There are many metrics that an entrepreneur or business owner can track, but it is important to know which ones will measure what. So without further ado, here’s a list of the top 10 most common startup metrics and how each one relates to your company.
The “how to analyze a startup” is an article that will help you understand how to analyze your company’s metrics. The article has the following points: what are key metrics, why they’re important, and how to track them.
Note from the editor: Our Scoreboard feature has been renamed the Dashboard after the publication of this update.
Making ensuring a company keeps track of its data is one of the most crucial things it can do. In this webinar, we’ll go through the many indicators that startups, as well as existing organizations, should be following.
Tracking metrics and keeping track of what’s going on in your business is critical; it helps you to see whether your assumptions about your company are true, if your financial and marketing plans are working, and, ultimately, if you’re making the best choices for your company.
The whole audio and slide presentation, as well as the full text, are available above.
Sabrina: The first thing I’d want to discuss is how I came to determine what I needed to measure as the CEO of an online SaaS firm and why it’s so critical. If you can hone in on data as you go out and pitch investors, having secured some investor money, as you actually go out there talking to the investment community, whether it’s angel investors, major VC funds and VC companies, it’ll go you a lot farther.
Not only that, but if you can present and understand all of the metrics and data that you should be tracking, and then use that data and metrics to put together financial forecasts and financial models that make sense, you’ll have a better chance of succeeding when you pitch, as well as putting yourself on track to understand what’s actually attainable and achievable.
What a lot of businesses and startups don’t know is that putting up a forecast is challenging when you’re a startup. It’s difficult to estimate how many people you’ll really attract, how much it’ll cost, what your conversion rate will be, and how long people will remain. All of those things are very difficult to get. The more data you can discover from comparable organizations, rivals, and public corporations, the more you can comprehend and apply similar measurements as you build your financial model and pitch, the more likely you are to meet those benchmarks.
Pitching, on the other hand, will take eight to twelve months. As you pitch, you never know who could be interested, and time passes. As time passes, you’ve promised yourself that you’ll reach specific milestones. If you don’t meet those milestones with a potential investor, they will most likely lose interest. It’s a difficult situation to be in, because you want to paint a really good image in your financial modeling and highlight this huge possibility, but you also need to put figures out there that you can actually reach. Because if you don’t meet your targets, you’re essentially proving why no one should invest in you.
We’re going to skip forward in the slides now. It’s all about understanding your company, which is why you want to track. The key performance indicators (KPIs) offer you a sense of how well your company is doing. You can make better selections with such information. You can recognize false assumptions and identify levers that can make a difference. All of these factors are also critical when seeking venture capital and angel finance. You must be able to swiftly detect missing assumptions, apply them to your financial modeling, and then clearly explain why assumptions were missed. Pre-purchase, post-purchase, and overall company analytics must all be tracked.
Pre-purchase, traffic, and content analytics are all important. You should really understand how you’re going to drive traffic to your website and how traffic funnels into your site because, at the end of the day, if you build everything correctly, you’ll have a funnel where more people come in at the top and as they go through your site and get closer to making a purchase, they’ll narrow down and funnel through until you reach that conversion rate and someone buys your product or service.
You must be very knowledgeable about top referrers, unique visitors, and keywords. If you have pay-per-click campaigns, you need to know how they’re performing, how much money you’re spending on them, and which of your keywords are working and which aren’t if you’re utilizing one. You should also be aware of calls-to-action. Sorry, the calls-to-actions at the bottom of the slides appear a bit muddled, but essentially, inbound marketing methods that combine images and text to attract those people down. A landing page from any kind of paid advertising should always include strong calls-to-action.
When you consider a user coming on your website, you must consider both the aesthetic and functional aspects of what you want that visitor to perform on that page. You could want someone to fill out a form and provide you their contact information, depending on your pricing points and what you’re offering. In rare circumstances, you may genuinely want someone to click the “Buy Now” button and buy something from a shopping basket. In another scenario, you may just be collecting leads and requesting that they sign up for a newsletter.
