There is not one metric that determines the success of your startup. Of course, at a business level, cash rules everything and if you run out of cash, you go broke. But understanding metrics can bring light to where you need to focus your efforts on. Set Key Performance Indicators that demonstrate the health of your company at a glance. These high-level metrics are good for business owners and line managers for measuring activity and outcomes. But there are other metrics that startups owners should consider.
1. The Lean Startup Methodology Metric
The Lean Startup is a methodology designed for startups, where there is a long period of time during which a lot of action generates little results in the short run.
2. Pirate (AARR) Methodology Metric
As the name suggests, the AARR is the pirate metric named after the acronym:
Acquisition – visitors to the website
Activation – happy user experience
Retention – returning visitor to the website
Referral – great experience increases referrals
Revenue – monetary behaviour
3. Cost Per Acquisition
Cost per acquisition (CPA) is a critical metric for paid marketing channels where the costs scale linearly with conversions. If your CPA is too high, you can reduce bids, increase conversion rates or increase customer spend.
Some channels perform best over longer horizons, when multi-touch conversion is considered and lifetime value is counted appropriately.
Putting Metrics Into Practice
1. Understand How Your Making Money
- Sells (near-)100% gross margin products online (including pageviews)
- Sells fixed margin products online
- Sells variable margin products online (this includes many subscription products where LTV depends directly on churn rate)
- Micro-converts website visitors onto an easily-valued asset (e.g. an email list that sells advertising)
- Generates leads online that are converted into sales offline
- Micro-converts website visitors onto a less-easily-valued asset (e.g. an email list designed to generate consulting leads)
The goal is to come up with KPIs at the micro-conversion level that correlate with the bigger-picture business goals.
2. Estimate Life Time Value & Cost Per Acquisition
Understanding the lifetime value (LTV) of a conversion is vital. It can be hard enough to work out the immediate value of a micro-conversion, never mind the lifetime value. Assume static churn rates to get to workable LTV numbers, for example: if you are working with a subscription business, you can estimate LTV as:
monthly average revenue per user (ARPU) / monthly churn
So if you make $35 per month per user on average and have a churn rate of 9% per month you can estimate LTV as $389
At Milkshake-factory, we are on a mission to make your small business marketing hassle free. You will find a lot of articles on our blog that can help you gain insight in the world of digital marketing. We hope these are going to be useful to you and we also look forward to your feedback on what else would you like to learn to help you to grow your small business. Consider hiring Milkshake-factory, complete marketing solutions, for all your marketing needs, contact us for a FREE consultation.