Your startup is hitting the road. This journey will have bumps, tight turns, steep hills, and unpredictable hazards. You can surely be proud of yourself as you've managed to crank up your startup's engine and get its wheels in motion. But this isn't just a road trip, it's a race. Other competitor products are moving along this route too.
How do you reach the set destination most effectively? Well, you need to know when to shift gear, accelerate, slow down, or make a turn. In this metaphor, a startup has its own navigator, tachometer, speed indicator, traffic lights, and road signs. These are your metrics and KPIs.
On this page, we'll introduce you to the most important product management metrics and key performance indicators for startups. We'll explain why tracking and correctly handling such business-essential data is crucial and how to use it to consistently move towards your goals, even when there are many altering variables.
People have been using signs since the beginning of time. And metrics are important business signs that have to be read. When running a startup, relying merely on instinct, intuition, or chance is risky.
Likewise, it doesn't make sense to track only one or two metrics and use just them to make solid conclusions about how your startup is doing. It's like turning on a flashlight in a dark forest: you'll only see a narrowly lit point. To see the big picture, you must expand the field of view.
Sure, the spectrum of possible metrics and startup KPIs is immense, and monitoring them all will be very tough. It often gets intimidating as many people who aren't analytics-savvy experience procrastination when they have to deal with confusing data pools.
But your startup can and should select the set of metrics that'll best suit your business in achieving its objectives. This set should be manageable, though (the last thing you want to do is track everything and anything and get piled with data). Plus, you'll most likely change the set of metrics as your startup grows, prioritizing this or that KPI as you move from building a minimum viable product to startup scaling.
Moreover, using modern data visualization solutions can really smooth things down. If your data reports become an intuitive tool with easy-to-use dashboards, more people on your team may become fluent with product metrics and analytics.
Reasons Why Startups Should Track KPIs and Metrics for Product Management
Analyzing data is a viable way to get valuable insights and food for thought regarding A/B testing hypotheses. Using it can help improve your product, find product-market fit, and move in the direction of growing your business.
What can a startup gain from tracking KPI metrics for product management? Here are a few "must-note" startup analytics points:
- tracking and measuring the performance of your key business processes and activities;
- monitoring the trends and changes;
- analyzing your existing strategy in-depth;
- learning about customer behavior, how users interact with the product, what they like and dislike;
- singling out and prioritizing features that are the best features or a product's strong sides;
- testing the MVP or product and allocating problematic areas that need improvement;
- getting new ideas and finding ways to enhance your product, sales, and marketing efforts;
- making data-backed decisions to optimize your strategy and budget planning;
- making more precise predictions and estimates for the future;
- taking action based on the data and discoveries in due time;
- missing fewer opportunities and avoiding unnecessary risks;
- not ignoring the necessity for a business pivot.
Let's begin by shattering the common misconception: KPIs and metrics aren't the same. Although both are quantitative measurements that can overlap, they each have a slightly different focus. In simple terms, all key performance indicators can be called metrics, but not the other way around.
What Are KPIs Used For?
Falling back on the car journey analogy, key performance indicators are your road signs, traffic lights, and navigation system.
KPIs may be considered strategic as they measure performance according to the set long-term business goals. Importantly, KPIs are more about the priorities and essential initiatives of your business, so they're usually determined by you (that is, you're the one who indicates the desired route in the navigator).
Either way, key performance indicators for startups imply having a certain target or objective that your team is moving towards accomplishing. So your KPIs may be formed via groups of metrics that are most influential for achieving your overall business goals.
Such data sheds light on:
- how well you're progressing towards reaching the goals your startup has overall;
- how you're doing compared to competitors.
What are some examples of startup KPIs? Say, you aim to increase sales by 10%, then various metrics can show you whether you're on track and succeeding in that. KPIs may have a financial incline (for instance, the average revenue you make per customer) or can monitor the progress against other business aims or cross-department measures (such as customer acquisition).
Hence, observing key performance indicators allows for determining more to-the-point strategies, highlighting the best-performing areas, or allocating problematic fields. Maybe you can go for a more effective "alternative route" or "get around a traffic jam"?
What Are Metrics Used For?
Continuing the car journey analogy, metrics are what you see on your startup vehicle's dashboard: the speed indicator, tachometer, fuel flow level, and others.
Metrics are needed to measure performance and provide data on the progress, status, or effect of certain business activities or processes. They may be labeled as "operational", "tactical", or determining "business health".
What can startup metrics show you? They give more activity-centric measurements like the number of users you have, how many customers return to you and become regulars, or how many of your clients are recommending your product to friends and family.
Commonly, various departments focus on different metrics. And usually, businesses evaluate their product metrics according to the benchmarks that are set for the due industry. These metrics may not be KPIs but can give an insight into the activities that take place to reach your goals.
