Key Metrics

Fundamentally, start-up metrics are measurable indicators that illuminate how your startup is performing, growing, and succeeding. These metrics offer valuable perspectives on different facets of your business, including acquiring users, engaging customers, generating revenue, and optimizing operations. Tracking start-up metrics is indispensable. They act as your guiding light, essential for navigating the uncertainties of entrepreneurship.

In this section, we will delve into essential metrics that every start-up founder should know, understand and monitor - basis the industry you operate in. Doing this is pivotal for steering your start-up towards success and in investor discussions. After all, in the journey of building a thriving start-up, knowledge is indeed power!

A

Active Users/Engagement

tracking the number of active users and their engagement (such as daily or monthly active users) can indicate product usage and stickiness.

Average revenue per user (ARPU)

Average Revenue Per User (ARPU) is a metric that measures the revenue generated per user or subscriber over a specific period, typically calculated by dividing total revenue by the number of users.

Average sales cycle length

Average sales cycle length measures the length of time from initiating a sales contact to closing the deal.

Average selling price (ASP)

ASP is the average contract price paid by customers for past sales over a specific time period (such as one year).

C

Churn rate

Churn rate refers to the percentage of customers or subscribers who discontinue their relationship with a company or service within a specific period, typically measured monthly or annually.

Compound annual growth rate (CAGR)

The compounded annual growth rate (CAGR) is an accurate method for calculating returns for any type of investment whose value may rise or fall over time. 

Conversion rate

This measures the percentage of users who take a desired action, such as signing up for a trial or making a purchase. It helps in optimizing marketing and sales funnels.

Costs associated with the business

Costs associated with business refer to the expenditures a company incurs in its operations, including production, marketing, administration, and financing, to generate revenue and sustain its activities.

Customer acquisition cost (CAC)

Customer Acquisition Cost (CAC) is the total cost incurred by a business to acquire a new customer, including expenses related to marketing, sales, and any other efforts involved in attracting and converting prospects into customers.

Customer satisfaction and Net Promoter Score (NPS)

These metrics gauge customer sentiment and loyalty. A high NPS indicates satisfied customers who are likely to recommend your product or service.

E

Engagement metrics

For SaaS companies, engagement metrics track the number of monthly active users (MAUs) or daily active users and how engaged they are with your software.

Exit strategy

An exit strategy is a pre-planned method by which an entrepreneur or investor intends to liquidate or reduce their stake in a business, typically aiming to maximize returns or achieve specific financial or strategic objectives.

G

Gross margin

Gross margin is the percentage of total revenue that exceeds the cost of goods sold (COGS), calculated by subtracting COGS from total revenue and dividing by total revenue. It indicates how efficiently a company produces and sells its products.

H-L

Lead velocity rate

Lead velocity rate is the month-over-month (MOM) growth of qualified leads in the sales pipeline. It can indicate future growth by giving you an idea of upcoming deals.

Lifetime value of a customer (LVC)

The lifetime value of a customer (CLV) is the total revenue a business can expect to earn from a single customer over the entire duration of their relationship.

M

Monthly burn rate of the business

The monthly burn rate is the amount of money a company spends each month to cover its operating expenses, indicating how quickly it is using up its cash reserves. It is a critical metric for understanding a company's financial health and runway.

MVP (Minimum Viable Product)

It is a basic version of a product with just enough features to gather validated learning about its potential and to satisfy early adopters.

P-Q

Platform risk

Dependence on a specific platform or channel

Product development stage

Product development is the process of conceptualizing, designing, and bringing a new or enhanced product to market, encompassing research, innovation, testing, and iteration to meet customer needs and market demands effectively.

Projected growth in revenues

Projected growth in revenues refers to the estimated increase in a company's sales or income over a future period, based on historical data, market analysis, and strategic planning.

R

Repeat rate

Repeat rate refers to the percentage of customers or users who make more than one purchase or engage with a product or service repeatedly within a defined period, indicating loyalty and satisfaction with the offering.

Retention rate

Similar to churn rate but focuses on the percentage of customers who continue to use your product or service over time. High retention rates are indicative of customer satisfaction and loyalty.

Return on equity (ROE)

ROE measures the amount of profit a company generates for each dollar of shareholder equity invested. Return on equity ratio not only provides a measure of your organization’s profitability but also its efficiency.

Return on sales (ROS)/Operating margin

This metric looks at how much operating profit the company generates from each dollar of sales revenue

Revenue trends, a year-over-year revenue

Revenue trends refer to the patterns and changes in a company's income over a specific period, reflecting its sales performance, market demand, and economic conditions. These trends are crucial indicators of financial health and growth potential.

Runway

Runway refers to the length of time a startup or company can operate with its current level of funding before it needs to secure additional capital or achieve profitability. It represents the financial runway that determines sustainability and operational continuity.

S

SAM (Serviceable Available Market)

The segment of the TAM that the company's products or services can effectively target, based on factors like geographical, demographic, or behavioral characteristics.

SOM (Serviceable Obtainable Market)

The specific portion of SAM that a company realistically expects to capture within a defined timeframe, considering competition, market conditions, and its own capabilities.

T

TAM (Total Addressable Market)

The total revenue opportunity available if a company achieved 100% market share in its industry or sector.

Target market

The target market refers to the specific group of consumers or businesses at which a company aims its products or services. It encompasses those individuals or organizations most likely to purchase or use what the company offers based on demographic, psychographic, behavioral, and geographic factors.

U-V

Virality coefficient

For products that rely on network effects, this metric measures how many new customers each existing customer brings in. It helps in understanding organic growth.

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