Unless you measure your company’s success using critical KPIs (Key Performance Indicators), you risk navigating your boat onto a shoal. When you don’t see where your money goes, which marketing strategies work, and what products or services sell the best, you can’t make effective plans for the future. Take over the reins by checking out these essential tech startup KPIs below.
What is a KPI?
Key performance indicators are quantifiable values that allow you to measure the performance of your business. They help you identify the essential goals and then determine if they are being achieved. In short, they are indicators that let you separate successful efforts from less prosperous ones. However, not all KPIs can be applied to every firm, and not even those that work for one firm can be used for another. The ones you’ll use depend on your industry niche, type of company, and even the structure of its department.
Presented as a percentage, gross margin defines the deviation between the total production costs of your product or service and the total revenues of the resulting sales. A high gross margin indicates that your costs are generally low with respect to the production of your products and services. For example, it would be expected that the gross margin of a SaaS (Software as a Service) startup is considerably higher than the gross margin of a smartphone accessory production firm, as any manufacturing process costs more than delivery of software products.
It goes without saying that this metric will be more interesting for apps and online services than for manufacturing startups. When considering social media platforms, mobile apps, and online games, active users are defined as the number of individuals that engage in activities on an app or web page – not to be confused with the number of sessions. When you know the number of active users you can more easily predict the demand for a product, the user growth rate, and eventually, potential revenue.
Displayed as a percentage, the conversion rate is the number of people that perform a certain action as a result of a ‘call to action’ of the total number of people that have been exposed to it. For example, if you maintain an engaging blog page that includes signup for a weekly newsletter, and one in every ten people subscribes, your conversion rate is 10%. Of course, the conversion rate itself isn’t enough to track the performance of your digital marketing. However, to successfully monitor your SEO, PPC, rankings, and many other metrics, you need a digital marketing reporting dashboard that combines real-time data from multiple sources into user-friendly reports.
Customer acquisition costs
Also known as CAC, this metric shows the average expenses needed to acquire a new customer. The CAC indicates the effectiveness of your sales and marketing department efforts and helps you increase the ROI of your sales and marketing strategies. It’s important, however, to break down the CAC into different sales and marketing activities so you can identify acquisition channels that are more productive than others. For example, if you’re acquiring many new customers via Google AdWords and Facebook Advertising, shift the bulk of your investment on the channel with a lower CAC.
This metric is vital for determining the runway (see the next point) and allows you to set a point in time you’ll run out of money with the current cash flow. In other words, the burn rate is net outgoing cash per month. A positive burn rate means you’re spending more money than you’re earning. When your burn rate is negative, it means more money is flowing in than out, which is, unsurprisingly, a good thing.
The runway is essential for every startup as it shows how much time you have left until there is no more cash. It’s closely related to the burn rate which was explained previously. Basically, you look at your bank statement today and, based on the burn rate, calculate how many months you can survive with the funds at hand. This metric is critical for tech startups because, these businesses often want to grow faster than organically possible, only to end up with costs that tower your revenues.
Knowing which figures are important for your business performance and growth isn’t only essential for startups but for every company that finds itself caught in a ‘groundhog day’. In the tech business, stagnation is nothing short of falling behind.