Startup metrics and key performance indicators (KPIs) are important to understand and keep track of so your startup can measure, analyze, and grow your business using data, rather than blindly trying to grow.
But not all key performance indicators were created equal. And not all KPIs that are applicable to different types of startups are the right match for your startup. That’s why it’s important to use the right metrics to measure performance.
This post goes over:
- The definition of a key performance indicator
- Startup KPI examples
- A list of 34+ startup metrics with definitions
- KPI goals
- Finding your startup’s north star metric with examples
- KPI goal setting
- Reverse engineering outcomes for startup KPI goals
- Insight into “S.M.A.R.T. KPIs”
- Keeping track of and measuring your goals
- AARRR Pirate Metrics: The Five KPIs in the Startup Sales Funnel
- How to avoid getting paralysis by analysis
- Conclusion
Definition of a Key Performance Indicator (KPI)
KPIs are certain metrics that you use to measure and determine the performance of outcomes, behaviors, initiatives, and/or activities in your business.
Startup KPI Examples:
- Month over month sales from marketing campaigns (MoMS)
- Email open rates (EOR) or click through rates (CTR) of your email blasts
- Rate of money spent per month (burn rate)
- Conversion rates for lead magnets for visitors becoming email subscribers. (Visitor to lead conversion rate)
- Conversion rates for visitors into free trials and from free trials into paid customers. (Visitor to free trial conversion rate) & (Activation Rate)
- Amount of cash flow coming in and recurring monthly (MRR), quarterly (QRR), annually (ARR), etc.
- Average time spent on your website (average session duration)
- Time spent on a page (time on page)
- Returning visitors to your app or website (returning visitors)
- Daily, weekly, or monthly active users on your app or website (DAU, WAU, and MAU, respectively)
- The rate in which visitors come to your website and leave without any interactions or clicks (bounce rate)
- User satisfaction (net promoter score (NPS))
List of Startup KPIs and Startup Metrics
There are quite a lot of key performance indicators that can be used to measure startup performance.
Below, you’ll find more than the 34 types of startup metrics as shown in the infographic and what each KPI means.
1) MRR (Monthly Recurring Revenue) = The amount of revenue you make that recurs monthly
2) ARR (Annual Recurring Revenue) = The amount of revenue you receive that recurs yearly
3) ARPA (Annual Revenue per Account) = MRR / Total # of Customers
4) Gross Profit = Total revenue minus the cost of goods sold
5) TCV (Total Contract Value) = Value of one-time and recurring charges
6) ACV (Annual Contract Value) = The value that a contract will bring to your business annually
7) LTV (Lifetime Value) = Prediction of the net profit from the entire future relationship with a customer
8) Deferred Revenue = Amount that was received by a company in advance of earning it
9) Billings = Current quarterly revenue + deferred revenue from the previous quarter
10) CAC (Customer Acquisition Cost) = How much it costs, on average, to acquire a customer
11) CCR (Customer Concentration Risk) = Revenue from largest customer / total revenue
12) DAU (Daily Active Users)= The number of users that return to your startup’s site or app on a daily basis
13) MAU (Monthly Active Users) = The number of users that return to your startup’s site or app on a monthly basis
14) Number of Logins= The amount of times users have logged in to your portal
15) Activation Rate = Number of users taking a specific action to get value out of a product
16) MoM (Month-on-Month Growth)= The rate of growth from month to month, comparing the the current month or past 30 days to the previous month or last 31 to 60 days.