Every page on your website should have a purpose and provide functionality for that particular client or visitor. Every time someone visits your website, they must be able to instinctively comprehend where you want them to click and what your call-to-action is, which means you won’t be able to attract everyone. Because if you believe the goal of a website is to persuade visitors to click the “Buy Now” button, but at the end of the day, everyone is hitting the “More Information” link, that tells you a lot and offers you a lot of information.
One of the most common errors people make is attempting to develop things fast, and when you put together forms, combine newsletters and email marketing tools, connect shopping carts, and other eCommerce platforms, people often fail to implement effective tracking. It’s impossible to track something you didn’t set up to track in the first place. All you can do now is try to repair it. You can’t go back in time and modify the tracking history. “Damn, I wish I had tracked it and didn’t, and now I’m going to start tracking it,” we all remark in this game.
It’s an ongoing game of making sure we’re monitoring all we want to track with LivePlan and our websites, but the better we become at it, the less we leave on the table. Always track more than you think you need to, because once you have that and the data, you can go back and figure out what you want to do with it. There’s nothing you can do if you don’t have the data; the only thing you can do is influence the future.
When it comes to bringing traffic to your pre-purchase funnel, you’ll want to divide it into two categories: sponsored traffic and SEO traffic. You’ll want to consider how you’ll generate traffic and which methods are the most cost-effective. In general, organic listings and SEO may be the most cost-effective, albeit it can be a difficult game to play in certain regions. It will be quite difficult to rank in search engines if you are in a really busy location, and let’s imagine one of you is selling flowers and competing in the online flower market. Then, if you go to the pay-per-click side and attempt to purchase pay-per-click advertisements, it’ll be quite costly. Those keywords are really costly.
All you need to do is know and understand your market. I’ve seen individuals pitch corporations and put out a budget for what they’re going to spend on internet marketing, but they’ve never looked into what keywords cost using the Google AdWords tool. It’s a massive error because if I can go look at all these metrics and see how much keywords cost, and you’re telling me you’re going to spend $10,000 a month on keywords and that $10,000 a month would lead a thousand people to buy your product, it’s a major mistake.
So, “Pre-purchase, the traffic and content analytics,” I’ll keep going. How can you ensure that your website receives the maximum traffic? I mentioned some of the things you’ll be thinking about: top referrers, unique visitors, keywords, pay-per-click campaigns, and calls to action.
I said that everyone should examine the SEO and pay-per-click environment, and that Google AdWords may help you do so. From an SEO standpoint, you may utilize Google Tools to see how many people search for certain keywords. For example, if you have a wonderful term that you believe is precisely what you want to appear first for when someone searches for it, but you go to Google and discover that only 500 people look for it every month, you’ll need to find additional keywords.
You need to get to a point in your funnel where you have enough individuals coming in that you can achieve the conversion rate that will allow you to grow your company. All of this is possible with the right tools. There is no rationale or justification for not having this information on hand. If you haven’t done your homework, don’t go in and fire someone. Understand the volume of terms, how much pay-per-click for the phrases you want costs, and who you’ll have to compete with in the organic search landscape to get to the first page of results. Just so you know, page number one is all that counts at the end of the day. It makes no difference whether you’re on page two.
Consider your own online browsing habits. You’ll never get to page two of results unless you’re searching for something incredibly specific that you know you want. If you can’t get to page one of the results organically, you’ll have to pay to be there, which means you’ll need to know how much money it’ll cost. All of the money you spend on pay-per-click advertising will be added to your customer acquisition costs.
How will you do this, and how will you know that you’re not just bringing the greatest traffic to your site, but also accomplishing the most with that visitors? You’ll want to run A/B testing. As you build your website, keep in mind that landing pages refer to where visitors land when they arrive at your site, which isn’t usually the main page. They often end up someplace else as a result of keywords or because you’ve sent them there with pay-per-click advertising. We’ll return to flowers if you have a pay-per-click campaign centered on flowers, for example.
