Key Numbers to track while building your Startup?
Every business needs to track its performance to determine its success. Key Numbers and metrics help you to determine the performance of different areas of your business. For example, Vivino is a startup with millions of users, and close to 20k new users install the Vivino app every day.
The company achieved this level of success by paying close attention to the key numbers. It means tracking the right numbers, knowing the areas where you are doing well and where you need to improve.
Let us check out what type of numbers you need to track in your startup to make it a success.
Why are the numbers important in Business?
Key numbers tell you the performance of your business in the past and present time, and they never lie. They help you quickly learn about a business, whether it is your own or some other business. They show you what is working and what is not working for your business. The numbers help you to keep the team aligned and track the progress.
Also, they can motivate the decision-makers in the business to make improvements and encourage their teams to work better. The founder of Vivino likes looking at the numbers in a funnel that he has called a startup metrics funnel. This funnel contains all the numbers a startup needs to track its progress and performance.
Before looking at the startup metrics funnel, you should always remember that the keyword to focus on is growth. So, whatever numbers you put in the funnel, you are going to grow them. So, let’s know about this funnel and the metrics that we need to follow.
#1 Acquisition
The first metric in the startup funnel is acquisition. It’s all about how many new people started using your product or service. It’s basically how many people walked in the door of your store? If there is no acquisition at the top of the funnel, it would be worthless to trickle down the funnel. In the case of Vivino, it is how many users installed the app. Here are the activities that come under acquisition.
It can be new visits
New app installs
A free trial
A new sign-up
Subscription or booking
A physical product
#2 Retention
Moving one step down the funnel, the next important metric is retention. The term retention means how many people keep buying or using your product. In most cases, the retention of a customer is tougher than acquiring a new customer. Therefore, retention is the most important metric for new startups or those in their early stages.
If you don’t have retention, you probably don’t have the right product-market fit, and that is where you need to focus all your attention and energy. There are multiple ways to track the retention of a business. One of them is looking at how many users use your product after a certain time.
For instance, in the case of Vivino, the company tracked how people used the app seven days after they installed it and even a year after they installed the app. So when your customers keep on using your product or service for a year, you probably have a user life, and that’s amazing for your business.
However, waiting for a full year till you know if the people want your product is not good enough. You need a number that quickly shows retention so you can fix and improve the things quickly that need improvement.
#3 Active Users are important.
This is where you need to track the active users. Track how many users are active daily, weekly, or monthly basis using your product or service. It depends on what kind of product you have. In Vivino, they used monthly active users, also called MAU.
If it’s a product you expect people to use daily, you can use DAU, which means daily active users. If it’s a weekly occurrence, businesses can also use WAU, “weekly active user”.
On top of that, it can be a really good idea to track the user activity. For Vivino, we used wine scans. We always looked at how many wine scans were made every single day. The more active the users are, the better it is for retention, so if you have a good number for activity, it will give you a really good idea about retention.
#4 Net promoter score
The next number is a little bit different because it accelerates acquisition and retention. Net promoter score or NPS is a popular standardized way to ask your users what they think about your product. By using the net promoter score, you can determine how happy your users or customers are? Net promoter score works by asking the users to follow a question.
Here is an example of a question you can ask your customers or users-
How likely would you recommend our product, service or business to a friend or a colleague? The user answers a number from 0 to 10. On top of that, you can ask people for comments, and that’s a fantastic way to find out if something’s wrong or a feature is missing in the product.
This feedback can be pure gold when it comes to finding bugs and improving your product. Then there is a specific formula to calculate the NPS. It is a number from negative to positive where negative is bad and positive is good. Here is the story of Vivino.
Vivino Case Study
A few years ago, Vivino was in a situation where the new users meant acquisition wasn’t growing anymore. At the same time, the active users or retention wasn’t growing either. Vivino did not know the problem.
They couldn’t point at one single feature that might change the user’s opinion about Vivino. So, the company was in serious trouble. People in Vivino were not able to determine the reasons for declining acquisition and retention.
