The goal of every startup is to make profit and also leave imprints on their customers hearts. One way or the other, growth occurs. How then do startups keep track of growth since the entire process cannot be seen just with the eyes like a baby growing? This article discusses some of the growth metrics startups use to check progress.
Return on Advertising (ROA)
This is the amount made from every dime spent on advertising. It is calculated by dividing the amount made from advertising by the amount spent on it at a certain period.
Customer Acquisition Cost (CAC)
Over a time period, the average amount spent on sales and marketing to obtain a new paying customer is known as Customer acquisition cost. It is measured per customer, therefore in a situation where a certain amount is spent to obtain a particular number of paying customers. The customer acquisition cost in this case is the division of the amount spent by the number of customers the amount could attract.
Lead-to-Customer Retention Rate
Lead means a person who indicates interest in a product or service. Lead generation is the process involved in attract such persons. Generated leads do not turn into customers immediately, something about your product only spark an interest in them. There are other steps involved in converting them into paying customers which leads to the calculation of Lead-to-Customer retention rate. Lead-to-customer retention rate is the rate at which these customers are retained
This is calculated periodically and by subtracting the number of new customers from the total number of paying customers throughout that month, then divide the answer by the initial number of paying customers without the addition of new customers.
Rate of Burn
Rate of Burn or Burn rate is the metric used to calculate the amount spent in a particular period. Knowing your burn rate helps to seek ways to replace money incase it is burning fast or cut cost in the long run. Calculating your burn rate helps to detect if there is an overspending or leakage somewhere.
To calculate burn rate, subtract the another spent per month from the revenue made that month.
Rate of Lead Velocity
Also known as Lead Velocity Rate(LVR), it is the growth of quality leads in the sales. Quality leads in the context of leads that have the potential to convert to customers. To calculate the lead velocity rate, subtract the total number of leads gotten from the previous month from the present month and divide through by the previous month’s number of leads. The percentage rate of lead velocity is gotten by multiplying the answer by 100%.
Customer Lifetime Revenue
This is the revenue gotten from ongoing customers. It is the average amount made from the customer due the time they were using your product or service. From a company that is doing well, the customer lifetime revenue should be more that the customer acquisition cost.
To measure your organic growth, viral coefficient is used. Thanks to Social media, organic growth is more easy. It easier to get to know about a certain product or service from a post made by your friends, family members or anyone. Social media influencers too can be used to meet a larger audience.
Just like viral coefficient, referrals have others like get to know about your company but instead of generating leads, actual paying customers are gotten from referrals. Referral rate on the high size cause customer acquisition cost to be low, especially when there is a referral program.
Recurring Revenue per month
Otherwise known as Monthly Recurring Revenue (MRR) is the measurement of the total revenue made in a month. . Across the months, the value of the numbers involved in the calculation does not have to be the same due to discounts, additional payments, giveaways, etc but it must stay consistent.
Month recurring revenue is an important startup metric as it helps to monitor your company’s growth, your market and the market in general and sometimes predict future revenue.
This metric is used to calculate how long a company money would last. This is calculated by dividing the revenue balance by the burn rate.
If I may ask, do we have an equation that comprises all the variables highlighted above? Kind of an equation that could surmise the viability or growth of a tech startup in a single value. Just the way we have the index for stocks.
Please reply when seen. Thanks
Hello, Digital Nomad.
Thank you for your kind words. To my knowledge, unlike stock that can be measured and easily compared across companies, Growth is not that specific. It could be in sales, revenue, profits, dividends, etc and different companies can be leading well in different aspects. The growth rate is calculated for companies individually and periodically before being compared.
Regardless of the period you are looking into which could be weekly, monthly, quarterly, or annually though, they are calculated in the same format. For the period that is being analyzed, subtract the starting value from the ending value, then divide it by the starting value to get the growth rate of the aspect you want to know about.
Note: This is just from what I have read, I could be wrong.