If I’m looking for flowers and come across your ad, which claims to be the “best online flower delivery” or “fastest” or whatever, and I click on it and get up on your site, you’re probably going to lose me. You have a greater chance of still catching me if I click on the ad and go to a landing page that continues to speak to me in the same language, “fastest delivery, get it now, same day.” That being said, there are a variety of approaches to construct that landing page. The call-to-action might be placed at the top of the page. Put it at the bottom of the page if you want. You may surround it with testimonies. You may include some images. Different products will perform differently, which is why A/B testing are necessary. That basically means you have two pages, A and B, and you send half of your traffic to A and the other half to B to see what occurs.
Make sure that page A and B aren’t so dissimilar that you’re unsure why one works better than the other. Make sure you have two pages but that you understand the variables you’re testing. Don’t test 20 variables or things that are so different that you have no idea how many variables you’re testing. You’ll want to consider the timing of your purchase. Do visitors to your website make a purchase on their first visit? Do people visit your site, think about it, leave, return, think about it some more, and then leave? Is it necessary to make three purchases? Is it a one-time, five-minute visit? Is it five visits and two hours long? Consider how you’re going to track everything.
Tests on shopping carts You must be familiar with the operation of shopping cart features. Shopping carts are still where most consumers abandon their purchases, and they aren’t customers. Consider it from the standpoint of a genuine brick-and-mortar shop, since we don’t always think about it in this manner, and we don’t always measure or even comprehend.
What if you have a physical business where a consumer goes in, fills a shopping cart with various items, looks about, and then departs before reaching the checkout register? That would never happen in a traditional shop. People do not enter shops, place items in trolleys, and then abandon them.
I mean, it could happen 5% of the time, but the disturbing fact is that shopping cart dropout rates of more than 50% are common in many online purchasing experiences. Imagine strolling into a grocery store and seeing half of the customers loading products into carts, then coming out and seeing carts full of items all over the place. That’s what’s going on in cyberspace. When choose which shopping cart to use, consider the features you desire and then put them to the test. It isn’t necessarily the most attractive shopping cart experience that is successful.
Then consider how you use shopping carts. I don’t put anything in my Amazon cart that I won’t purchase since I know how much shipping will cost because I’m an Amazon Prime member. I exclusively look for goods on Amazon Prime since I know I’ll receive free delivery. Nine times out of ten, I put something in my basket because I want to purchase it. When I go to another website and don’t know how much shipping will cost me and they make me put things in the cart and then enter my zip code before telling me how much shipping will cost me, I’m very likely to abandon my shopping cart eight times out of ten because all I’m really doing is figuring out how much that item will cost me at that particular website.
Consider all of the numerous elements that go into a shopping experience, and how useful it would be to be able to test them and collect statistics about them. When you retarget and remarket, you’re employing techniques that essentially cookie people and then offer them adverts again when they visit other websites. Google provides excellent remarketing and retargeting capabilities. In fact, if you haven’t visited LivePlan.com yet, you should do so only to see all of our remarketing and retargeting options.
“Why are you advertising on tennis websites?” “Why are you advertising on tennis websites?” “Why are you advertising on tennis websites?” “Why are you advertising on tennis websites?” “Why are you advertising on tennis websites?” “Why We don’t promote ourselves on tennis websites. Because he came to my website, I’m promoting to him. The LivePlan ad will follow him around from one website to the next since the more times you see the LivePlan ad, the more likely you are to click on it and purchase.
Click-thru-rates. It’s really straightforward; everyone should understand them, and it’s something that, if you can influence favorably, may have a significant impact on your funnel. If you can get more people to click at the very top of the funnel, you’ll have a higher chance of converting them all the way down. Obviously, the eCommerce conversion rate, or how many people end up buying, is what you’ll use to measure your client acquisition expenditures at the end of the day.
I’m going to take a little breather here to make sure you don’t have any queries. Anyone have any questions for Peter as I go along?
Caroline: It would also be interesting to see whether any of the entrepreneurs in the room are currently monitoring any of the KPIs that Sabrina has mentioned. As of today, he says, we’re OK. Okay, that’s fantastic. So far, people are paying attention to what you’re saying, which is fantastic.
