks, pages viewed, downloads, time spent on the website, email/blog subscription, or signup.
A high activation rate, let's say something around 70%, means that the visitor or a potential customer had good first experience.
How to Calculate Activation Rate?
In order to calculate Activation Rate, first, you need to define the activity you want to track. Then divide the number of website sessions by the number of activities completed to get the result.
These five business metrics are just a start. In order to grow and sustain today's competitive eco-system, it is vital to come up with measures or KPIs that are specific to your business and industry.
The easiest way to stay at the top of the game is by having your personalized business dashboard with Upmetrics. Different departments need different metrics, and a right, user-friendly dashboard can help you make the right selection and better decisions. Getting started is important!