5 Metrics Every Startup Should Track
MRR, churn, CAC, LTV, and NPS are the 5 metrics every startup needs to track. How to calculate each one and centralize the data for analysis.
To create unique solutions and break market paradigms with innovative offerings, startups need results that are measurable and scalable. Measuring performance is a very important task, and that is nothing new. However, when it comes to defining which key metrics should be tracked, things seem to get more complicated. With that in mind, in this post we’ve gathered 5 important metrics that can help startups gain a strategic view of their results.
What are metrics?
By checking any dictionary, it is possible to understand that, by definition, a metric is a way to measure something. In the business world, metrics are quantitative measures applied to evaluate the performance of an area, a person, or the results the organization achieves.
In the startup world, this is even more important, because metrics provide a more accurate picture of the company’s situation when making decisions, supporting strategy scaling, creating more compelling pitches for investors and venture capital firms, and enabling a more data-driven approach to everything involving the business. When used by startups, metrics make it possible to assess business success from several different angles and perspectives.
For example: revenue metrics, customer acquisition cost, or lifetime value evaluate the company’s financial performance. Meanwhile, metrics such as churn rate, NPS, and customer satisfaction can be used to assess the effectiveness of the product or service in the customer’s daily routine, bringing predictability and improvements across all user touchpoints.
In addition to supporting results and decisions, the use of metrics also helps identify patterns and relationships among the main strengths and weaknesses of the business, operations, and product, so managers and key stakeholders in each area can create and execute action plans focused on solving problems and improving optimization.
Summary: What are metrics?
Metrics are essential tools for companies of all sizes and industries to measure progress and make data-based decisions. By using metrics and then evaluating this data efficiently, it is possible to identify improvement points, bottlenecks, build better processes, and identify key opportunities and areas for improvement. In addition, metrics can also be used to communicate results to investors and stakeholders.
5 metrics every startup should track
Among the main metrics startups should track, we selected some that are especially important and help monitor results. Check them out!
Lifetime Value (LTV)
Lifetime Value is a sales metric that can help startups understand where the main opportunities to increase revenue are, especially for companies that operate with a recurring revenue model (such as SaaS companies that offer subscriptions or digital services).
To calculate LTV, you should multiply the average ticket size of sales by the number of times they recur per year (that is: the number of active monthly payments). The result should then be multiplied by the average time customers use the tool.
CAC (Customer Acquisition Cost)
CAC is the total cost to acquire a new customer. This metric includes marketing investments, sales salaries and commissions, and other operating costs directly involved in acquiring each new customer.
Understanding how much is invested to acquire new customers is very important for all businesses, including startups. This is because this indicator shows whether efforts dedicated to customer acquisition are justified and offset by the value customers bring back to the company.
Sometimes, in the day-to-day of running a business, there are inefficient processes and expenses, and this metric helps signal how effective asset management is in attracting new revenue sources.
Bonus: LTV x CAC
Here’s a bonus: LTV vs CAC comparison! A good way to understand how sustainable your startup’s growth is is by using CAC and LTV together. In an ideal scenario, a company should have the lowest possible CAC (cost) and the highest possible LTV (value).
This reflection is important for businesses, because focusing only on acquiring new customers without making efforts and investments in retaining existing customers becomes a long-term problem. Several studies indicate that the cost of acquiring new customers is generally 5 to 25 times higher than investing in retention strategies. Comparing CAC vs LTV helps you understand how efficient these investments are.
Churn Rate
Churn Rate is the metric that measures subscription cancellation rate or customer loss in a company. For startups, it is very important to track this metric to understand whether they are keeping customers satisfied or whether they need to take measures to improve customer retention.
To calculate churn rate, divide the number of customers who chose to cancel their contracts by the total number of active customers. A high churn rate means the company is losing customers and needs to create an action plan focused on retention, such as pricing adjustments, service improvements, special offers, or improvements in the experience with its tool or service. Churn rate usually varies according to your segment.
