Key metrics are the numbers which help us understand the state of the business, to track if the business is moving in right direction or not. But how does a business identify such metrics? Without wasting times with needless email or excel sheets, you should focus on getting your business to the next level, chasing funding and hiring the right talent to get the desired outcome.
Without strategic planning or business metrics, you are like a missile full of power but with no guidance on the target. Once, we are setting them, you will be able to grow your business exponentially and can tease out potential problems with your planned strategy.
Here are 10 key metrics you can get started with to scale your business
1. Customer Retention
DAU’s (Daily average users/buyers); MAU’s (Monthly average users/buyers), cohort retention numbers are important. Number of registrations, number of app downloads are illusory and don’t convey or build any value in the long term. These lead to profitable revenue growth and hence showcase the overall health of the business.
2. Conversion Rate
Conversion rate which measures the number of people who do an intended action (such as register/download/buy) against the total number of people who visit/download, open app, etc. This is a great metric since it encompasses all necessary features for a good business- a great website/app; good quality traffic, effective advertising and good UI since if all these are not there conversion rates will be low.
3. Growth Rate
If it’s a transaction business this is measured as revenue, if it’s an engagement business this could be in terms of DAU’s/MAU’s. Here the ratio of new customers to existing customers is paramount because rate of acquisition of new customers results in revenue eventually.
4. Gross Margins
Startups should know what kind of gross margin is typical for their industry so they have a sense of where they stack up. Gross margins can help companies to identify how effective the management, sales, and customer teams are at driving the business, what stage of the curve your business is in, what operating levers they can use to drive growth, and how close are they to inflection points.
5. CPA (Cost Per Acquisition)
Cost per acquisition helps in measuring the costs incurred to attract a new customer. It’s a good way to monitor how efficient your sales process and sales team are. If the proportion of spend to impact does not improve over time, it may then call for some changes.
6. Revenue Run Rate
As a business starts to grow (develop a working product, gain customers and execute a plan), startups need to start measuring how their business is scaling. Revenue run rate measures how sales are developing over time. It can help a business identify how likely they are to hit their forecasts, capture directional trends, and tease its potential problems with the pricing strategy.
7. Break even per customer
It shows in how many days does the customer start becoming profitable for the company. This tells if the business fundamentally makes sense as you scale it.
8. Lifetime value of a customer
LVC is a prediction of all the value a business will derive from their entire relationship with a customer. It is based on repeat rates for cohorts and transaction value. This tells if the business will be able to enhance value as it grows. Also, LVC helps you make important business decisions about sales, marketing, product development, and customer support which are very essential to scale the business.
9. NPS (Net Promoter Score)
It is basically reflecting the ability for the business to get the lifetime value of the customer. This signals the health of the business if it can keep customers loyal and get them to come back.
10. OKRs (Objectives & Key Results)
For growth, startups should divide their OKRs broadly into short term and long term. Short term should be towards MOM Growth in customers, revenue & transactions as well as meeting customer expectations or even surprising them with services beyond expectations. Medium to long term goal should be focus on customer repeats, referrals, recommendations and strong executing team.
A special thanks to Rohan Bhargava, Co-founder, CashKaro.com; Rajesh Nahar, CEO & Co-Founder, Cbazaar.com; Vipul Parekh, Co-Founder, Bigbasket.com and Prashant Tandon, MD & Co-founder, Healthkart.com for helping in the development in the story.