Even if you think of your startup as your baby, you can’t measure its growth by proudly marking its height on a door frame once a year. So, how exactly do you go about measuring? To build a booming business, you need to know what will bring you success and what won’t and change your business tactics accordingly to achieve upward mobility in your industry.
There’s no universal strategy for determining which metrics to use, so it’s wise to figure out what makes the most sense for your business as it grows.
The beginning stages: How to build a foundation for measuring growth
If your startup is still cutting its teeth in the industry, you might want to consider these three fundamental metrics to get you on the right track:
- CPA is cost per acquisition, i.e., how much it’s going to cost to get a new customer via a particular campaign strategy. To get this number, divide the total cost (including how much you have spent on marketing and media) by how many new customers you have attracted through that campaign.
- CTR stands for click-through rate, or impressions your link has made versus actual clicks on said link. It is not meant to focus on specific keywords but rather the impression of your overall campaign. To calculate your average CTR, divide your clicks by impressions, then multiply that number by 100.
- CVR (conversion rate) measures the percentage of people who have successfully interacted with your website. This can mean anything from filling out a form to subscribing to a newsletter or making a purchase; basically, it’s any tangible form of engagement. A good CVR hovers around 10% of website traffic, but, of course, it’s always worth it to try to drive that number up.
My foundation is solid. How do I measure growth in my startup’s teen years?
You have managed to take your startup through those awkward early stages, and now it’s well on its way to becoming a major player in your industry. People are responding positively to what you are putting out there, and there’s a clear market demand for your products or services. Here are three metrics that will be helpful in this era:
- LTV (lifetime value) is a current projection of the future net profit generated by each customer. It provides a cost-benefit analysis that assists you in assessing a customer’s potential in the long term. You can find this by multiplying the lifespan of the user by the monthly revenue attributed to them.
- ROI (return on investment) is likely a more familiar acronym, and it is fairly straightforward. What is the ratio of revenue to the amount you have spent investing in the company? Divide the total revenue by your spending and you will determine your ROI. Once you have a handle on it, you can figure out what’s working and what’s not.
- GMV, which stands for gross merchandise volume, is the total value of merchandise sold over a defined period of time. This is particularly handy for eCommerce startups, which can place the present quarter and the previous quarter side by side to get a holistic view of their sales.
All grown up: What now?
Incredible! Your startup can drive, vote, and drink. You have successfully tracked your growth metrics and reached a point where your startup isn’t frantically trying to appeal to investors and looking at your profit margin doesn’t give you a migraine. However, to continue on your upward trajectory, you’ll still need to track your growth over time. Here are three ways to do so.
- Take a deeper look at the LTV and ROI, this time by segment. Whereas you were looking at them broadly before, this time, you are breaking them down by campaign, demographics, medium, or any other way that makes sense to get a more granular view. Analyze the data and adjust your tactics accordingly.
- Referral: To keep your overall CAC (customer acquisition cost) low, try putting a referral system in place. Word of mouth is important, and if you can master that, you are golden. According to data from Finances Online, customers who come to your business through referrals spend 13% more, are 18% more loyal, and have a 16% higher LTV than those who stumbled upon your business organically.
- LVR (lead velocity rate) is the monthly growth of good leads generated by your startup. It is extremely important to get a sense of your future growth. The formula for LVR is as follows: Subtract last month’s number of qualified leads from the current month’s, then divide that number by last month’s number of leads multiplied by 100.
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Remember: Like people, every startup is unique and will have its specific issues and needs. Some growth metrics might be more useful than others. Make sure you do your research and figure out which metrics make the most sense to track over time. Raising a startup is not easy, but anyone will tell you that it can be more rewarding than you can possibly imagine.