Why Do Startup Metrics Even Matter?

When was the last time you drove somewhere new without using a GPS? Seems pretty intimidating, right? Navigating your startup without your guiding startup metrics is like attempting this scenario; it’s certainly doable, but not optimal and sustainable in the long run.

If you didn’t know, startup metrics are measurements that give insight into a company's performance, growth, and success, while acting as a guide if benchmarks aren’t achieved. Startup metrics can be as simple as the amount of revenue generated monthly, to something hyper-specific to your company, such as bottles of soap bottled in 2 hours. 

Startup metrics aren’t only applied to holistic company efforts, metric goals can be established at a team level and are set according to company-wide metrics. Startups metrics give you deep insight into how specific teams and players are performing and demonstrate how individual employees are generating company-wide value.

Your North Stars - The Important Key Metrics in Business 

From customer churn to incoming cash flow, there are so many different metrics to focus on holistically. With some metrics representing different directions that a company should take, it’s best to focus on a couple of “north star” metrics that will guide all of your company’s efforts.

As the name suggests, a “north star” metric is a key metric that guides all of your efforts and is the most indicative of your company’s performance. Throughout history, the North Star Polaris has been instrumental towards navigation for travelers and seafarers alike, hence the name in your leading metric.

As your north star metrics increase, so does your business value. And because value and success are all objective and can be defined differently from CEO to CEO, determining your north stars metrics will be a complex journey. A clear understanding of your business and time are some of the most important factors in figuring out what metrics will guide you. 

Besides acting as a roadmap for your company, north star metrics also provide company-wide effort alignment, as well as provide accountability to underperforming teams. 

North star metrics typically correlate with your overarching vision for your company. For example, our vision guiding Lyrid is to make tech resources more readily available around the world, with one of our corresponding north star metrics being the number of clusters we maintain, hence more people having access to and using our tech. 

While the general consensus around north star metrics is that having one metric above all is the way to go (and I agree), 3-5 north star metrics provides a ton of mobility in terms of your overarching business goal. Your metrics should revolve around your vision and mission, though limiting to a single vision may be detrimental to innovation! One north star metric is great, 3-5 north star metrics is also great, just don’t go over 5 or else you’ll have a bit much on your plate.

Important Startup KPIs

Revenue and Burn Rate

Perhaps one of the most important metrics from a business standpoint is revenue. Whether it’s annual revenue, month revenue, or future revenue, revenue in all shapes and forms is what keeps a company afloat. More specifically, it is the gross profit derived from total revenue that makes all the difference. 

In my opinion, revenue and profit are best formatted as metrics in the form of monthly recurring revenue (MRR). MRR refers to the amount of predictable monthly revenue that your company is bringing in on average. Besides being an indicator of your company’s profitability, MRR provides you with a baseline for financial projections and budgeting, giving you insight into what areas need to be improved as well as your company valuation when fundraising.  

At the end of the day though, especially for startups, generating revenue means lengthening your cash runway, or the amount of time you have before your cash on hand runs out. Creating more profits means a longer runway, though average or increased spending in light of slow profits results in burn.

In the same vein of financials, burn rate is extremely important to be cognizant of. Burn rate is the rate at which your company is spending (or ‘burning’) money past its income. For a startup, that can mean burning venture capital before generating profit. 

Growing your company is, without a doubt, expensive. It’s critical to be aware of exactly how much you’re spending and in what sectors of your business that spending is being allocated to. Burn rate gives insight into the areas of your business that may need budget readjustments and improvements, as well as a look into your cash flow.

Key Sales Metrics

Most, if not all companies run on sales. We’ve all been involved in a sale at some point in our lives, whether you’re buying dinner for the day or signing for a million dollar partnership, sales are natural occurrences in business. Naturally, it’s in your best interest to keep in mind the amount of sales you're generating on a monthly, quarterly, and annual basis. Not only are sales numbers direct elements of company profitability, but they’re also indicative of public trust, product market fit, and so on.

Outside of the general metrics of sales itself, there are a couple of key sales metrics to keep in mind during the sales cycle. These metrics include:

Conversion Rate

Through different marketing efforts, leads will make their way to your company and products/services. Those leads are waiting to be converted to customers, which is the job of both your marketing and sales teams. Conversion rate is the performance indicator for that combined effort; the refined messaging of the marketing team with the sales messaging and assistance of the sales team ultimately leads to a successful conversion.

From a sales perspective, conversion rate is calculated as (total number of sales / total qualified leads) x 100.

Customer Acquisition Cost (CAC)

Through the entire customer's lifecycle, your company creates value for the customer and in exchange for the value, the customer pays a certain price. But what does it take to convert a lead into a customer in the first place?