17) CMGR (Compounded Monthly Growth Rate) = (Latest Month/First Month) ^ (1 / # of Months) – 1
18) MCR (Monthly Churn Rate) = Lost customers this month / prior month total
19) Retention by Cohort = % of original installed base (1st month) that are still transacting
20) GCR (Gross Churn Rate) = MRR lost in a given month / MRR at the beginning of the month
21) Net Churn = (MRR lost – MRR from upsells) this month / MRR at the beginning of the month
22) Monthly Cash Burn Rate = How much money you spend per month (gross)
23) Net Burn Rate = Revenues – gross burn
24) Gross Burn = Monthly expenses + any other cash outlays
25) TAM (Total Addressable Market) = Revenue opportunity available for a product
26) ARR (Annual Run Rate) = Projection of current MRR into the future, annualized
27) Gross Margin = Difference between revenue and cost of goods sold
28) Sell-Through Rate = Number of units sold in a period/number of items at the beginning of the period
29) Network Effects = Effect of one user on the value of that product to other people (example: Metcalfe’s Law)
30) Virality = Viral coefficient = average number of invitations sent existing user * conversion rate of invitation
31) NPS (Net Promoter Score) = How likely user is to recommend your product to a friend
32) Platform Risk = Dependence on a specific platform or channel
33) Direct Traffic = Traffic coming directly to your site via a link or entering the URL
34) Organic Traffic = Unpaid traffic from search results
KPI Goals
Before you can measure any marketing campaign or startup website performance metrics, it’s crucial to have numerical goals which are measured with KPIs.
And, when you create goals for your startup, then you’ve got to find your top one or two KPIs.
These top KPIs are called your “North Star(s).”
However, it’s ideal to choose one KPI for your north star over all others.
1) Finding Your North Star(s)
You can find your north star(s) by analyzing what are the most important metrics for your startup.
These north star metrics are the most important metrics for startups to focus on and they allow your startup to formulate a plan which synergistically builds your startup strategy around that north star.
Think about it: what is the ONE main driver of growth for your startup and how can you measure and align your business initiatives around that one driver of growth?
For instance:
Some companies make free trial signups and paid conversions to be their most important metrics and do that because they know they’ll have a higher likelihood of getting a customer that way.
And some startups might have an easy time getting new customers in the door but their largest focus is on customer retention.
Facebook’s #1 north star was daily active users and still is. So their focus is keeping people on the platform and keeping them engaged on it daily.
Which KPIs you use, specifically, are up to you and your startup to decide because they depend on the goals of your website, product, and/or service.
2) KPI Goal Setting
If a startup sets loose goals, then they’ll achieve mediocre results.
Set specific goals for your each of startup’s your main metrics to have the best results.
Just in case you don’t know how to do that I’ll show you in the following sections.
But right now, we’re going to talk a bit more about goal setting because without the right goals, your company could be floundering.
Getting Your First 250 to 500 Users and What Startup Metrics to Measure
Early on, you need to do user acquisition that doesn’t scale so that you can create the inner workings of your startup’s engine, work with those early customers, delight them, and work towards product-market fit. The KPI goals that you’re going to focus on is between 25% to 50% week over week (WoW) growth and <5% churn.
It sounds counter-intuitive to do things that don’t scale. But this is the way. We made a guide to help you achieve this goal, so check it out!
You will need to find and onboard your first 100-250 users personally, and perhaps even up to the first 500. Conversion rates are going to hold less weight at this stage because you’re more or less hand picking your users.
If you have a SaaS product, then you’re going to want to track daily active users (DAUs) and weekly active users (WAUs). Then find those people who are engaging daily and weekly and talk to them to find out more about what they do and don’t like.
The money that comes from this first big batch of users will not usually be enough to sustain you and your fellow founders full-time, but it may very well open up that possibility if your product is priced high enough.
But during that process of doing things that don’t scale, you learn and refine your processes and customer retention strategies and tactics.
Doing this allows you to learn how to better serve your future customers so you can market at scale.
You may even re-invest that money into more capabilities to run your business or provide better service for your customers so you can more easily scale.
Startup Metrics to Focus on When Doing Activities that Are Scalable
The more users you have, the better the data because you’ll have a larger sample size.
- MoM Growth Rate – This will be slower on a monthly and quarterly basis than the WoW growth rates because there’ll be more users.
- Retention Rate – The higher, the better. If you have a poor retention rate of < 90%, you’ve got problems. Focusing on increasing retention will increase profits.