For example: some startups may have a higher churn rate, while others may have a lower one, depending on segment averages. That’s why it is important to always keep an eye on the market to understand what is natural and what needs to improve.
MRR (Monthly Recurring Revenue)
MRR (Monthly Recurring Revenue) indicates a company’s monthly recurring revenue. This metric is very important for startups, especially SaaS companies, since they typically depend on recurring revenue to grow, and it enables visibility into the business’s monthly billing. To calculate MRR, simply multiply the number of customers by the monthly value of the contracted plan or subscription.
For companies with more than one type of subscription, this calculation needs to be adjusted by multiplying the value of each plan by its number of subscribers and summing the final result. Using and understanding this metric is very important for startups because it allows them to forecast the business cash position for the coming months based on active contracts.
Net Promoter Score (NPS)
Net Promoter Score (NPS) is a metric created to measure customer satisfaction and how likely they are to recommend a product or service. It is calculated based on one question: "On a scale from 0 to 10, how likely are you to recommend our company/product/service to a friend or colleague?"
Through their responses, customers are classified into three categories: detractors, passives, or promoters. Those who respond with a score from 0 to 6 are classified as detractors, those who respond with a score of 7 or 8 are classified as passives, and those who respond with a score of 9 or 10 are classified as promoters. Then, NPS can be calculated, which is the percentage difference between the number of promoters and the number of detractors.
Conclusion
For your startup to become data-driven, it is important to design processes and metrics that are measurable and scalable. Another interesting point for your organization can also be choosing a North Star Metric, which is a key metric that represents the company’s main objective and can be used to guide strategic decision-making. This metric should be followed and monitored every day, and all actions within the company should be designed to achieve this objective.
For this reason, choosing an appropriate NSM is extremely important for the medium and long term. Some examples of goals that can be created from the NSM are:
100 million e-commerce sales;
1 million website visits.
1 billion in sales.
This metric needs to be relevant to the business, easy to measure, and have a direct impact on the company’s financial success. What is your company’s North Star? Your decision needs to be made based on the real scenario exposed by data, and the use of metrics helps with that.
To learn more about how to launch your startup’s data-driven journey, check out more articles like this on our blog.
To create unique solutions and break market paradigms with innovative offerings, startups need results that are measurable and scalable. Measuring performance is a very important task, and that is nothing new. However, when it comes to defining which key metrics should be tracked, things seem to get more complicated. With that in mind, in this post we’ve gathered 5 important metrics that can help startups gain a strategic view of their results.
What are metrics?
By checking any dictionary, it is possible to understand that, by definition, a metric is a way to measure something. In the business world, metrics are quantitative measures applied to evaluate the performance of an area, a person, or the results the organization achieves.
In the startup world, this is even more important, because metrics provide a more accurate picture of the company’s situation when making decisions, supporting strategy scaling, creating more compelling pitches for investors and venture capital firms, and enabling a more data-driven approach to everything involving the business. When used by startups, metrics make it possible to assess business success from several different angles and perspectives.
For example: revenue metrics, customer acquisition cost, or lifetime value evaluate the company’s financial performance. Meanwhile, metrics such as churn rate, NPS, and customer satisfaction can be used to assess the effectiveness of the product or service in the customer’s daily routine, bringing predictability and improvements across all user touchpoints.
In addition to supporting results and decisions, the use of metrics also helps identify patterns and relationships among the main strengths and weaknesses of the business, operations, and product, so managers and key stakeholders in each area can create and execute action plans focused on solving problems and improving optimization.
Summary: What are metrics?
Metrics are essential tools for companies of all sizes and industries to measure progress and make data-based decisions. By using metrics and then evaluating this data efficiently, it is possible to identify improvement points, bottlenecks, build better processes, and identify key opportunities and areas for improvement. In addition, metrics can also be used to communicate results to investors and stakeholders.
5 metrics every startup should track
Among the main metrics startups should track, we selected some that are especially important and help monitor results. Check them out!
Lifetime Value (LTV)
Lifetime Value is a sales metric that can help startups understand where the main opportunities to increase revenue are, especially for companies that operate with a recurring revenue model (such as SaaS companies that offer subscriptions or digital services).