Once again, the framework of relevant metrics your startup chooses can differ based on what's important for your business. That is, you're the one who decides what to track. Here we'd like to go over the startup metrics that are most commonly tracked.
Engagement lets you discover more about user behavior and how interested the users are in your product. There are various product metrics that can answer this question depending on your industry, as many indicators can serve as signs of customer engagement.
For instance, you may observe interactions such as how much time a user spends on a page (i.e., session duration), how many users bounced (that is, visited just one page and left), or anything along those lines.
How can you calculate engagement metrics?
(The chosen interaction data ÷ The number of users you have during a certain time period) x 100 = Engagement
Retention is all about the number of users who come back to you. These may be your paying clients who make repeat purchases or regularly use your services. This customer loyalty metric may be measured weekly, monthly, or quarterly (per three months).
Why does retention matter? It can be a good sign of product sustainability and customer satisfaction. Notably, this is an indicator all startups should aim to improve. The major reason for that is that it'll cost less and take less effort to sell something to an existing client than to acquire a new one.
Furthermore, in most cases, a startup aims to find people who'll use the solution for an extensive period of time. Hence, if users regularly use the product and retention stays practically the same (say, throughout 3 months or 6 months), you have a steady plateau. That is, your product has a big audience that continuously grows, showing that you've obtained product-market fit.
The conversion rate is among the versatile product metrics. In general, conversion shows the percentage of your users who took an action that your startup wanted them to take.
The measure itself may vary from business to business. What can count as a conversion? For example, this could be the percentage of people who've signed up for a free trial, subscribed to a newsletter, or purchased a product.
Most businesses strive to optimize their sales funnel to boost conversion as, in the end, it's all about making your prospect or lead a paying customer.
This is quite a self-explanatory metric as it revolves around the generated sales revenue (or how much money your startup makes for its efforts). Revenue can be calculated monthly, quarterly, annually, or for any desired time frame.
Plus, startup metrics of this kind can have a more specific incline. For instance, how much money your new clients have brought you during a given period of time, the average revenue per user, among others.
Activation shows the percentage of inactive users who've successfully completed a milestone of the onboarding path with your product and thus became active users. For example, this can be the percentage of people who've tested the free version of your product or used a specific feature. That is, these are the users who didn't quit halfway through.
Such milestones can vary as they're product-specific. But usually, activation occurs during the user's early experience and initial interaction with the product and happens only once.
Nonetheless, this metric can be useful for startups as it shows that your customers have experienced your product's value. This may allow for modifying the sales and marketing strategies to attract more qualified leads. Perhaps you can cut down a few steps of the onboarding process so it becomes easier for users to check out your product and stick around?
How can you calculate the activation rate?
(The number of users who've completed the milestone you're tracking ÷ The total number of registered users) x 100 = Activation rate
Unlike the overall number of users, active users is a metric that reflects how many people are interacting with your product or service and regularly use it. For instance, this could be the number of your users who often do something you expect them to do (such as open an app, log in, read your blog, etc.). Such product management metrics can be an indicator of how engaged your audience is and if your product is gaining popularity.
The metric can be calculated according to different time frames. As such, there are:
- daily active users (DAU);
- weekly active users (WAU);
- monthly active users (MAU);
- and sometimes even annual ones that are calculated per year.
In some cases, startups track the ratio of DAU to MAU to see how many monthly users interact with the product every day.
Net Promoter Score (NPS)
The net promoter score is the final point in our block of metrics for product management. NPS is all about the likelihood of your clients recommending your product to their acquaintances. This referral score signals how happy people are with your offering and can be used to request feedback and improve the product.
How does it work? Your customers give your product an overall score of 1 to 10 based on how satisfied they are with it. Depending on the answer, the clients can be split into promoters (who rank your product with a 9 or 10), detractors (who rate it from 0 to 6), and those who have a neutral opinion (who give it a 7 or 8).
The percent of promoters - The percent of detractors = NPS
As shortly mentioned earlier, the key performance indicators that matter for a startup are individual. It depends on your business goals and the targets you're planning to reach. You might have heard of such popular abbreviations as CAC and ROI, which are commonly used in startup lingo. So let's go over the KPIs for startups that are worth keeping track of.
Customer Acquisition Cost (CAC)
This is among the most crucial startup KPIs as it shows how much money you're spending to win over one customer on average. The lower your customer acquisition cost, the better.
CAC is a good indicator of how your business operations are performing, especially those related to marketing and sales. Do some channels or activities bring in better results? Thus, you can make more precise conclusions on what to prioritize and how to handle your business or startup budget more optimally.
How can you calculate CAC?
Your overall expenses on marketing and sales during a specific period of time ÷ How many clients you've acquired in this given time period = CAC
Customer Retention Rate (CRR)
Obtaining new customers is important, but keeping them can bring even more gains. Also referred to as the client retention rate, CRR shows how many of your acquired and paying customers become your loyals during a certain time period.