Sabrina: Great. Examining the figures after the purchase. How much did it spend to get the customer? Everybody should be aware of their CAC. It’s something that will propel your company forward. It’s also something that many investors consider. At the end of the day, if it costs you $300 to acquire a client and you only earn $150 from them, you may argue that as you get more traction and brand recognition, it will only cost you $40 to acquire the consumer, but it’s a tough sell.
You’re now trying to persuade an investor that the CAC will ultimately fall. The lower your CAC, the greater your lifetime value, the better off you will be. Obviously, this seems self-evident, yet I’m often amazed by how many individuals are unaware of their CAC. You’ll want to look at your CAC in terms of pure expenditure, such as pay-per-click advertising and traffic generation, as well as a blended CAC in terms of real internal resources, since you may have some fixed expenses on employees and some variable costs in advertising.
All of your advertising costs should, hopefully, be changeable. I would not encourage someone to engage in any kind of advertising that is not pay-for-performance based on an activity you want someone to do. There’s no need to do so these days since everything is available online. Do not engage in any CPM transactions. Don’t sign any advertising contracts where you pay a certain sum and have no idea what the outcome will be. Then figure out how many months it will take to recoup your CAC, or how much years it would take to recoup your purchases. You must grasp these metrics since they are your drivers and what you can influence, and you may need to increase your rates once you have a thorough understanding of your CAC.
Okay, here’s some more “post-purchase—number crunching.” What is the value of your customer? Another question that investors will always ask you, aside from CAC, is how to keep your CAC as low as possible. When I say CAC, it always sounds like I’m talking about a cat with a hairball or something, but CAC is important, and you need to understand it and try to figure out how to keep your CAC as low as possible. It’s what will make you the most appealing to a potential investor. The average revenue per account, per user, or per client is another question they’ll ask you. People commonly refer to it as ARPA or ARPU.
When looking at the total income, you need to know how much money each individual account or user brings in. The majority of people consider this to be a monthly payment. You may look at it as yearly if you only make annual sales, annual memberships, or annual accounts, yet you can still split it by 12 and break it down monthly. A annual ARPU or ARPA may be used. However, you’ll most likely want to have a monthly one since all of your other expenditures are, for the most part, monthly: rent, salary, fixed bills, and insurance.
Understand what you’re aiming for in terms of ARPA and ARPU. When it comes to SaaS analytics, the quickest approach to the hockey stick that SaaS firms are aiming for is to keep your CAC low and increase your ARPU. Your lifetime value will rise as well, and you can enhance it by lowering your churn rate, or the rate at which consumers leave your product or service. However, lowering your churn will take months to catch up and appear in the bottom line, and you certainly want to do so. It should be as low as feasible.
When you look at a firm like Salesforce, turnover is at a bare minimum, under 1% each month. Constant Contact, for example, has a monthly churn rate of 2.5 percent. You need to look at industry standards for the industry you’re selling to, and whether you’re selling to consumers or small businesses, and understand the churn rates, because reducing churn will help you drive that hockey stick, but if you want to quickly increase your revenue every month, you’ll need to increase your ARPU as well. If we expand our-
Caroline: Please accept my apologies for interrupting you. Jill has a question, which she has put at [inaudible 00:23:46]. Are you able to view it or would you want me to read it to you?
Sabrina: Yes, I see what you’re saying. Yes, it is dependent on subscription indicators such as average cart size and average order amount. Typically, software as a service is provided as a subscription rather than a one-time purchase. If you have a subscription model, ARPA and ARPU are the average monthly charges you charge each client. You can break it down whether you do yearly accounting or not. For example, at LivePlan, we offer monthly memberships for $19.95, but we also sell yearly subscriptions for $139. Because of the annual accounts, our ARPU is less than $19.95. I believe our ARPU is now at 18.37.
That’s how we look at it, and the more I can boost my ARPU from $18 to $25 from month to month, which I’m not going to do since we have 55,000 consumers paying an average of $18 right now, the better. If I could simply magically inform them all the prices have been hiked and no one cancels, I could bring in $500,000 more per month right away if I could only boost my ARPU a few dollars. The average cart size and average cart order value may be the same as ARPU, however average cart order is generally used in transactional businesses when customers come in and purchase something and may or may not return, and you don’t have their credit card on file to charge them. That should hopefully address your question.
