At Pitchdrive, we know how important it is for startups to track certain metrics if they want to attract angel investors. Here are the main KPIs we believe early startups should monitor.
Key Performance Indicators (KPIs) are metrics that measure the performance of business activities. Although every business will use a different set of KPIs depending on their industry, there are some core metrics that every startup should track.
During the launch phase, startups usually focus on revenue and profits as these metrics are the backbone of a business. However, it’s also important to monitor other KPIs that will provide insights into how to achieve growth.
Without documented KPIs, it’s impossible to set goals and measure progress. It also makes it a lot more difficult to gain the attention of angel investors. Metrics are essential to keeping startup founders and the management team motivated, particularly in the early stages. With data, patterns can be identified, challenges can be addressed, achievements can be celebrated and effective decisions can be made.
These are the key performance indicators we believe every startup should track:
Customers are the lifeblood of any startup and tracking their acquisition is essential to business growth. Essentially, customer acquisition describes how much it costs a startup to acquire a new paid user. As such, new businesses need to have a clearly-defined lead nurturing and onboarding plan in order to attract customers and gain the attention of angel investors.
Customer acquisition costs (CAC) can be calculated by specifying a time period and then dividing sales and marketing costs by the number of new customers gained in that period. For example, if a startup spends €40,000 over three months, and acquires 400 new customers, its CAC would be €100.
The goal of customer acquisition is to have the lowest CAC possible as it shows potential investors that there’s a natural demand for the product or service and that the business model is viable.
Customer lifetime value
Customer lifetime value (CLTV) is the total revenue that one customer will generate for a company. This is a particularly important KPI to track as it can help founding teams create retargeting and retention strategies.
The easiest way for a startup to predict CLTV is to multiply the predicted number of yearly visits from a customer by their predicted sales per visit and then multiplying that by the number of years they will remain a customer. For example, say an average customer visits an online store 3 times a year and spends an average of €100 every time. Over a period of ten years, the customer lifetime value would be €3,000. As a startup begins to make a profit, its CLTV can be adjusted to reflect actual figures.
Essentially, CLTV translates into the amount of revenue a startup expects to make from every customer throughout the lifetime of the relationship. It’s also an important KPI for angel investors as it shows what every customer is worth to the company in financial terms.
It’s inevitable that every startup will lose customers. However, what’s important for a startup is knowing what a profitable level of loss is to the company. Churn is a measure of how many customers stop paying for the product or service over a typical 30-day period.
Churn can be calculated by dividing the number of customers churned within 30 days by the total customers at the start of the period. This number is then multiplied by 100 to obtain the customer churn rate as a percentage. For example, if a startup has 100 customers and loses 20 over 30 days, its churn rate is 20%.
A low churn indicates that customers are satisfied with the product or service, whereas a high churn rate could suggest that it isn’t solving a problem for people. In fact, churn can highlight a number of concerns, such as product issues, the wrong target audience, or a flawed business model.
Because it’s less expensive to retain customers than it is to acquire new ones, churn rate is an important metric when forecasting future growth. Startups that experience high churn should try to gather as much data as they can from their previous customers. Conducting interviews by phone or email can provide startups with useful insights and help them improve their business moving forward.
Intent of payment
Startups should also track their intent of payment to demonstrate how the business will make money in the future. Creating a Letter of Intent (LOI) can demonstrate the startup’s commitment to growing the business. Essentially, an LOI helps prove the product-market fit to investors. It can also include details of future product updates that will increase revenue. A letter of intent should also include references from credible business associates.
The team should provide details of any paid pilots that have been rolled out and report on performance. Did the pilot make money? If so, how would this translate on a wider scale? How many customers were acquired during the period and would the acquisition strategy work at scale?
If the startup hasn’t rolled out any pilots, it may have a customer waiting list. Investors will be interested to know that there are customers ready and waiting for when the product launches.
This metric measures the organic growth of a startup, which essentially tracks growth through ‘word of mouth’. It can be a great way to validate interest before the revenue stage. For example, a startup may launch in beta with the management team inviting a select few people to use the product. If its’ good, those people will tell more people and the company will grow organically, or ‘virally’. Today, social media typically plays an important role in a startup growing organically.
Viral coefficient can be measured by multiplying the total number of invitations sent by the invitation conversion rate to obtain the total amount of new customers. The number of invitations can then be divided by the number of new customers to obtain the viral coefficient as a ratio. For example, if a startup sends 100 invitations and has a conversation rate of 12%, the company now has a customer base of 112 customers, which translates to a viral coefficient of 1.12.
Viral coefficient is a powerful KPI as it measures customer satisfaction. If people recommend a product by word of mouth, it shows that it has value. The main objective with viral coefficient is to have a startup experience rapid growth within a short period of time. However, it can be difficult to track this KPI as ‘viral’ growth is largely outside of the control of the management team, unless a specific referral program has been set up.
At Pitchdrive, we help startups secure growth through data-driven guidance. In addition to tracking your KPIs, you’ll get actionable insights that empower your startup to break barriers at every tipping point. You’ll gain access to expert guidance from industry heavy-hitters, and a platform to track your overall progress.
Contact us today to learn more about how Pitchdrive can help grow your startup.