If your CRR goes up, this is a good sign that your product brings value to your clients. Consequently, if the rate goes down, this means that you need to work on ways to improve your product, retain your customers, and keep them coming back for more.
((How many clients you have at the end of the period – The newly obtained clients throughout the period) ÷ How many clients you had at the beginning of the period) × 100 = CRR
Lifetime Value (LTV)
This KPI is future-oriented. It seeks to determine how much all of your customers in total will spend on your product throughout the whole time.
LTV is an aggregate metric, and it takes into account retention, the purchases made in the past and the ones you predict for the future, as well as the average revenue all your customers bring you over their entire course of interaction with the product. Plus, because lifetime value is a cumulative metric, it allows for singling out the most profitable customer segments.
One of the ways to calculate LTV:
Average order value x Purchase frequency x The average lifespan of your customers = LTV
On another note, you can count how much you'll earn on a single client in the long run. Customer lifetime value (CLV) is a potential revenue estimate that keeps in mind many factors, including your relationship with a specific customer and how much value each individual client brings to the business.
Hence, CLV may be more valuable if your startup already has long-term clients and is at least mid-stage. It'll thus be easier for you to make predictions on the lifetime value of newly acquired users and the ones you'll get in the future. Yet this KPI can also give you a clue about how many customers you must get to reach profitability.
The average revenue you make per individual user x The average lifespan of your customers = CLV
Monthly Active Users (MAU)
Monthly active users is a quantitative measure that shows how many people engage with your product during a 1-month period. For example, this can be a number reflecting people who logged in to your app throughout the month or regularly completed specific actions.
How do you calculate MAU?
It's a specific number indicating how many active users you have per month.
Customer Churn Rate (CCR)
This indicator is the opposite of customer retention; it shows how many customers you've lost during a specific time frame, usually during a month. Importantly, the customer churn rate usually counts only those customers who stopped paying you, not the ones using your product's trial or free version. These can be people who canceled a subscription or hesitate to make repeat purchases.
If your CCR is low, then this is a sign that your clients are satisfied with your product or service. If it's high, you should look into what can be the cause (poor product quality or some other issues that make your clients flee).
(How many clients you lost during a specific period ÷ How many clients you had at the beginning of the period) × 100 = CCR
Average Revenue Per User (ARPU)
ARPU allows for counting the generated revenue a startup makes per user every month or year. This data can be handy for finding out which customer segment is most valuable, how you're doing in comparison to your competition, or when you seek alternative channels for customer acquisition. You may also look at the average revenue per user from the perspective of new customers or the existing ones.
How to calculate ARPU:
Your monthly recurring revenue ÷ The total number of clients = ARPU
Monthly Recurring Revenue (MRR)
This KPI shows the revenue your startup makes per month. This is among the most influential key performance indicators for startups as the financial side matters a lot. Knowing the monthly recurring rate helps make predictions about your future revenue and the future of the product.
MRR can be more narrowly focused. For example, you can keep an eye on New MRR (how much revenue you've made thanks to new customers), Reactivation MRR (how much revenue you've made owing to the customers who came back to you), Churned MRR (how much revenue you've lost on customers who fled), among others.
Your average revenue per user x The total number of clients in the given month = MRR
Return on Investment (ROI)
Finally, startups should also keep track of their return on investment. ROI reflects:
- the profit you've gained;
- the startup's financial performance;
- how effectively you're investing money;
- and the business value, profitability, or success of specific activities.
Basically, ROI is your net income to investment ratio (or percentage) after subtracting expenses. It's commonly calculated yearly to see the annual return. This KPI is extremely important if you want to see the big picture. It can show how much you've actually made or lost and may also be used to evaluate or predict a future investment's potential. Is your business growing, or are you wasting funds? Is everything you're spending money on bringing back fruitful results?
The figure itself of what a good return on investment implies will differ by sphere and activity. But the bottom line is that successfully running a business is about spending money sensibly. So, the higher your ROI, the better.
One of the ways to calculate ROI:
(Net profit ÷ Investment) x 100 = ROI %
Fair enough, monitoring startup metrics and KPIs isn't the only answer to achieving business success. These are just measurements that can hint at what actions to take and how to drive your product to prosperity. After all, you can always opt for joining an incubator or accelerator program. The bottom line is that you're the one steering the wheel; your navigator and other signals are just helpers.
Nonetheless, gathering and handling incoming data properly is indeed challenging. You need to have the best startup tools at your fingertips and know how to track data that’s crucial for your business without any irrelevant distractions or miss-outs.
On the bright side, Upsilon can give you a hand with integrating analytics systems such as Amplitude or Mixpanel into your product. Using these tools, you can collect the business-vital product metrics, automate reporting processes, and get a 360-degree view of your performance. So, feel free to contact us if you need assistance or would like a consultation with our experts!