The lifetime value of a user refers to how long they will stay and how much money they will bring in. If you look at a company like Constant Contact, which has a 2% turnover rate, their clients will remain around for around 36 months. They charge consumers about $20 per month on average, so you can do the math based on hundreds of thousands of clients. If they can maintain a client for another five months and charge $20 each month, that’s an extra $100 per customer. You should absolutely consider lifetime value.
There are a few things you can do to boost your lifetime value. Providing extra help, maintaining good ratings, staying in contact, and segmenting clients all contribute to a feeling of urgency to utilize your products and services. The second point is that you need to monitor things in order to accomplish all of these things and provide better assistance. Why are individuals deleting or not adding items to their shopping carts? Maybe you detect a pattern: if you can convince someone to click on these three items inside your product or service within the first week, you know they’ll remain around for another three months. Then you must concentrate on how to increase the number of clients who click on these items.
Do we use in-app messaging, make a phone call, or write them an email? When considering lifetime value and churn, it’s also important to consider what occurs when you contact your clients. If you’re launching a subscription business, are you going to send an email receipt every month when you charge a customer, or are you going to follow the Netflix method and never say anything to them again once they sign up and agree to the $10 a month, and then discreetly charge them month after month? It’s all up to you and your founders to decide, and it’s a choice that will have a long-term impact on how your company is operated and how your customers see you. Netflix has found it to be successful, despite some opposition.
If you look at Apple and iTunes, you’ll see that they let you know a week before they’re going to charge you. At LivePlan, we’ve opted to fall somewhere in the center of those two options. When we charge you every month, we give you an email receipt. We never charge you without providing you an email receipt, and we never charge you silently. We’ve made our choice. We’ve also discovered that if we over-email our LivePlan clients, we receive more cancellations for a variety of reasons.
Caroline: I have a question for you, Sabrina, and I just said that we use Google Analytics and KISSmetrics, but what tools do you suggest for tracking all of this data?
Sabrina: Yes, in terms of our conversion funnel, Google Analytics and KISSmetrics are precisely appropriate. We also utilize Optimizely, and we have some custom-built A/B testing software that our web engineers have created. We utilized Totango before we switched to KISSmetrics. KISSmetrics and Totango are two companies that track engagement and activity. You need to understand your app and what you’re doing, and search for technologies that can track people’s pathways and activities, as opposed to Google Analytics, which is more of a flat measurement with some in-app tracking.
KISSmetrics gives you a more 3D type of look at paths and clicks and activity and engagement in a more 3D way, I guess is the best way to describe it, so yeah. Google Analytics mostly looks at how people move through a site and click on links, whereas KISSmetrics gives you a more 3D type of look at paths and clicks and activity and engagement in a more 3D way, so yeah. Caroline, I appreciate it. The percentage of visitors that purchase your goods on their first visit to your website, for example…
Caroline: To put it another way, what tool would utilize that? Is KISSmetrics the software that informs us when customers buy?
Sabrina: No, that’s Google Analytics, and we’ve appropriately connected it to our cart. That will reveal what occurs when users come to your site and make a purchase. KISSmetrics is what we use to track things like feature use and how it relates to cancellation. I am glad to work with any of the firms personally to assist them choose the correct collection of tools or category of products. In terms of how much traffic a site needs for retargeting to be effective, I believe the price you’ll pay for retargeting and remarketing is more essential. If you just pay for performance, I don’t believe it matters how much visitors you receive since you’ll only pay for the retargeting that works.
I believe it’s more about getting enough traffic to the appropriate conversions and driving enough people to generate the cash you need to sustain your business, but retargeting can work at any level, right? If just one person per month makes a purchase as a result of retargeting, but you only pay for one click, or ten people click and only one person makes a buy, that’s definitely quite inexpensive. If 50,000 people click and just one person buys, that’s not a very good deal.