To calculate LTV, you should multiply the average ticket size of sales by the number of times they recur per year (that is: the number of active monthly payments). The result should then be multiplied by the average time customers use the tool.
CAC (Customer Acquisition Cost)
CAC is the total cost to acquire a new customer. This metric includes marketing investments, sales salaries and commissions, and other operating costs directly involved in acquiring each new customer.
Understanding how much is invested to acquire new customers is very important for all businesses, including startups. This is because this indicator shows whether efforts dedicated to customer acquisition are justified and offset by the value customers bring back to the company.
Sometimes, in the day-to-day of running a business, there are inefficient processes and expenses, and this metric helps signal how effective asset management is in attracting new revenue sources.
Bonus: LTV x CAC
Here’s a bonus: LTV vs CAC comparison! A good way to understand how sustainable your startup’s growth is is by using CAC and LTV together. In an ideal scenario, a company should have the lowest possible CAC (cost) and the highest possible LTV (value).
This reflection is important for businesses, because focusing only on acquiring new customers without making efforts and investments in retaining existing customers becomes a long-term problem. Several studies indicate that the cost of acquiring new customers is generally 5 to 25 times higher than investing in retention strategies. Comparing CAC vs LTV helps you understand how efficient these investments are.
Churn Rate
Churn Rate is the metric that measures subscription cancellation rate or customer loss in a company. For startups, it is very important to track this metric to understand whether they are keeping customers satisfied or whether they need to take measures to improve customer retention.
To calculate churn rate, divide the number of customers who chose to cancel their contracts by the total number of active customers. A high churn rate means the company is losing customers and needs to create an action plan focused on retention, such as pricing adjustments, service improvements, special offers, or improvements in the experience with its tool or service. Churn rate usually varies according to your segment.
For example: some startups may have a higher churn rate, while others may have a lower one, depending on segment averages. That’s why it is important to always keep an eye on the market to understand what is natural and what needs to improve.
MRR (Monthly Recurring Revenue)
MRR (Monthly Recurring Revenue) indicates a company’s monthly recurring revenue. This metric is very important for startups, especially SaaS companies, since they typically depend on recurring revenue to grow, and it enables visibility into the business’s monthly billing. To calculate MRR, simply multiply the number of customers by the monthly value of the contracted plan or subscription.
For companies with more than one type of subscription, this calculation needs to be adjusted by multiplying the value of each plan by its number of subscribers and summing the final result. Using and understanding this metric is very important for startups because it allows them to forecast the business cash position for the coming months based on active contracts.
Net Promoter Score (NPS)
Net Promoter Score (NPS) is a metric created to measure customer satisfaction and how likely they are to recommend a product or service. It is calculated based on one question: "On a scale from 0 to 10, how likely are you to recommend our company/product/service to a friend or colleague?"
Through their responses, customers are classified into three categories: detractors, passives, or promoters. Those who respond with a score from 0 to 6 are classified as detractors, those who respond with a score of 7 or 8 are classified as passives, and those who respond with a score of 9 or 10 are classified as promoters. Then, NPS can be calculated, which is the percentage difference between the number of promoters and the number of detractors.
Conclusion
For your startup to become data-driven, it is important to design processes and metrics that are measurable and scalable. Another interesting point for your organization can also be choosing a North Star Metric, which is a key metric that represents the company’s main objective and can be used to guide strategic decision-making. This metric should be followed and monitored every day, and all actions within the company should be designed to achieve this objective.
For this reason, choosing an appropriate NSM is extremely important for the medium and long term. Some examples of goals that can be created from the NSM are:
100 million e-commerce sales;
1 million website visits.
1 billion in sales.
This metric needs to be relevant to the business, easy to measure, and have a direct impact on the company’s financial success. What is your company’s North Star? Your decision needs to be made based on the real scenario exposed by data, and the use of metrics helps with that.
To learn more about how to launch your startup’s data-driven journey, check out more articles like this on our blog.