Setting up your startup is only half the battle. Unless you track the Key Performance Indicators (KPIs) and metrics, you won’t be able to make an objective assessment of how your business is performing. Since a business involves several verticals such as sales, marketing, accounts, etc., it is vital to analyze the data from each vertical and chalk out a comprehensive growth strategy. Keeping an eye on KPIs helps you understand why your performance is not as per expectations and what needs improvements. However, not all KPIs and metrics matter when you just start.

Let’s take a look at the top six KPIs no startup can afford to miss.

Customer Acquisition Cost

Customers propel your business forward. That’s why you need to know the metric that tells you how much it takes to gain one customer. In other words, the Customer Acquisition Cost of CAC is the average money you spend on sales and marketing to bring a new customer on board. CAC is an excellent indicator of your marketing efforts. It also helps you understand how to manage revenues and expenses efficiently. 

The easiest way to calculate CAC is by dividing the total expenditure incurred by the total number of customers acquired. You can also calculate the CAC for each marketing channel and adjust your marketing budget to help the channel with the lowest CAC. 

Burn Rate 

The rate at which your business is using cash is an important KPI to assess your startup’s overall financial health. It gives you an indication of the time you have left before you need to raise an additional round of funds.

Typically, the burn rate is calculated in the following ways:

• Gross burn rate: This takes into account the total amount of cash spent every month. For instance, if you are spending USD 15,000 on your employees’ salaries and marketing efforts and USD 5000 for renting premises for your office, the gross burn rate is USD 20,000.
• Net burn rate: This method not only accounts for the spending but also takes into account any cash generated by the business. For instance, if you are spending USD 10,000 per month but also generating USD 3000 per month through the sale of your products, the net burn rate is USD 7000.

While a high burn rate definitely indicates a higher speed of spending, it is not an indicator of your startup’s success or failure. If your burn rate becomes too high or unsustainable, you can consider cutting down on operating costs to lower it. 

Customer Retention Rate

Acquiring customers is only the first step. You also need to ensure you are able to retain those customers to generate steady sales. In fact, an increase in your customer retention rate (CRT) by 5 percent can boost your profits by 25 to 95 percent. A strong user base also means you don’t have to spend very heavily on advertising — if your product or service is good and you have a loyal customer base, a lot of marketing can be done through word-of-mouth. 

To calculate your CRT, find out the total number of customers on your roster at the end of a specific period (say six months or one year). Subtract the total number of new customers acquired during that time and divide it by 100.  

Customer Lifetime Value

This KPI indicates how much a customer will spend on your products or services during their lifetime. It is also an indicator of how much value a single customer adds to your business. There are different ways to calculate this value. 

Most startups use this ratio to determine whether they are getting customers at a sustainable price. When this ratio is analyzed against the CAC, you get better ideas about how to acquire and grow your ideal customer base. 

First Response Time

The average time it takes for your business to resolve a customer query is the First Response Time. It is essential to track this metric as customer satisfaction is crucial for the success of your business. A lower FRT indicates more customers and also increases your chances of having a higher CRT. 

Companies that adopt a customer-centric approach tend to be 60 percent more profitable than others. That’s why it is crucial to pay attention to this KPI. 

Revenue Growth Rate 

How quickly your startup is growing is a significant metric to assess the viability of your business. This KPI helps you measure the month-on-month increase in your revenues. Unless you know this metric, you don’t know badly or good you are faring. 

To calculate it, you need to subtract the revenue of the previous month from the current month’s revenue. Dividing the resulting figure by revenue from last month and multiplying it by 100 will give you the Revenue Growth Rate.

Need a business finance expert to help you understand KPIs better?

Most entrepreneurs don’t pay enough attention to KPIs during the initial days of running their business. This prevents them from identifying the potential pitfalls that ultimately result in the business shutting down.  If you want your business to soar high, you need to start tracking the metrics from day one and also learn about the other metrics that you need to pay attention to as your business grows. It may be taxing to do this on your own, especially if you don’t have a sound knowledge of finance.

Getting a mentor to help you with understanding the nuances can shorten your learning curve and that’s precisely what Jupiter Business Mentors aims at achieving. This platform connects mentors to the start-up community and small & medium business owners to help them navigate the complex challenges during their entrepreneurial journey. With over 35 expert mentors across industry verticals, succeeding in your business has never been easier. Sign up today to receive 90 minutes of free sessions with any six mentors on the platform.