Introduction
You know the feeling if you have spent time in a startup office. It is full of people sitting at their desks, laptops open, and phones pressed to their ears as they try to convince customers to buy their products. You’d think being surrounded by so many people trying to sell something would be stressful, but it’s not. In fact, it’s fun to watch all your co-workers try to make a sale while knowing that they are just as likely to fail as succeed—and then commiserate over drinks at happy hour when things don’t go exactly as planned (which is often). Startups need to understand their key performance metrics to ensure they are heading in the right direction, try incorporating the following as a starting point.
Customer Acquisition Cost (CAC)
Customer Acquisition Cost (CAC) is the total cost of acquiring a customer. It’s the sum of all marketing and sales expenses associated with acquiring a customer. CAC is calculated by dividing the total cost of acquiring a customer by the number of customers acquired.
For example, let’s say your company spent £10,000 on its latest marketing campaign and ended up with 20 new customers as a result. Your CAC would be £500 per customer: (10,000 /20). The goal here is to reduce your CAC as much as possible to improve profitability by spending less money on customer acquisition over time.
Retention Rate
The retention rate is the percentage of your customers who use a product or service in a given period. How many customers do you have that keep using your product after one year? The higher this number is, the better it is for your business because it means that people are satisfied with what you’re offering.
For example, if you have 100 users and 10% of those still use your product after one month, your average monthly retention rate is 10%. This means that 90% of your users didn’t come back after their first visit, which isn’t good for business. You want to improve this metric by understanding what drives user retention and how to increase it over time.
Customer Lifetime Revenue
Customer Lifetime Revenue is the average revenue earned by a customer over the lifetime of the relationship. This is calculated by multiplying the average revenue per customer by the number of customers acquired during a period. If a customer has been around for at least two years or longer, how much did they spend during those two years? This will show you how profitable your customers are over time.
Customer Lifetime Value has become one of the most critical performance metrics for startups and small and medium businesses. Why? Because it’s easy to calculate, it gives you an overall view of your performance against competitors and shows how well you drive growth through your existing channels. It also helps you understand which marketing campaigns work best for each product or service offering, allowing you to optimize spending across all marketing channels.
Referrals
Relying on referrals is a great way to get more customers. It can also be used to increase your customer acquisition cost (CAC), retention rate and customer lifetime revenue (CLR).
Referral Rate: How many new customers do people refer when they become satisfied with what they receive from using your products/services? The higher this number is, the better it is for your business because referrals mean more word-of-mouth advertising without paying any money out of pocket!
Here’s how:
- You can use referral marketing as part of your sales funnel. For example, you will increase your sales velocity if you offer an incentive to people who refer new customers. The more people refer friends and family, the more likely they will spend money with you. This approach works well for startups with limited resources since it allows them to grow their business without increasing headcount or other expenses at this stage in their development.
- If you have an existing customer base, then you can use referrals as a way to improve retention rates by incentivizing repeat purchases from existing users who like what they see from using the product/service the first time around
Return on Advertising Spending
Return on advertising spending (ROAS) is a ratio that measures an advertiser’s return from its advertising investment. ROAS is calculated by dividing the revenue generated by a particular campaign by its associated cost.
A strong ROAS means you’re getting more value per dollar spent, so it’s important to track this metric closely if you want to be able to prove how well your company is doing with paid marketing campaigns.
Return on Advertising Spending: How much revenue does each dollar spent on marketing generate in sales? If this number is high (more than 10), then it’s likely that investing in additional advertising will pay off quickly because there’s such good ROI potential from doing so.
Conclusion
Startups need to understand their key performance indicators to ensure they have a clear picture of their business growth. Tracking, measuring and updating key metrics regularly is critical to attaining a competitive advantage. Understanding these key performance indicators will help you make better decisions and ultimately grow your business. Use them wisely and track them regularly to stay competitive.