Startups do not have an initial large amount of capital, as investors have no factual evidence of their success. When launching a startup, the founders firstly look for investors that will give them the appropriate capital to launch and start working on the early stages of business, such as developing an MVP. Followingly, startups keep track of various metrics depending on their industry and the investment round that they will be pitching for. Choosing and tracking the correct metrics will allow startups to provide investors with some essential data that they will need in order to invest in their company. Tracking metrics is not only needed for getting funding for the startup but also to identify the key strengths and weaknesses that will help with future success.
What Are Metrics and Why Are They Important?
Business metrics are quantifiable measures used to evaluate and track the level of success of a certain business process. Tracking metrics allows business to run much easier. When analyzing and observing the key metrics, it is clear what departments are succeeding, where the startup should invest most of its resources and where to focus more in order to improve. Metrics play a key role in establishing the main focus areas, so that the team follows the right direction and they also measure the company success.
The main point of tracking certain metrics is to get data of both success and problems. Their essence is to demonstrate the areas where a company is doing well, as well as instantly indicate issues that the team is facing. This data is essential for the company itself, while it also represents a great importance for investors. Metrics, such as the cost to acquire customers (CAC), current sales, churn rate, the customer lifetime value (LTV), users count, etc. are some of the most crucial data that investors require before making some investment decisions.
What Metrics Are Important to Reach Investments?
Retention (mainly for B2C)
The customer retention metric is a structure that is tracked in order to calculate the number of visiting customers and get them coming back. In order to bring customers back to the store, the company should also understand their purchasing habits. There are 4 main kinds of customer retention: Bringing them back, tracking the retention efforts, estimating loyalty and maximizing income.
Churn Rate (mainly for B2B)
Churn rate is the rate at which clients end cooperation with an organization. It can also be defined as the rate of the customers that don’t continue their subscription plan over time and also the rate when employees tend to resign. Tracking this metric is crucial due to the fact that a constantly rising churn rate will be destructive for the company’s future growth, while forecasting the churn rate can lead to a total success.
Customer Acquisition Cost (CAC)
The customer acquisition cost is one of the most fast-growing important metrics, along the boost of online marketing and internet companies. CAC is mainly the cost that a company spends on persuading a potential customer to purchase a service or product. It can be calculated by taking the sum spent for acquiring new customers and divide it by the number of gained customers. This metric plays an essential role in the company’s decision-making process and gives analytical data of how much the team spends on obtaining a new customer base.
Customer Lifetime Value (LTV)
The customer lifetime value is a metric that forecasts the total revenue that a company can anticipate to generate from a single client. This metric is often used to determine the company’s most relevant customer segments. LTV is one of the essential metrics to track in any growing company. With tracking LTV as to CAC, companies evaluate the time in which they will retrieve the resources to gain new customers.
The users/active users metric illustrate the number of users that are engaged with the company’s mobile app/website. It also identifies how useful and relevant the content is for the users and if it leads to the acquisition of new ones. By tracking the user engagement metric, a company determines if they provide interest and decide how to continue attracting new leads.
Conversion rate is one of the most crucial metrics for marketing. It is used to illustrate what proportion of the traffic is actually doing what the company desires them to do. The conversion rate means different things and it depends on the business industry, as it can be a purchase, lead gen form, scheduling a call, subscription, download, etc. This metric can be calculated by dividing the conversions by the total number of visitors.
How Tracking Metrics Helps with Future Investments?
Tracking correct metrics generates essential data that is demonstrated when pitching for investors. Illustrating correct metrics to investors will help them better understand your business success and decide if your company is worth the investment. Reported metrics differ by the stage of a startup, company size and the following investment rounds.
Tracking and knowing what is going on inside your business is very important. This allows companies to identify if their anticipations are correct and if their marketing and financial strategies are succeeding. But mainly it gives the company the right direction to what investments to look for and what kind of investors to approach. Showing successful data to investors will highly likely result in a beneficial investment.
Written by Luka Botchorishvili