- Customer Acquisition Cost – CAC is very important for sales and profitability forecasting. It costs money to acquire new users. That’s why retention rate is so important.
- Monthly Churn Rate – MCR is the inverse of retention rate. It’s equally important.
- Visitor to Signup Conversion Rate – 5% is average. Shoot for much higher, like 10-15%. Shoot for excellence.
- Trial to Paid Conversion Rate – Incredibly important for learning about the efficacy of your marketing and how valuable your users see your product. Email nurture campaign conversion rates are one of the best indicators for this.
3) Reverse Engineering Outcomes for Startup KPI Goals
The second habit in the best-selling book The Seven Habits of Highly Effective People by acclaimed self-help author, Stephen Covey, is to “begin with the end in mind.” And this is so true.
I’ve found it’s both helpful and important to set numerical goals with time frames to achieve them by with both startups and in life.
Therefore, to help you achieve your numerical goal, try reverse engineering your goal from the desired end result divided by the number of days and weeks it will take to reach that goal.
With reverse engineering, we want to get as granular as possible. That’s why you split it up into days and weeks.
It’s also due to the fact that if there’s a loose weekly goal or a monthly goal, then you’ll probably have poor results and won’t be able to correctly reverse engineer your efforts.
Nobody wants that. Below you’ll see the nuts and bolts that allow you to reach those goals.
Aligning Activities Towards Your Goal(s)
Make a list of all of the things that you can do to achieve the outcome you’re looking to get and write all the things you can do to make it happen for the campaign so you can achieve the highest conversion rate for that one specific north star.
It may be that you’ll be using a mix of the following:
- Content marketing on social media
- Email marketing
- Push subscription notifications
- Facebook messenger notifications
- Instagram and Facebook live videos
- YouTube videos
- Social media marketing, such as posting on your social media pages, timelines, and groups
- Talking about it in your community/niche channels and groups
- Paid ads like Google AdWords
- Lead flows within your website
- New landing pages for the specific campaign or goal
- Partners promoting with/for you
- Influencer marketing
4) Insight into “S.M.A.R.T. KPIs”
According to Pyramid Analytics, an analytics and business intelligence suite, SMART is an acronym that stands for: Specific, Measurable, Actionable, Relevant, and Timely. And they gave us permission to share their expertise on KPI effectiveness and SMART KPIs through the image below.
Your startup’s north star should be SMART, as should your other most important metrics. When you align your marketing efforts towards increasing north star and KPI effectiveness, you’re going to be able to get measurable results that are very likely to increase your bottom-line (usually revenue).
5) Keeping Track of and Measuring Your Goals
In addition, having a handful of your top key performance indicators tracked in a spreadsheet will help you significantly because you can then have laser-focused attention to what matters most for your startup.
Below is an example of a SaaS spreadsheet metrics dashboard created in Google Sheets by Growth Everywhere.
6) AARRR Pirate Metrics: The Five KPIs in the Startup Sales Funnel
Based on the acronym AARRR, there are five KPIs in the sales funnel, according to Dave McClure, a founder of 500 Startups VC firm.
The Stages Are: Acquisition, activation, retention, referral, and revenue.
Your goal should be to target specific stages of the funnel and optimize each stage.
Combine the inbound approach to the buyer’s journey (awareness, consideration, decision) and AARRR, to have stronger targeting with your content.
You want to focus your efforts initially on your earliest adopters core customers who are most likely to buy from you. By doing this you will have more effective campaigns and be able to better determine how your KPIs are shaping up over the course of time.
Breaking AARRR Down
1) Acquisition
Definition: Measures the number of users or customers gained through marketing channels.
Startups should focus on understanding which marketing channels are most effective in bringing in new users. This could include channels like social media, SEO, paid advertising, or partnerships. By identifying high-performing channels, startups can optimize their acquisition strategies.
During acquisition, you will be mainly focusing on the innovators and early adopters.
