Making money. That’s the goal of any startup. An entrepreneur may have a passion for his/her product or service and an excitement about owning his/her own business, but the bottom line is revenue and profit. And revenue is easy to track. But for long-term growth and thus a steady stream of increasing profit, there are other elements of a business that should be analyzed and tracked.
Here are 5 key metrics that will give any entrepreneur a pretty good projection of ultimate success.
1. Customer Acquisition Cost (CAC)
The point of any business is to acquire paying customers. But it costs to do this. There are marketing costs. Here is a really simple way to calculate this. Take a period of time, let’s say 4 months. What were the marketing costs during that period? Include related staff salaries, equipment payments, and advertising costs. Then divide that total by the number of new customers (not returning ones) you have converted during that 4-month period. You now have the cost of acquisition per customer. Here is where this metric becomes important. What is the average expenditure of those new customers during this 4-month period? If it is less than your cost-per-customer acquisition, then you are losing money, and you have to make some changes. Those changes will involves cutting your marketing budget. Consider some options:
- Is there a way to market at no cost? Rather than paid advertising, maybe you need to step up your social media profiles and platforms. If you already have a marketing pro or team, then they need to focus on social media – where are your customers and how can you establish a strong social media presence where they are?
- Can you launch an email campaign targeting current customers and leads you have? Can you offer discounts or incentives for your email recipients to share you with their communities?
- How can you optimize your website pages to secure more conversions?
- Can you personally take over some of the marketing activities and reduce your paid marketing staff costs? You may have to do this at least temporarily until you are acquiring more customers at a lower acquisition cost.
Acquiring customers is one thing. Retaining them is another important metric, unless you sell a one-time product/service. Most e-commerce businesses do not. And keepinga current customer is much cheaper than getting a new one. Customers need to be nurtured, so that they will buy again or convert to an upsell.
- Keep in touch with current customers; ask them for feedback on your product/service and their experience with you and your business.
- Contact customers you have not heard from in a while and ask them why. Perhaps offer a discounted price on an item or service they have purchased, or something complementary.
- A newsletter and a great blog are also good ways to maintain customers, and there are a number of content writing tools that can send targeted emails to segments of your customer base, based upon their purchasing activity. Using an email service that can target your segments based on their place in your sales funnel or beyond is well worth the cost.
3. Track Your Churn
Another customer not to be forgotten is the one who has stopped buying from you. If you have a recurring product or service (e.g., health care products, clothing, a subscription that has been cancelled), wait about 90 days. The right software tools will track this on a daily basis. Then, you can set up a system for contacting them – a personal email is good but a phone call is better, if you have a number. You are not trying to sell them at this point. You want to get feedback from them about their experience with you or your product and a reason why they left.
Keeping track of why customers have left will provide valuable information and drive changes you might need to make. You always need to use your data to make improvements.
4. Calculate the Lifetime Value of a Customer
You need to collect data that shows how long a customer remains with you and how much that customer spends during that time. Anything less than 6 months is probably not good data for tracking purchasing behavior. And if you sell consumer products that could be gift items, you may want to avoid the holiday season, so your results re not skewed. On the other hand, if you sell popular gift items, you will want to include the holiday season. Again, there is software that will collect this data for you and give you an average expenditure of each customer, and aggregate data of the average of all of your customers. When you that average expenditure, be certain to subtract such things as packaging and storage costs, along with free shipping, if you offer that.
The reason you want this data is you want to compare it with your customer acquisition costs and maintenance. You want individual and aggregate LTV’s that are a good deal higher than your CAC’s, both individually and as a whole. This can and should drive your pricing.
5. Measuring Growth
This goes without saying. You are looking for steady, regular growth, not just an initial spurt and then very low increase. Businesses that tend to make it over the long-term have this steady type of growth.
Most startups begin with family and friends and then expand out to friends of family and friends. From that point forward, it is up to you to court and acquire new customer, and there are a number of ways to do this, of course:
- Establish a presence on social media platforms where your typical customer hangs out. Begin to post things that are engaging and ask viewers to share your content
- Set up a business blog and create great content. There are even content creation tools that can help you:
- Portent Content Idea Generator: This tool will give you ideas for topics for posts based upon keywords you insert.
- Smart Paper Help: This is a great creative writing service that can supply content for your social media posts and blog as well as create profiles for your social media platforms.
- Canva: If want to create visuals for your content, this is a simple overall tool which will give you great results.
- Develop an email list with offers and great content and ask recipients to share with their friends.
These are just a few options. But marketing is important, and you or someone on your team will have to research strategies and then test their effectiveness.
And that’s part of what measuring growth. You will want to track two things:
- Overall growth over a period of time. It should be steady, and the revenue from this growth should be greater than the acquisition cost.
- Which marketing strategies and platforms are providing the most growth? This will give you the ability to make marketing decisions for the future.
These 5 metrics are the most important for a startup in its first few years. And they really are all connected, adding up to revenue, which of course you will carefully track all along. They are important because they will tell you, first of all, if you have a viable business; second, they will give you key data that will drive all of the decisions you make that will boost your startup to the next level. There will be other metrics to add later, such as how fast your visitors move through your sales funnel, testing elements of your website, etc. Right now, however, you need to focus on these basics.