Important Metrics for Early-Stage Ventures
Apple—which according to The Fortune Global 500 list for the 2020 fiscal year is the most profitable company in the world—was started in the garage of the proprietor’s childhood home. Steve Jobs and Steve Wozniak, genius as they might be, were just average guys with a (multi) billion-dollar idea, not unlike many entrepreneurs in this day and age.
The problem in 2021, however, is that the startup market is saturated—everyone and their sister has an innovative concept that they believe to be the next big thing. The key today isn’t the idea, necessarily, but rather the execution of how you propagate and activate that idea into the world of business. There are some Key Performance Indicators (KPIs) that are the biggest determinant of startups gaining an edge.
This blog, and the next three to follow, are going to outline the vital measurements you need to stimulate success in starting your business.
Activation Rate
First thing is first, you have to get people not only interested but onboard with your product or service. Activation rate measures the number of new users that have performed a predetermined “key action” within a set period of time. A key action is defined by what your product or service is, the industry to which it applies, and your business goals.
Smooth onboarding is an automated process that sets the tone for your overall user experience. If done well, it can set both you and your customers up for success—determining the user’s journey from installation to active use.
If you are not familiar with how to measure and help shape your onboarding process, there are website analytics tools like Google Analytics and Mixpanel available to monitor how many people are completing your set milestones. If you are savvy, however, you can keep a finger on the pulse by looking at industry benchmarks, remembering to only compare to companies that have similar products and similar onboarding events. Here are some key insider tips to successfully manage your onboarding process:
Tip #1: Be brief
Tip #2: Show instead of tell
Tip #3: Avoid login and account creation hurdles
Tip #4: Show learning progress
Tip #5: Be human
Tip #6: Make it possible to proceed with the tutorial
Tip #7: Listen to your users
How to Calculate:
ƒ Count(Users That Performed a Key Action) / Count(All Users).
In context, this means that if out of 500 new users, 100 of them perform a key task that is known to deliver proven value in the first week, the activation rate for the week is 20%.
Daily Active Users Vs. Monthly Active Users
Once you have established a customer base, the next metric to monitor is daily active users (DAU) and monthly active users (MAU). As a ratio, DAU/MAU calculates how many of your daily active users rank to your monthly active users by time increments. This comparison gives you context to help measure your product’s stickiness during a 24-hour period as opposed to the cadence of monthly use.
Although this metric is a great way to measure the overall value of your product, the catch is that you cannot differentiate which users are being retained and which users are churning. Next, we will define churn and its importance.
How to Calculate:
(#) Daily active users / (#) Monthly active users = (%) DAU/MAU Ratio.
Customer Churn Rate
Churn is the metric that calculates the percentage of customers lost during a given time period. The churn rate looks at customers lost even after they’re onboarded, but it is important to note that churn is not the same as revenue loss.
With 73% of organizations indicating that nearly all their apps will be SaaS by 2021, the online market is increasingly competitive, and therefore the significance of churn is escalating. Whether your company is offering a service or a product, it is important to note that churn is critical for strategizing better customer retention—and thereby business growth, and profitability. There is also gravity in trying to understand the demographics of who is staying and who is leaving, and then why.
How to Calculate:
(#) Total customers churned during time period / (#) Total customers at the start of this time period ] X 100 = (%) Customer Churn Rate.
In order to calculate accurately, you need a finite quantification by determining a specified period, such as 30 or 90 days.
Sign-Up to Subscriber Conversion Rate
After a free trial of your product, if you offer one, the conversion rate is the percentage of users who become paying customers and officially subscribe. This calculation gauges how valuable free trial users find your product and the likelihood of converting them once the trial ends.
This helps a business identify if marketing efforts are executed well, if quality sign-ups generate customer success, and if they’re providing the right level of support during the trial. This also helps you to work out the kinks on your product or service’s first run.
Unfortunately, low-quality sign-up groups can significantly impact this measurement, which can make this an inaccurate equation. Look at the volumes of sign-ups and then subscribers to understand if it’s what you’re offering or onboarding improvements that are driving your numbers one way or another.
How to Calculate:
Paying Subscribers / Total Sign-ups = Sign-up to Subscriber Conversion Rate.
In this blog, we focused on some of the most critical KPIs when starting your business. In the following sections, we will focus the lens further on the pivotal measurements in your business’ growth stage.