It’s more about the bottom of the funnel than the top. It’s more about how much you’re spending and what your conversion rate really is. We established certain return on investment KPIs in pay-per-click across the board at Palo Alto Software, so for retargeting, remarketing, and everything else. We don’t purchase keywords until we receive at least a 180 percent return. That implies we earn at least $1.80 back for every dollar we spend. We may receive a 300 percent ROI, which means we get $3. I’d rather get more people in the door and make $1.80 than make $300 and get fewer people in, but pay-per-click doesn’t always work that way.
The more the investment, the lower the return on investment. You have these ideal spots in a bell curve and know where your sweet spot is, and I would do that if I could simply keep spending money at $1.80 return, but I can’t. There’s a point when the benefits start to dwindle. You must be able to set up your tracking so that you can locate the levers and knobs to flip back and forth, as well as comprehend your funnel and the pay-per-click faucet.
Caroline: Just to double-check the time, we have around 10 minutes left in the webcast.
Sabrina: Okay, since we’re nearly done, I’ll go through this fast and then let you all ask any questions.
Knowing your users, looking at the members, cohort monitoring, segmenting your users based on various criteria, and measuring their attention and involvement in these groups are all things to keep in mind. You’ll need something like KISSmetrics or Totango for cohort monitoring. You’ll want to keep track of cohorts based on when they signed up, so we have a 3-month cohort, a 6-month cohort, and a 9-month cohort, which are folks who have paid us for 3 months, 6 months, and 9 months, respectively. In LivePlan, we have a group of people who utilize scoreboards. We have a group of people who utilize benchmarks and scoreboards, and so forth. Then there’s churn rate, which, as I said, has a direct impact on your lifetime value.
Caroline: Is GA or KISS being used to do cohort analysis, Sabrina?
Sabrina: That’s KISSmetrics, not KISSmetrics. You could use Google Analytics if you only have an eCommerce site that sells transactional products, but if you have an online SaaS software where customers interact with the product and do various things, you’ll need to utilize something like KISSmetrics or Totango. GA can help a little, but it isn’t quite enough. If you want to conduct genuine cohort analysis in an online app, you’ll need something like KISSmetrics or Totango. There are those who compete with you. Both KISSmetrics and Totango have been utilized by us. We like KISSmetrics, although I was just chatting to one of our partners yesterday who uses Totango and prefers it.
Because there are just 10 minutes left, I’m not going to go through the remainder of the business analytics and financials until I see if there are any more questions. If you people, Peter, can go a little over time, I can go a little over time. I’m hoping you can all still hear me. So, you’re free to go a bit over time. Okay, then I’ll go right in.
We’ve spoken about internet analytics a lot. The second thing I’ve seen is that people know they should monitor things but don’t always do so meticulously, and when it comes to your investors, you, as the founders, need to know these figures back and forth. You’ll need to be ready to answer any queries once you start generating revenue and charging customers: what’s your burn rate, what’s your CAC, how much money do you have in the bank, what’s your average AR and AP, what are your direct expenses, what’s your net profit, what’s your EBITDA?
I’m aware that I’m speaking rapidly and using a lot of jargon. That’s what’ll happen, and that’s what people will do, so you’ll need to grasp, know, and love your statistics. The more you learn about them and love them, the more you’ll be able to utilize the data in terms of your finances as well as all the backend data about what people are doing in your various funnels and inside your app to make the best judgments.
Many people speak about gut instinct, and many businesses have to rely on it. It’s a part of what you did when you chose to take the plunge and become an entrepreneur. It’s great that you’re prepared to take some risks and leap over that cliff, but the fact is that there’s so much data available these days for internet company owners to utilize to reduce their gut feelings and make the best judgments possible.
The company’s salary is certainly sales. Your sales are the most important sign of how well my company is performing since they reflect your financial future, your product or service, and your financial future. It’s not just about total sales; it’s also about being able to answer all of those sales-related queries. What product or service do you specialize in? Which one has the most affordable direct costs? Why have you forecast that you would be able to sell more of product A than B? Are you selling faster than you expected, or slower than you expected? How do you think you compare to past years? All of this information will assist you in staying on track and making choices.
