11 Business Metrics That Every Startup Should Track From Day 1
Do you know what are the business metrics you should measure for your startup? Do you know what your Key Performance Indicators (KPIs) are? Do you have a thorough understanding of your startup processes? Are you tracking the key business performance metrics?
The success of a business depends on a number of factors. One of the factors is the ability to understand and analyze the data and different processes that your business is performing across departments such as sales, marketing, administration, accounts, and more. Business metrics or KPIs can help you analyze just that.
Introduction to business metrics and KPIs
There’s a lot that goes into keeping a business running smoothly and efficiently. That’s when business metrics – the quantifiable measure used to track and assess the functioning of different business processes – comes into the picture.
Simply put, metrics are numbers that give information about a process. Based on these numbers, one can assess the success or failure of the different processes that businesses use. Different departments or aspects of a business, such as sales, marketing, finance, and human resource have specific metrics to measure.
Why is it so important to track them regularly?
Simply put, measuring results of activities is what sets good startups apart from great startups. Business metrics help startups know:
- The results of their actions
- Causes of poor performance
- What works, what doesn’t and what needs improvement
If these factors aren’t measured, a startup will continue making the same mistakes that it has been making. Fundamental business metrics are important indicators and signs for a startup to take action and change their processes if needed.
What are the features of a good metric?
Wondering what makes good business metrics? Inc.com helps us understand by listing five key characteristics that a good business metric must have.
1) It should be easy to measure: A complicated measuring process is best avoided. A metric that is easy to measure makes the entire process easier.
2) Should be aligned to business targets: When a metric is aligned to the goal of a team, business, company or organization, it makes meeting the goals easier.
3) Should help in future prediction: A good metric should be able to help you predict future performance, too.
4) Should not be affected by factors of the team it is measuring: When the business metrics are devoid of any factors, they can reveal more information.
5) Should be comparable with other metrics: Imagine that you want to compare your business performance with that of your competitors. When you have metrics that can be compared to your competitors, you can get accurate results.
11 important business metrics to track
This metric is obvious and must be on top of the list. Sales metrics measured over days, weeks and months can tell you whether or not customers are interested in your product/service.
They can tell you whether your startup is making profits or losses. It can tell you how much more effort your business requires in order to reach sales targets, set higher goals and more.
2) Cost of customer acquisition
Think about all the small and big things that go into acquiring one customer. Think about all the costs involved in it. Now divide all the costs spent on acquiring a large number of customers with the number of customers acquired – this is the cost of customer acquisition. It’s an important metric that can determine your company’s fate.
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3) Customer retention
Acquiring customers is just the beginning. Ensuring that the acquired customers remain loyal to your brand and keep coming back to you is much more important. Not only does it add to your revenue, but loyal customers are also the ones who will recommend your product/service to other potential customers.
Related article: 11 proven customer retention strategies that work like magic
But how do you calculate that metric? Here’s how:
The number of customers at the end of a specific period of time (maybe 1 year) minus (-)
the number of new customers acquired during that period divided (/)
by the number of clients during the start of that period multiplied
(x) by 100 equals (=) to the customer retention rate.
4) Cash Flow
The flow of cash in and out of a business is important to track. A metric that is an essential part of the accounting process, which can give a clear picture of income, profit, and deficit. How does one measure it? It’s simple.
Add up all the expenses (salaries, rent, admin expense, sales expense, etc.) and compare it with the income generated in a particular period of time, month, quarter or year. This allows a business to know whether they have made profits or there is a deficit of revenue in that particular period of time.
Formula to calculate cash flow metric: Total income + total liquid assets gained – Total expenses + total liabilities gained = Cash Flow
5) Conversion rate
For startups that operate online, the conversation rate metrics would be the rate at which visitors to your website actually become customers. A number of factors come into play, such as new visitor time spent, old visitor conversion rate, interactions per visit, the value per visit and more.
Apart from that data about landing page conversion rates, lead-to-customer conversion rate and more can help a startup know what is converting and how. The best way to measure this business metric is through Google Analytics.
6) Employee Engagement
Engaged employees are more productive, requires less management, represent the organization well, want to learn and grow. A large number of employees and employers believe what Steve Jobs practised – “The only way to do great work is to love what you do.”
But startups are equally responsible for keeping employees engaged in the work by ensuring they are provided with enough challenges, enough opportunities for growth and benefits.
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7) Employee Satisfaction
It’s obvious. Happy, satisfied and engaged employees are more likely to contribute better in the organization. Factors such as the cultural fit of the employee with a company’s core values, the rate of turnover, absenteeism rate of employees, and opportunities for growth of the employees can be measured in order to understand employee satisfaction.
8) Profit Margin
Profit margin metric can help a company know how much revenue is the company getting to keep with it as profit. A profit margin metric can indicate whether a startup is financially growing or going downhill.
Based on this metric, the company can make decisions and changes processes in order to increase this metric, year after year.
9) Website traffic
A key indicator for a startups success and reputation is the monthly website traffic that the startup gains. It may seem unimportant, but think about it, the more number of people that hear about or see your brand, the more they will check your startup web page.
Google Analytics is a great way to assess how many people access your website and how they find your website.
10) Employee productivity
Startups have a zillion things going on: acquiring funding, building products/services, marketing, business strategies, finding talent, and managing staff. It’s easy to miss employee productivity analysis and continue trusting employees’ outputs. But that could be disastrous.
Employee productivity is directly related to a startup’s growth and success. Research shows, Apple, Netflix, Google, and Dell are 40% more productive than the average company. The fact: they have the same number of star employees as other companies, but their star employees are way more productive!
Staff productivity is one of the business metrics that can be measured by setting targets, hours worked per task, monitoring progress and measuring the output of each employee.
11) Inventory size
Inventory, meaning the total number of products ready for sale, is one of the biggest assets of any business. It is the basic source of revenue generation. But having too much inventory or too little is best avoided.
Too much inventory means the startup’s cash is tied up and there could be risks of wastage and increased expenses of storage. Having too little would mean the startup won’t be able to meet customer demands and there’s a risk of losing customers to the competition.
Measuring inventory size metrics will help startups plan to buy within capacity, streamline quick sales and delivery systems and utilizing revenue into the system.
Do you want to know more about startups and factors to consider for a successful startup? Read more from HQ Digest:
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