The 5 Numbers that Actually Matter

startup metrics
startup metrics

Data overload = brainmelt

What Startup Metrics do you measure?

In God we Trust – everyone else bring data – W. Edwards Deming

In our online and tech world we now swim in an ocean of data – we could literally spend all day analysing it. I’ve spoken with some successful entrepreneurs about the importance of this in the past, but not all data or metrics is created equal

– so which of these numbers actually matter?

Well there’s no shortage of metrics you could be looking at each day: Coo-ing as they go up, and rationalise if they flat line or fall. Some classics for these are: Reach, page impressions, Facebook likes, Twitter followers.

Now I don’t want to say that these don’t matter a shit, as they do – a little. But the point is that you can experience hockey stick growth in any of these and simultaneously go out of business.

Therefore they are probably not the most important metrics you need to be looking at.

Most startups fail – this is a fact. This is not because most startup founders are not smart,  – most startup founders are smarter, more dynamic and more driven than their corporate counterparts – in my opinion it’s because their lack of focus on the things that really matter.

The following 5 key metrics are the things that really matter (however few startups looks at them). Have a relentless, lazer focus on these startup metrics, and you won’t go far wrong.

These 5 startup metrics are as follows:

1.  Acquisition

At what price can you acquire a new user? Every business needs new users – and the lower you can acquire them for the better. This can be vastly different across product segments and user demographics – for example the cost to acquire a for a blog will typically be lower than for an ecommerce store (due to increased value of a user in the marketplace)

By optimising your acquisition (typically on a Cost Per Click basis) and decreasing the cost of user acquisition – you increase your profit margins.

 2.  Activation

Not all users that land on our website or app will signup. Activation is the % of users that move from the landing on your site/app to a predetermined point where where they have interacted more deeply with your business (usually becoming a registered user, playing a game, doing a first check in, personalising their profile, signing up to your email list, installing your app etc. )

Even if you’re marketing department is acquiring customers really cheap – if you’re not converting them into activated users – your Cost per Acquired user (a number infinitely more important than Cost per Click) will be too high

This is where the famous ‘funnel’ comes into play: visualise your activation funnel with conversion percent at every step – and optimise.

 3.  Retention

Retention is simple. It is also the single most important metric of them all.

What % of this week’s new users return in the next week.

This is the single most important signal to tell you if your product rocks or sucks. If your retention is too low (it will be when you launch) – you have to keep pumping an ever increasing number of newly acquired users into the top of your funnel to keep growing.  This is an expensive tactic.

Chances are you’ll run out of money that way.

If you can achieve a weekly retention rate of 20%+ – you’ll do well.

How to increase this key metric: Make your content/product more awesome, and sprinkle in some retention mechanics (emails etc) for good measure

4.  Revenue

Pretty self-explanatory – what’s your average revenue per user (ARPU)?

Focus relentlessly on increasing this figure.

5.  Referral

How many new users does each user bring to your business (virality)?

This is normally measured as a viral co-efficient.

If your viral co-efficient is 1 or above it means every one of your users brings another new user to your business – you will grow exponentially (note: this is very hard to do, some companies that have achieved this are – Skype and Hotmail)

These 5 startup metrics are commonly referred to as AARRR (Startup Metrics for Pirates)

See more about them here:

Startup Metrics for Pirates
View more presentations from Dave McClure

The principles that apply to a startup are often instructive for established businesses as well. Those who are interested in a deeper study of these principles should consider courses from either an MBA or a master of organizational leadership program.

 Your turn: What numbers of metrics do you monitor?