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Tools, Resources and Templates for Startups

Metrics for measuring Startup Success Metrics for measuring Startup Success
Failure is a part of startup life. It is the possibility of failing that makes success meaningful. Failure is not always a disaster and... Metrics for measuring Startup Success

Failure is a part of startup life. It is the possibility of failing that makes success meaningful. Failure is not always a disaster and it does not mean the end of a startup, rather its part of the learning process. Minor failure can be positive indicators of how things might be done better.

Success and failure exist in relative to expectations. Failure occurs when expectations are not met. Success and failure have a lot to do with managing people’s expectations for a business.

A large percentage of Startup fail within the five years. Startups are full of risk and uncertainty, but they can also be exciting when things go as planned. Startup Founders tend to focus on profit-generating activities, such as developing new products or attracting additional customers and clients to their rosters.
The question is, how is the success factor measured in a Startup. Here are few metrics to consider

1. Financial performance:- Sale and profits

Financial performance is a subjective measure of how well a firm can use assets from its primary mode of business and generate revenues. A Key Performance Indicator (KPI) is a measurable value that demonstrates how effectively a company is achieving key business objectives. Organizations use KPIsto evaluate their success at reaching targets. All organisations have financial performance measures as part of their performance management, although there is debate as to the relative importance of financial and non-financial indicators.


2. Financial liquidity Ratio: Debt and interest covered

The higher the ratio, the better the company’s liquidity position. The quick ratio measures a company’s ability to meet its short-term obligations with its most liquid assets, and therefore excludes inventories from its current assets. This is also known as the “acid-test ratio. Generally, liquidity ratios can be used to gauge a company’s ability to pay off its debts. The liquidity ratios include the current ratio and the acid test or quick ratio. The current ratio and quick ratio are also referred to as solvency ratios. One of the quickest ways to see just how well a company is performing is to use financial ratios.

3. Market presence: Market share position

Market presence/share is the percentage of an industry or market’s total sales that is earned by a particular company over a specified time period. Market share is calculated by taking the company’s sales over the period and dividing it by the total sales of the industry over the same period.

 

4. Cost Per Acquisition: Customer Acquisition Cost

This means cost per acquisition measures how much it costs in advertising to convert one person from a visitor to a client for the company. One of the most crucial business metrics, cost per acquisition (CPA) refers to the amount of money required to attract a new customer to your business. While every company needs clients and customers to be successful, spending too much on CPA can cripple your startup.

Entrepreneurs can calculate CPA by dividing the total cost of sales and marketing over a given period by the number of clients acquired in that time. If the cost of acquiring a customer exceeds the profits he or she is generating for your business, your CPA is likely too high. By tracking the channels from which customers are acquired—including pay-per-click ads, email campaigns, search engine marketing, etc.—you can determine the best places to cut costs as well as those that should be infused with more cash.


5. Growth: Increase in sales and profit

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An increase in the capacity of a business to produce goods and services that will result in sales and profit increase, compared from one period of time to another.

 

6. Innovation: Rate of new product introduction

Innovation generally refers to changing processes or creating more effective processes, products and ideas. For businesses, this could mean implementing new ideas, creating dynamic products or improving your existing services. Innovation can be a catalyst for the growth and success of your business, and help you to adapt and grow in the marketplace.

Being innovative does not only mean inventing. Innovation can mean changing your business model and adapting to changes in your environment to deliver better products or services. Successful innovation should be an inbuilt part of your business strategy, where you create a culture of innovation and lead the way in innovative thinking and creative problem solving.

 

7. Customer Assessment: Customer service level and rating

Successful new products and services meet real customer needs. Because different products appeal to different kinds of people, and because truly innovative products (those that offer a dramatic change in the way people live) attract small groups of early adopters before going mass market, it is important to have a clear picture of who the end-user customers will be as early as possible. Having a clearly defined customer target enables more accurate matching of product features and benefits to the target and improves the ability to estimate market demand.

Describe your ideal customer in detail including what they wear, what their hobbies are and what concerns them. This will help to shape a voice for your avatar that you use for your marketing activities.

 

8. Churn Rate: The rate of attrition

This is the percentage of subscribers to a service who discontinue their subscriptions to that service within a given time period. While every company experiences some amount of churn, startups should track this number carefully and take action if too many customers seem to be jumping ship. Not only is keeping existing customers less expensive than securing new ones, but studies show that a larger percentage of clients who abandon you will take their business to a competitor.
To be counted as part of the churn rate, the customer does not necessarily have to move his service to a different provider; he just has to terminate his relationship with the current provider. This measurement is most valuable in subscriber-based businesses in which subscription fees make up the bulk of the company’s revenue.

Ossy Ilumah

I love everything Technology can offer, and it's my pleasure sharing them. I hope you find my work interesting.

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