Every business needs to understand the set of key metrics that they want to measure to determine the success and value their business is driving. This indeed becomes a challenge, especially for startups. If you are a part of a startup, it is viable for you to understand what these KPIs are that will help you track the success of your business. In this blog, we are going to take you through the list of some good key performance KPIs that every startup should track.
Note: What is KPI? Key Performance Indicators (KPI) are values that business use to track their business performance and growth over a period of time. These KPIs vary from business to business. Some might use brand awareness as a KPI and others may find the number of sales a determining factor in their business’s success. In short, tracking KPIs is a very important part of the business. Tracking these key performance indicators will give you insight into what is working and what is not, allowing you to frame your business strategy accordingly.
Why startups must pay attention to these key performance indicators?
The three prominent reasons why we would say that every startup must use KPIs are –
1. Tracking Growth
The most obvious reason to use key performance indicators is to track the growth of your startup in the market. Tracking this will allow you to estimate the future growth of your startup. You may use KPIs like monthly burn value or recent cash flow for tracking your startup growth.
2. Identifying the scope of improvement
By tracking KPIs for your startup, you also allow yourself to recognize the scope of improvement in the present business model you are operating on. This will help you sustain your business growth for a longer period of time.
3. Giving Insights on sales potential to investors
Another reason why you should consider paying attention to the KPIs is that it will help you fetch insights on your business growth and show them to the investors. We all know that investors paying attention to the numbers and tracking KPIs will help them foresee the business performance and will convince them to invest.
List of KPIs to track for every startup
Below, you will find a list of some interesting KPIs that will help you track your startup performance.
- Addressable market
- Customer acquisition cost
- Gross Profit Margin
- Revenue growth rate
- Average sales cycle length
These are the 8 prominent KPIs that will help you track the performance of your startup in the market. Let’s discuss each one of these indicators one by one.
1. Addressable market
The total addressable market refers to the company’s target audience and market size. This will help you determine the number of customers that are available for your product or service. Using this KPI, startups can determine their marketing needs which in turn helps them lay out a perfect plan for the same. This can be determined by proper market research, surveys, talking to the target audience, and more.
2. Customer acquisition cost
Another very helpful startup KPI is the customer acquisition cost (CAC). It is the amount you spend to gain one new customer for your business. Included in this are the marketing cost, sales expense, salaries and overhead for the team. Using this metric, you can determine if your marketing and sales costs are optimum or too high. This KPI is most helpful when it is broken down by channel. By doing this, you can figure out which out of all teh sales and marketing activities is lowest in CAC and highest in return and accordingly, you can make adjustments to your marketing strategy.
Calculating CAC –
CAC = Total sales and marketing expense/new customer acquired
3. Gross profit margin (GPM)
Gross profit margin is the difference between revenue and COGS (cost of goods sold). If you look for GPM for individual products, it can help you determine the high-margin items or services you have. Depending on this, you can manage your focus on marketing these items or services. For a startup to sustain its growth, it is important for it to maintain a steady GPM over time.
GPM – (Total revenue – cost of goods sold)/ Total revenue X100
4. Revenue growth rate
Another important startup KPI is the revenue growth rate. It is the metric that measures the month-over-month revenue percentage. This KPI clearly indicates the growth of your startup. This will help you understand the steadiness of your startup growth.
Calculating revenue growth rate
Revenue growth rate = (revenue this month – revenue last month)/ revenue last month X100
5. Average sales cycle length
Average sales cycle length is another critical startup KPI that one should focus on. This indicates the length of time between initiating the sales and closing the deal. The more this time the bigger the problem with your sales model. However, one thing you should note here is that this length might vary between companies. For example in the case of eCommerce businesses, the average sales cycle is lower than the businesses selling services.
Calculating average sales cycle length
Average sales cycle length = Total time between first contact and sales for all sales/number of sales.
This is the list of some prominent business KPIs that every startup must track to understand the performance of their business. However, the set of startup KPIs for every business is different. For example, if you have online SaaS software, the number of subscriptions will determine your success for you, whereas if you are running an eCommerce business, the sales will do the trick. So, if you are a startup owner, it is important that you find the right set of KPIs to track your business growth.
We hope you find this article helpful and understand why it is essential for you to determine the startup KPIs for your business.