The 10 best metrics for startups
Why use metrics for startups?
For any startup, the early stages are crucial. Founders and teams need to be flexible, responsive, and data-driven to ensure business growth and sustainability. Metrics allow startups to measure progress, assess strategies, and make informed decisions. Effective use of metrics accelerates growth, optimises resource allocation, and attracts investors by showcasing a data-backed understanding of the market and business performance.
The top 10 metrics for startups
1. Customer acquisition cost (CAC)
Understanding how much it costs to acquire a customer is fundamental for a startup. It helps in managing budgets effectively and ensuring marketing and sales efforts are sustainable.
How CAC is calculated: CAC is calculated by dividing all the costs spent on acquiring more customers (marketing expenses, sales team costs, etc.) by the number of customers acquired in a given period.
What tools can be used to get CAC data: Tools like HubSpot, Salesforce, and Google Analytics can provide data needed to calculate CAC.
What average, good, and best in class look like for CAC:
- Average: $50
- Good: $20
- Best in class: $10
2. Customer lifetime value (CLTV)
CLTV estimates the total revenue a business can reasonably expect from a single customer account over the lifetime of their relationship with the business. This metric helps in understanding the long-term value of customer relationships compared to acquisition costs.
How CLTV is calculated: CLTV is calculated by multiplying the average purchase value, purchase frequency, and customer lifespan.
What tools can be used to get CLTV data: Tools like Kissmetrics, Mixpanel, and Stripe can help track and calculate CLTV.
What average, good, and best in class look like for CLTV:
- Average: $200
- Good: $500
- Best in class: $1,000+
3. Monthly recurring revenue (MRR)
MRR is a measure of the predictable and recurring revenue components of your business. It’s crucial for subscription-based startups to gauge financial health and growth.
How MRR is calculated: MRR is calculated by multiplying the number of monthly subscribers by the average revenue per user (ARPU).
What tools can be used to get MRR data: Tools like Chargebee, Baremetrics, and ProfitWell can help track MRR.
What average, good, and best in class look like for MRR:
- Average: $5,000
- Good: $50,000
- Best in class: $100,000+
4. Churn rate
Churn rate measures the percentage of customers who stop using a product during a given time period. Reducing churn is vital for sustainable growth.
How churn rate is calculated: Churn rate is calculated by dividing the number of customers lost during a period by the number of customers at the start of the period.
What tools can be used to get churn rate data: Tools like Recurly, ChartMogul, and CustomerGauge can help measure churn rates.
What average, good, and best in class look like for churn rate:
- Average: 5-7%
- Good: 3-5%
- Best in class: <2%
5. Burn rate
Burn rate is the rate at which a startup is losing money. It's essential for understanding how long a startup can operate before it needs additional funding.
How burn rate is calculated: Burn rate is calculated by subtracting total revenue from total expenses over a month.
What tools can be used to get burn rate data: Tools like QuickBooks, Xero, and Bench can help track burn rate.
What average, good, and best in class look like for burn rate:
- Average: $50,000
- Good: $20,000
- Best in class: $10,000
6. Net promoter score (NPS)
NPS measures customer experience and predicts business growth. It gauges customer loyalty by asking them how likely they are to recommend your product to others.
How NPS is calculated: NPS is calculated by asking customers to rate their likelihood of recommending you on a scale from 0-10, subtracting the percentage of detractors (0-6 ratings) from the percentage of promoters (9-10 ratings).
What tools can be used to get NPS data: Tools like SurveyMonkey, Delighted, and Promoter.io can gather NPS data.
What average, good, and best in class look like for NPS:
- Average: 20-30
- Good: 40-50
- Best in class: 70+
7. Gross margin
Gross margin measures the financial health of your product sales process by comparing revenue from sales to the cost of goods sold (COGS).
How gross margin is calculated: Gross margin is calculated by subtracting COGS from total sales revenue and dividing by total sales revenue (expressed as a percentage).
What tools can be used to get gross margin data: Tools like QuickBooks, FreshBooks, and Clear Books can track gross margin.
What average, good, and best in class look like for gross margin:
- Average: 40-50%
- Good: 60-70%
- Best in class: 70%+
8. Activation rate
Activation rate measures the percentage of new users who take a specific action that indicates they are getting value from the product, such as completing a setup wizard or using a key feature.
How activation rate is calculated: Activation rate is calculated by dividing the number of users who complete the activation action by the total number of new users.
What tools can be used to get activation rate data: Tools like Mixpanel, Amplitude, and Google Analytics can help track activation rates.
What average, good, and best in class look like for activation rate:
- Average: 30-40%
- Good: 50-60%
- Best in class: 70%+
9. Daily active users (DAU)/Monthly active users (MAU)
DAU/MAU is a ratio that measures user engagement by comparing daily users to monthly users. A high ratio indicates strong user retention and product value.
How DAU/MAU is calculated: DAU/MAU is calculated by dividing the number of unique active daily users by the number of unique active monthly users.
What tools can be used to get DAU/MAU data: Tools like Mixpanel, Firebase, and Localytics can track DAU/MAU.
What average, good, and best in class look like for DAU/MAU:
- Average: 10-15%
- Good: 20-25%
- Best in class: 30%+
10. Viral coefficient
Viral coefficient measures the rate at which your product is being spread by users. A higher viral coefficient indicates quicker and more organic growth.
How viral coefficient is calculated: Viral coefficient is calculated by multiplying the number of invites sent by current users by the conversion rate of those invites.
What tools can be used to get viral coefficient data: Tools like Gleam, ReferralCandy, and Influitive can help measure viral coefficients.
What average, good, and best in class look like for viral coefficient:
- Average: 0.5-0.9
- Good: 1.0-1.2
- Best in class: 1.5+
How to track metrics for startups
Tracking metrics for startups doesn't have to be a complex or time-consuming task. There are numerous goal-tracking and analytics tools available that can simplify this process. One such tool is Tability. Tability can help you save time and keep your team focused on the right metrics to improve. By regularly updating and reviewing these metrics, you'll be able to stay aligned with your business goals and react promptly to any emerging trends or challenges.
FAQ
Q: Why is CAC important for startups? A: CAC is crucial because it helps startups understand the cost effectiveness of their customer acquisition strategies, enabling them to allocate resources better and optimise marketing efforts.
Q: How often should startups track these metrics? A: Startups should monitor key metrics like MRR, churn rate, and burn rate on a monthly basis. Other metrics can be tracked quarterly, depending on the business model and growth stage.
Q: Can different industries have different benchmarks for these metrics? A: Yes, benchmarks can vary significantly depending on the industry, target market, and business model. It’s important to compare your metrics against industry-specific standards.
Q: What’s the most critical metric for early-stage startups? A: While all metrics are important, early-stage startups often focus most on CAC, CLTV, and burn rate as they establish product-market fit and scale their customer base.
By tracking and optimising these 10 key metrics, startups can steer their growth and build a more sustainable, data-driven approach to success.