As I already said, sales are not free. The more you sell, the higher your costs will be. That’s OK as long as your CAC and fixed expenses are less than the revenue you generate. It may seem self-evident, but it isn’t always the case. Consider that for a moment. Many times, individuals do not monitor all of their direct expenses as they should. Anything that is a cost of goods, such as hosting or maintenance contracts, or if you have to pay licensing fees for any technology, a lot of them will be your cogs, especially if there are monthly payments. The more you sell, the more you’ll have to pay for everything separately. You might also Google this in your sector to see what other individuals have included in their direct expenses.
Because it costs them every hour to pay someone to make, manufacturing businesses often include labor as a direct cost. On the other side, since development is not a direct expense, we do not include labor in our direct costs. You must first comprehend what your business does, and then monitor everything in the same manner that your industry does. If you don’t, your gross margins will be wrong, and when you deliver your financial models to investors, they’ll notice and ask why your gross margin is different from what they’re accustomed to. If you’re just not include the appropriate items in your direct cost, it might make you seem unprofessional.
Caroline: Sabrina, just a quick hello. I wanted to remind you that all of these organizations have LivePlan access, so they’ll be able to monitor everything you’re talking about here in Business Analytics, as well as a SaaS forecasting tool where they can enter in their churn and other metrics.
Sabrina: Great. We’re absolutely accessible as mentors and would love to work with you if you have any concerns about any of this moving ahead while you’re putting up your financial models and monitoring.
Gross margin is precisely what I was referring to. If you don’t figure out your direct costs accurately, your gross margin will be wrong, making it more difficult to compare your firm to comparable companies and confusing potential investors.
You could have a fantastic gross margin, and that’s part of what you’re bringing to the table. If you can create something at a lesser cost than everyone else due to patented technology or invention, that’s excellent; but, if that’s the case, educate yourself so you can speak about it and utilize it as a selling point in your presentation. “Because we found this unique technique to produce this specific material, which we then utilize to make our product, our gross margin is 15% better than everybody else in our business.” Knowing how your industry measures things, what direct expenses they use, and how they set up their financials will be quite useful when you present.
Budget carefully, account for seasonality or changes over time, and direct your spending to be a direct outcome of sales wherever possible. Tie your cost in a variable approach whenever you can. There will always be a set cost. Rent will be the same, insurance will be the same, and many salaries will be the same, but if you can have—you have salespeople, and their salaries, hopefully, are commissioned, and so those salaries, maybe they have a small base and then everything else is commissioned, but then you have that nice variable that you pay when they sell. They don’t get paid until they sell anything. You’ll be better off if you can relate spending to sales as closely as possible. Let’s see, I was simply looking to see if there were any…
Caroline: I was just about to add that they may ask you to join their account as a guest so you can assist them with their SaaS forecasts.
Sabrina: Without a doubt. That’s something I’d be delighted to undertake. You can see on our scoreboard, which you have access to, that you can keep a close eye on your spending, actual outcomes vs prediction, prior quarter, and previous year. All of these indicators are really valuable. One of the reasons you should keep track of everything is because it might assist you figure out where your company could be having issues. You need to know whether your pay spending are out of whack from year to year or when compared to your industry, and you need to rectify it.
Data is fantastic yet again. You should never have to worry how much to pay your employees. You should be able to do research and get salary information in your location and sector. As a startup, you should be on the lower end of that range since you should be providing your employees some shares.
Naturally, sales and costs must be reconciled on a regular basis and in tandem. If your expenditures are increasing but your income is increasing as well, that’s usually OK, particularly if you’ve matched your spending as closely as possible to your sales.
When individuals look at simply their costs, they may panic because they don’t understand why they’ve increased, but it turns out that their income has increased as well. This view shows that this client is on track to earn $186,000 for the quarter, despite the fact that their goal was $160,000. Their spending are on track to total $132,000, compared to a goal of $121,000. Right, since their income and costs were both more than planned, they’re still in excellent health. Don’t forget to examine items that should be examined together. It will keep you from worrying, and data, once again, helps you sleep better and make better judgments. It assists you in getting away from your gut instinct.