Key resource: How to Get Your Startup’s First 100 and 500 Customers
2) Activation
Definition: Examines how well users engage with the product after the initial interaction.
Startups need to ensure that the onboarding process is seamless and that users quickly find value in the product. User activation can be improved by providing tutorials, personalized onboarding, email campaigns, and features that demonstrate the product’s core value early on.
3) Retention
Definition: Measures the ability to keep users engaged over time.
Retention is crucial for sustainable growth. Startups should focus on understanding user behavior, providing ongoing value, and implementing strategies like targeted communication, product updates, and loyalty programs to retain users.
4) Referral
Definition: Examines the number of users acquired through word-of-mouth or referrals.
Word of mouth can be literal, or via software that enables and encourages word-of-mouth referrals to get something for free.
Background:
Referrals are such an integral part of product-led marketing and accumulating massive user bases. They can create network effects and can lead to virality, which enables product success. Encouraging satisfied users to refer others is a cost-effective way to acquire new customers, especially when they give you a top rating on a net promoter score (NPS) survey.
Additionally, startups can implement referral programs, incentives, or features that make it easy for users to share their positive experiences with others.
Breaking down two ways to go about achieving network effects through referrals:
- Referral Raffle Contest: You can hold referral raffle contests for participants to win something cool, or a valuable subscription to your SaaS company, a free physical product of yours, etc. The more people they refer to you, the more entries they accumulate to possibly win. This referral raffle must have a salacious offer of really high value.
- Free Credits/Subscriptions for Referrals: Or, you can create a referral program where referrers get bonus perks from you that will help them, get money, or get credits towards one of your products. You will get network effects using one of these viral marketing tools, other available referral tools, or from a custom one you’ve built, like Dropbox’s.
A solid stream of referrals will increase your search engine rankings, traffic, signups, purchases, retention, and market standing. This makes it one of the very best key performance indicators.
If/when you gain immense traction with referrals, you can calculate your viral growth rate, a key performance indicator, as shown in the image below.
5) Revenue
Measures the income generated from paying customers.
Application for Startups: Startups should continually optimize their monetization strategies. This could involve pricing experiments, upselling or cross-selling, and finding ways to increase the lifetime value of customers. Understanding what features or services customers are willing to pay for is essential.
Subsection Conclusion
By consistently monitoring and optimizing these startup metrics, startups can develop a deeper understanding of their customers’ journeys and improve overall business performance. It’s important to note that the sequence of these metrics may vary depending on the business model, but collectively, they provide a comprehensive view of a startup’s growth and sustainability.
To learn more about startup sales, we recommend reading: The Ultimate Startup Sales Playbook for Founders where we talk not only about sales metrics, but myriad sales strategies, objections, and more.
7) Reviewing Analytics Reports Can Be Time-Consuming – How to Avoid Getting Paralysis By Analysis
Bob Parsons, the Founder of GoDaddy, once said: “Anything that is measured and watched, improves.”
I would have to disagree because you don’t want to suffer from paralysis by analysis and keep reading and analyzing and waste your time.
It’s so easy to fall into this trap. I know because it’s happened to me several times haha. Please learn from my mistakes.
To avoid wasting your time via paralysis by analysis, I recommend to schedule specific times every few days to monitor your conversion rates.
I like Fridays because it’s the least active day business-wise and I can schedule the changes I need to make to optimize StartupDevKit for the next week. I will also look towards the end of the business day, depending on what I’m doing.
Conclusion
Key performance indicators are the startup metrics that are going to be your best friends. They are how you measure your startup’s growth and everything in between.
If you’re new to using analytics and you’re learning about key performance indicators, try to not get overwhelmed and have confidence that you can learn the ins and outs of startup metrics. This is going to be especially important if you’re a first time startup founder because every startup founder needs to be able to understand the data and how it translates into business performance.
Do you have any questions? Post them in the comment section below!
If not, what KPIs are the most important to you and why?
Infographic Image Credit: Funders and Founders