Customer acquisition cost (CAC) is the amount of money your business spends in order to acquire a new customer- usually denoted through marketing and sales efforts. From the amount spent on ads, to sales cycles, to even networking events and webinars, CAC is important to determining the overall value of a customer to your company. When paired with MRR or even the lifetime value (how much revenue a customer brings in over their relationship with your company, especially if subscription based), CAC can show you how efficiently your company is operating.

To calculate CAC, the formula would be (cost of sales + cost of marketing) / new customers acquired.

Although the formula seems straightforward, determining costs can be a bit tricky, especially from the perspective of enterprise sales.

One thing to keep in mind when determining metrics and working towards achieving goals is that you can always change the ones you’re focusing on. Although changing metrics would mean changing directions, don’t be afraid to adjust accordingly as time goes on, you’ll be okay!

Startup Performance Metrics - B2B vs B2C

Focusing on metrics is a necessary aspect of running a business, though choosing the wrong metrics to build your strategy around can cost you in the long run. Although your understanding of the value your business creates is paramount in determining your north star metrics, the audience receiving value is extremely influential in the process as well. Your approach to sales and marketing differs significantly depending on whether your company is B2B or B2C; the same applies to your metrics.

B2B Key Metrics

The business-to-business approach is one that places more importance on the sales side of operations. Outside of typical sales metrics, such as sales, conversion rate, meeting rate, and MRR, B2B companies should also consider the following:

Deal Size

As the name suggests, deal size is the amount of dollars, resources, or services involved in a deal- with size numbers varying greatly depending on the client. A deal size of $10,000 annually would be approached differently from a size bringing in $10,000,000 annually, requiring a different strategy and budget in itself.

Sales Cycle Length

Depending on the deal size, sales cycles can take some time to go through completely. Shorter cycles can be a good indicator of your sales team’s performance, as well as your brand’s trustworthiness. Longer cycles entail a hurdle within your sales processes. If you’re able to convert a lead within a week consistently, you’re solid.

Number of Accounts

In a B2B setting, accounts typically refer to existing customers that pay for your services or solutions. Whether these accounts are doing a starter package at your company or an enterprise approach, accounts are normally charged on a monthly or annual basis, giving you a good idea where your MRR stands. The higher the account number, the higher your revenue.

Logins

From a SaaS and enterprise sales point of view, the less logins you have the better. Increased customer logins would mean that something is wrong on the product end of things, typically these solutions work behind the scenes without intervention.

B2C Startup KPIs

Depending on your product, your business-to-consumer startup may be very product sales heavy or signup and user based. Here are some metrics to consider when operating a B2B startup:

Customer Engagement and Retention

Keeping customers within a B2C space is difficult because the markets are flooded with alternatives that can offer your product or service, but with a different flair. Making sure that your customers are highly engaged with all aspects of your product (the product itself, marketing, updates, etc) is important in building customer excitement and loyalty. 

Retaining those customers is equally as important as keeping them entertained. One shortcoming from your company can drive customers away in droves, be sure to consider customer satisfaction in all facets of your business.

Number of Users

You might be wondering, “aren't the number of accounts and number of users the same thing?”. Yes, but also no.

One account can house thousands of different users, one user is just one user. From a B2C perspective, increasing the number of individual users of your product or service is critical because it demonstrates your product’s reliability and trustworthiness. The more users you have, the more your company looks like the next Google or Facebook. This sentiment grows if your typical user is an active user, or even better, a paying customer. 

A growing user base gives you valuable insights into your company's growth as well as product market fit. 

As far as similarities go between B2B and B2C startup metrics, the one that stands out the most is the importance of CAC in both entities. Although the calculations for CAC vary between the two business approaches, the insight towards what level of efficiency your company is operating at is still the same.

Our Key SaaS Metrics from Then to Now

For companies just starting out, metrics might not be on the top of your priority list. In comparison to building public interest in your company to building your MVP, thinking about the numbers that drive your company might be a second thought. Despite this, metrics (especially north stars) should always be something that’s on your mind as you prepare to build your product and company, and even secure funding. 

In the beginning of Lyrid, we were entirely focused on marketing and product metrics. Although our product was still in its infancy, we wanted to focus on delivering quality through our solutions and tracking the value they deliver and feedback they warrant. Now with our line of solutions, we’re focusing on optimizing our sales metrics and building trust in the Lyrid name. Although our goals changed with developments in our company, the vision that those goals are built upon are still the same. 

One of the biggest metrics I track personally is time. We all have it, but it depends on what you do with it that should be tracked. What is the value of certain activities that take up your time? How much time does your company have after a funding round? Is it worth my time to take up a certain task? Time might be seen as a less valuable currency to something like USD, but for many people running a startup, time is a luxury.

If you have any questions about figuring out your north star metrics or about startups in general, book a call with me! I’m always eager to learn about new companies and founders on the horizon 😁.