Starting a business is tough. You’ve got to have a great idea, the smarts to make it work, and the funding to stick it out. It’s a fact that 90% of startups fail. Just half make it to the five-year mark.
The biggest reason so few make it shouldn’t surprise you. They run out of money.
It could be that the idea wasn’t good enough, they didn’t manage their cash flow well enough, or they weren’t able to attract the investment they needed. Whatever the case may be, that’s why it’s so important to constantly measure your Key Performance Indicators (KPIs) at every stage of your startup.
There’s no shortage of methods of measuring business performance but the most important KPIs for startups are the ones that help you manage your business into the future. They’re different at each stage of your business and will evolve as you move from ideation to early-stage to growth to maturity.
Let’s take a look at the various methods that can help you measure the performance of your business and the specific business development KPIs you need to monitor at each stage to position yourself for growth.
Methods of Measuring Business Performance: Business Development KPIs
We all know it takes more than a great idea to make a great company. When you’re going through the various startup growth stages, measuring startup KPIs help keep you on track with your targets. Performance against the most important KPIs for startups will determine whether you have a viable business and can attract the interest and investment you need to grow.
KPIs for the Ideation Stage
Startup KPI metrics for the ideation stage will be more company and-product specific than the type of KPIs you’ll see in later stages. At this point in the startup, you’ll be focused on pulling your business plan together, attracting the right partners to help you get launched, and positioning your startup for investment.
Your KPIs in the ideation stage will likely focus on your ability to generate a Minimum Viable Product (MVP) and documenting your early-stage and go-to-market strategies. Many of these items may appear to be more of a “to-do list” than KPIs. This can include market research to evaluate:
- Potential product demand
- Existing solutions
- Targets, pricing, and expectations
- Potential growth
- External variables that could impact your business
At this stage, you’ll be also watching your finances carefully to make sure you have enough seed money to get you to the next stage. A lot of great ideas never get off the drawing board because they run out of capital before getting to market.
KPIs for Early-Stage Startups
KPIs for a startup in the early stages will shift as you begin to talk publicly about your product, service, or company.
In the very early stages, it’s important to build awareness. This helps create a buzz around your company and can help attract investors.
Inbound marketing is one of the fundamental building blocks used by most early-stage startups for two reasons. First, there’s a fairly low cost of entry. Secondly, organic growth takes time. The sooner you start building content to establish your customer pipeline, the better it will be. Inbound marketing works best when you connect content to customers at various stages of the customer journey, so you must have the right content ready when customers are at each stage.
Some of the key performance indicators to watch for early-stage startups include Activation rate:
- Growth of the beta users of your product
- Visitors to your website
- Clickthrough rates for your inbound marketing efforts
- Engagement on your social channels
- Email or blog subscriptions
These methods of measuring business performance can help you decide where to focus your marketing efforts in the future. When you find content that converts, double down. Find other ways to use it. Expand on a topic or add more depth. When you find things that aren’t performing, stop and invest your efforts in other areas.
As you begin to attract customers, you’ll want to pay particular attention to lead generation and conversion rates. There’s a process that customers take in their buying journey. As they progress from awareness to interest to demand to action, they move from visitors to leads to sales qualified leads (SQLs). You need to be able to distinguish where potential customers are at each step of the customer journey to present the right incentive to move them to the next stage.
Tracking your lead generation and conversions can also tell you what’s working (and what’s not) and how long it takes to nurture leads until they become customers. That’s important to forecast revenue and demand.
KPIs for the Growth Stage
In the growth stage, the best thing to measure is revenue. If you’re not hitting your revenue targets in the growth stage, you’ve got trouble.
- Revenue growth rate
- Monthly burn rate
The revenue growth rate measures your month-to-month revenue increase. VCs and investors will want to see an upward trend each month. This provides an indicator of your trajectory and how quickly your startup is growing.
The burn rate needs careful scrutiny as well. If you’re looking for investors, they’ll want to see consistent revenue growth and decreasing burn rate in the growth stage. So do you.
As you start to grow, you’ll also want to keep an eye on user growth.
- Daily Active Users (DAU)
- Monthly Active Users (MAU)
These two metrics track how often people are engaging with you. The ratio of DAU to MAU measures the stickiness of your product. The more times people engage with you, the more loyal they become. For startups that aren’t charging for their products or services yet, this is a key metric to track. If you aren’t growing here, it will be difficult to monetize your product when it’s time.
Consistent growth in MAUs indicates the potential for healthy revenue generation over time.
Other methods of measuring business performance in the Growth stage include churn rate. It’s great if you got people to sign up for your product or try it out once, but if they don’t continue to do business with you, it’s a warning sign of things to come.
You’ll want to keep a very close eye on include:
- Inactive users
- User cancellations
Conversely, the retention rate of users and customers is essential as well. Repeat and loyal customers spend 67% more with businesses and they spend more often. They’re also more likely to become advocates for your brand and recruit additional customers – an essential weapon for freemium models.
KPIs for the Mature Stage
As startups move into the mature phase, different methods of measuring business performance need to be put in place. You should be measuring these things in the growth stage but as you reach maturation, these are the things that will propel you to greatness or hold you back.
The number one key performance indicator will be your profitability. The profit margin is the ROI and indicates the ability to sustain and scale the business.
Beyond that, you also want to track:
- Customer Acquisition Costs (CAC)
- Customer Lifetime Value (CLTV)
- CAC Recovery Time
- Annual Recurring Revenue / Monthly Recurring Revenue
- Net Promoter Scores (NPS)
CAC measures how much money you need to spend to acquire customers. This helps you evaluate the ROI of your marketing efforts. It helps if you can track this alongside the CAC of any competitors to see where you can improve.
Once you’ve spent the money to attract them, you need to retain them. This is how you can project the customer lifetime value (CLTV). When companies can demonstrate high retention rates (or low churn rates), it can help you project future income streams.
CAC Recovery time accounts for the length of time it takes for customers to generate enough revenue to offset the customer acquisition costs. You’re not profitable with a new customer until they eclipse the CAC recovery time. This has a direct impact on .
Annual Recurring Revenue (ARR) and Monthly Recurring Revenue (MRR) help you track whether you’re building a base of customers that you can count on day-in and day-out. Returning customers, especially in subscription or service models, should be growing over time if you have a product or service that’s attracting loyal customers and users. In Software as a Service (SaaS) businesses, these two metrics should see growing trendlines every month. If you have to go re-sell your services, or your MRR/ARR is stagnating, you’re going to need to re-evaluate your business model.
While you’ll need to continue to monitor everything from earlier stages, you’ll also want to add Net Promoter scores (NPS). NPS is a leading indicator to measure customer loyalty and satisfaction.
Putting it all together
As we reach the end of this post, it might be good to remember that all of the performance indicators discussed above can (and should) be tracked at every stage of your startup’s growth. By continuously evaluating all aspects of your business you will have a better overview with regards to the areas you need to improve in.
The best way to start the process is to set target rates for what these KPIs should be before you have any customers. Then, as you move through each growth stage, you will be able to compare performance with your targets. This will help you make adjustments in your strategy or more accurate projections.
Closing, keep in mind that KPIs should be directly linked with your goals, and your goals are linked with the stage of your company’s growth. The more accurate you are, the better your startup will perform. Remember: businesses are judged not just by their performance but by their performance against expectations.