Acquisition and Retention Declined
It turned out it wasn’t a single feature. There were a few features that we had launched that people didn’t like. At the same time, Vivino hadn’t fixed as many bugs as it should have. The total of this had made the product worse.
The company had focused too much on monetization, and slowly, its users were getting less happy- “not unhappy, but less happy”. This meant that their users didn’t recommend their product as they did before, which made the acquisition worse. But, unfortunately, it also meant they used the product less, so retention was also declining. That was a dangerous cocktail for Vivino.
Spotting very unhappy users is easy, but seeing when your users are getting a little bit less happy can be hard and can have devastating effects. Unfortunately, Vivino did not track NPS back then, which means it saw it too late.
Biggest Mistake – Tracked NPS too late.
It took almost six months for Vivino to realize that something was wrong, and by then, it had become a challenging problem. After that, the company started focusing on NPS, and it had never watched it closely ever since.
We can also see if a new feature is a success or not, so NPS became a crucial part of Vivino’s strategy. So, if you are a startup, make sure you track NPS. Hopefully, you’re in positive numbers. Either way, you track NPS and improve it.
They’re quite a few services that can help you track this. One of them is delighted; they have a free tier. Assuming that your startup is not a charity, you will have to track its revenue at some point.
I’m not going to give you too much advice on this one other than it’s very, very important to track. It just varies from business to business. For example, with revenue, it’s not always about tracking the exact revenue but rather some part of that revenue that gives you a really good idea about how the commercial part of the business is doing.
Some other Important Key Numbers
In addition to tracking the weekly or monthly revenues, there are a few other key numbers you can track that tell you about the revenue of your business. Of course, they’re not all about revenue, but they’re related to revenue in many ways. Here are some examples.
LTV means lifetime value, total profit for the life of one customer. MRR means monthly recurring revenue. MRR is the revenue but for subscription-based businesses. AOV stands for average order value.
Others include Gross profit, total revenues minus cost of goods, number of orders, monthly revenue, etc. So what you need to do here is find a number that best represents the revenue.
Cash and runway
Next is cash and runway, and yes, cash is still king, so we have to track that. The cash and runway are at the bottom of the funnel. It’s like a foundation of the entire funnel.
If you don’t have cash, everything falls apart. As soon as you’re out of cash, you are dead, so keep your eyes on the cash number at all times. First, you need to know how much cash you have and much time you are left with. Second, if you look at the funnel, there are two ways to get cash. Either it comes through the funnel, actual revenue, or it can come from the investor.
Yes, you always need to know how much is left and how you’ll get the next cash. So there you have it, the full funnel with all the numbers on. Now let’s take a look at what we consider our favourite number for each group. For acquisition, well, we are a little bit biased here because Vivino is an app, so app installs are what we would use here.
Determine the most important numbers for your business
If your product is not an app, find something similar. Find what the first engagement with potential users or customers is? Retention or monthly active users? Active users are a great way to look at retention.
For some products, it’s daily or weekly but looking at active users works well. Next, NPS is a promoter score, not so much to talk about there. Next is the Revenue. If we want to pick one number, it’s monthly revenue.
Keep it Simple
You simply look at the monthly revenue. Cash and runway are a little bit tricky if you only look at one number, but if we have to pick, it’s the runway in the number of months. As a startup, what you need is time. How much time do you have left to figure things out? So that’s why we look at the number of months. Now take a look at the funnel.
The five numbers are actually in order. When you build the key numbers, you need to track, start at the top and work your way down the funnel. Once your startup reaches a certain maturity, you need to track all of them but start at the top of the funnel.
Summing Up
Make sure you track all the important numbers for your business monthly, weekly, and even daily. You need to cover your bases just like in baseball and, of course, share the numbers with everyone in your team. Tracking the key numbers regularly will help you to determine mistakes and fix them at the right time. Overall these numbers will enable you to track the progress of different areas in your business and make improvements.