Cash is, without a doubt, the most vital aspect of every company. Cash on hand should not be confused with profit or what’s in your accounts receivable. Understand your billing and payment cycles, and keep in mind that even prosperous businesses may go bankrupt if they run out of funds. You have an issue if your accounts receivable days are 90 days out, you collect on average in 90 days, and the rest of your industry collects in 20 days. If you collect every 90 days, but your industry collects every 100 days, and you still have a cash issue, you won’t be able to solve it using AR since you already collect faster than everyone else.
You’ll have to find other ways to address your cash flow, or you’ll just have to ensure that you have enough investment or line of credit to last through your AR days. When it comes to asking for money, no one should do so without first generating a cash flow prediction. Doing your revenue projection, costs, cash assumptions, how much do you receive in cash vs in AR and AP, what are your AR days, and what are your AP days are the only ways to really determine how much money you require. All of this is possible with LivePlan.
Then you’ll receive a cash flow prediction that shows you when you’re likely to go negative. If you observe a negative cash balance, it signifies you’ll keep bouncing checks until you secure a loan or investment. If you can’t present a cash flow projection that confirms your usage of funds, don’t go out and ask for money.
At the end of the day, net profit is the ultimate bottom line. Do you earn more money than you spend, or does your profit fluctuate? The only way for a firm to continue in business is for it to be profitable. Depending on your funding runway, you may spend a certain number of months or years without producing any money as a company. Some firms, such as medical device companies, need millions of dollars in investment since they won’t be profitable for seven to ten years after receiving FDA permission and undergoing clinical studies, animal testing, and human trials. Different businesses may survive and have business strategies that allow them to remain lucrative for many years, but for the most part, we’re all striving to build profitable businesses.
We’ve finally reached the conclusion of the presentation. Know your industry, what to measure, and some more metrics. At the end of the day, I merely wanted to provide some examples of the sorts of metrics that companies should be watching. The reality is that many of the businesses I speak with intend to keep track of things, but at the end of the day, they’re too busy running the company and trying to get everything built that they forget about it. If they’re pitching at the same time and trying to find investors, that’s another full-time job in and of itself.
It’s easy to lack the discipline to put everything you need in place to accomplish all of your monitoring, but I promise that your company will be better off if you can concentrate in and spend the time to put all of your metrics in place and make sure you track things the way you need to. You’ll also need to demonstrate to your investors that you’re in a better position to operate your firm if you can achieve that. It also implies that you must appropriately configure your accounting software from a financial standpoint.
Assuming you’ll be using QuickBooks, Xero, Wave, or another online accounting software, think about everything you want to monitor and make sure your accounting software is set up appropriately. If I only track LivePlan and put one revenue line for it in my accounting software, and then I want to know how many people bought through the website versus our banking partners versus retail, and I’m not tracking them in my accounting software, it’ll be much more difficult for me to run the reports I need as the CEO.
Every step of the way, you must consider what you want to measure and monitor, as well as the levers that will assist you in making choices. You must also set up your process, backend analytics, and financials in the proper order to ensure that you are tracking what you want. It’s better to monitor more and then consolidate later than to track less and discover later that you don’t have the data you need.
This “Track for Success” summary will be left up here. Data management provides you with accurate information. When you track your progress against your strategy, you may see where your assumptions are incorrect. If you expect your CAC to be $20 but find out it’s $75 once you start monitoring things, you’ll want to know as soon as possible. The easiest approach to find out is to keep track of it and compare it to what you expected to happen, so you can swiftly react and make the necessary modifications.
Thank you very much, gentlemen. I appreciate you taking the time to present, and I love to follow up and assist businesses, so don’t be hesitant. Please contact us if you have any questions or concerns about which we may be able to assist you.
Frequently Asked Questions
What metrics should startups track?
How do you measure the success of a startup?
A: The success of a startup is usually measured by the amount of money it makes and how much value it creates.
What are the KPIs for startups?
A: The key performance indicators are the metrics that a company uses to measure their success. Some of these could be sales, profit margin or customer satisfaction.
Related Tags
- vc financial metrics
- sales metrics for startups
- what are 1 or 2 important kpi for a vc firm
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- startup kpi dashboard
