At every stage of development, startups should assess profitability on an item-by-item basis. The goods and quantities produced by a company determine its revenue that is the most important metric when it comes to starting a business. There are many metrics used by businesses to calculate profitability at various levels, paving the way for future growth. Here are the 8 will help you grow your startup into a real business.
Repeat customers – Repeat customers is the key to any business as it affects many other metrics as NPS (Net Promoter Score) and CAC (Customer Acquisition Cost). Better the repeat usage better is the NPS and lesser over-dependence on paid channels of acquiring customers.
LTV – Lifetime value of a customer is the first indication and barometer for deciding the CAC that you should limit your business too. This helps one to keep unit economics in check and build business that is sound on fundamentals.
Revenue Run rate – Every business has to be in the business of making money. Hence, monetization and revenue generation is key to sustenance of any business. It helps in business forecasting, investment plans and structuring value for money deals for end consumers.
Operational Efficiency – By increasing the operational efficiency, a business can keep the burn low and thereby increase the gross margins, in order to have a healthy balance sheet. If the venture is technologically strong & deep rooted, most of the processes can be automated thus decreasing the operational costs and hence attaining an operational efficiency.
Culture, People & Innovation – The three most important metrics that a startup should track constantly are its culture and people, the power of iterations and lastly, the constant innovation while keeping things simple. These three metrics define the foundation and disruption of any company. With these three in place, a company’s profitability is bound to go North.
CAC (Customer Acquisition Cost)- It means what is the cost of acquiring the customer. It’s a way to monitor the efficiency of the sales process and sales team. If you are spending too much money to acquire new customers, and its impact is not improving over time, you need to make some changes.
Churn Rate – Churn, or attrition, is another really important metric a business should track to measure how many customers stop paying for their product. If your customers are leaving your product then try to conduct win/lose interviews with them by phone or email. The result will finally show up in your sales and cash figures.
Burn Rate & Gross Margins – Burn rate is the metric that tells you how much cash goes out the door every month for the growth of your business. You need to know how much time is left before you run out of the money and when you will start generating profits. Also, you should understand what kind of gross margin is typical for your industry. Gross margins helps in measuring how effective your management, sales, and customer teams to drive the business. It highlights what operating levers you can use to drive growth, and how close you are to inflection points.
A special thanks to Saurabh Singla, CEO and Co-founder, LazyLad; Naveen Tewari, Founder & CEO, InMobi; Debadutta Upadhyaya, Co Founder, Timesaverz; Umair Mohammed, Founder & CEO, Wigzo; Abhishek Goel, Co-Founder, StrollUp.in and Niraj Singh, Co-Founder, Spinny for helping in the development in the story.