If you’re in the tech industry, tracking key performance indicators or KPIs for tech startups to measure your success and growth is important. You need to know where you’ve been to best plan for what’s ahead. But where do you even start when you’re first starting out? Well, like our CEO Matt DeCoursey often says, “go get help from people who’ve already been there.”
As of this writing, over 300 million tech companies are established annually worldwide. Technology is the best trend to ever arrive in our world. The demand for tech innovation spawned tens and hundreds of startups in every corner of the country.
However, not all startups can sustain their pace. That is ultimately due to their inability to keep up and likely being unaware of their company’s key performance indicators or KPIs. So what is this KPI?
What Are Key Performance Indicators (KPIs)?
There’s a lot of talk in the business world about KPIs or key performance indicators. But what are they, exactly?
Essentially, KPIs are a way to measure whether or not a company is achieving its goals. This can include anything from financial metrics (revenue, profitability, etc.) to operational measures (customer satisfaction, team member productivity, etc.). KPIs can be different for every company, depending on what goals they’re trying to achieve.
For example, a tech startup might have different KPIs than a traditional manufacturing company. But no matter what industry you’re in, KPIs are a valuable and vital tool to gauge your company’s success.
Top KPIs for Tech Startups
As a tech startup CEO, you’re constantly looking for ways to measure and improve your company’s performance. While you could track many different KPIs, here are six of the most important ones for tech startups.
1. Gross Merchandise Value (GMV)
This is probably one of the most obvious KPIs for tech startups. Still, it’s vital for tech companies as they tend to grow more quickly than other businesses. Tracking your monthly and yearly revenue growth will help determine if your product is gaining traction with consumers.
The overall cost of goods sold via a customer-to-customer (C2C) exchange site over a specific period is known as the gross merchandise value (GMV). It serves as a metric for business expansion or the platform’s usage to sell goods belonging to third parties.
Because the revenue from an e-commerce site depends on the gross merchandise sold and the fees collected, gross merchandise value (GMV) is frequently used to assess the business health of the site. It is most helpful when compared over time, such as comparing the value of the current quarter to that of the prior quarter. In other words, don’t wait to get started!
You can calculate your GMV by multiplying the number of products sold by the product’s sales price. You can use this formula as a reference:
GMV = Sales Price of Goods x Number of Goods Sold
2. Customer Acquisition Cost (CAC)
It takes money to make money, as the old saying goes – and that’s certainly true when acquiring new customers. Determining your customer acquisition costs (CAC) will help you determine how much it costs to bring in each new customer and whether that’s an affordable investment.
The cost of acquiring a new client is known as the customer acquisition cost or CAC. Basically, CAC is the overall cost of sales and marketing efforts. It is also coupled with any property or equipment required to persuade a consumer to purchase a good or service. This is a crucial business metric.
An efficient technique to determine a company’s performance is to analyze CAC along with Lifetime Value or Monthly Recurring Revenue (MRR). Lifetime Value estimates how much income an account will bring in during its lifetime by continuing to buy or subscribe for a longer time. At the same time, MRR is the measurement of revenue creation by month.
To calculate the CAC, you can divide the overall cost of customer acquisition (cost of sales and marketing) by the total number of customers acquired over a specific period of time to arrive at CAC. There are two ways to determine CAC effectively: simple and complex.
CAC = Total marketing campaign costs related to acquisition (MCC) ÷ Total customers acquired (CA)
CAC = (MCC + Wages associated with marketing and sales + The cost of all marketing and sales software + Any additional professional services used in marketing/sales + Overhead) ÷ CA
3. Lifetime Value of a Customer (LTV)
Don’t forget to calculate the lifetime value of each customer (LTV). That way, you’ll know how much profit each one brings in over time and whether it’s worth investing in acquiring more customers.
LTV, or lifetime value, estimates the typical revenue a customer will produce over the course of their relationship with a business. This idea of a customer’s “worth” can and should guide a company’s economic choices about its marketing budget, resources, profitability, and projections. Along with MRR (Monthly Recurring Revenue), it is a crucial measure in subscription-based business models.
There are various methods for calculating lifetime value. In the case of a subscription business, a straightforward technique is to divide your churn rate by the average monthly sum anticipated from each customer (the rate at which you lose customers each month).
4. Churn Rate
One of the biggest threats to any startup is a high churn rate. This happens when customers leave your service either because they’re unhappy with it or because they’ve found a better option elsewhere. Tracking the churn rate will help you identify and address any problems with your product before too many customers leave.
The attrition rate or customer churn, commonly referred to as the churn rate, is the frequency with which customers discontinue doing business with a company. The most popular way to express it is as the percentage of service subscribers that cancel their memberships within a predetermined time frame. It is also the frequency of employees quitting their positions within a predetermined time frame. A company’s growth rate (determined by the number of new customers) must be higher than its attrition rate to grow its customer base.
Here is a way to calculate the churn rate:
5. Revenue Per User (RPU)
As your startup grows, you’ll want to ensure that you’re attracting new users consistently. Keeping track of user growth will help you determine whether your marketing efforts are working or not.
RPU, or revenue per user, is a metric used to assess a program’s or service’s capacity to generate income at the level of a specific consumer. RPU is also sometimes referred to as revenue per unit.
Although Income Per User (IPU) is a helpful metric for many firms, subscription-based businesses like software-as-a-service (SAAS) providers increasingly rely on RPU as a measure of revenue. This metric’s advantage is that it helps to comprehend price structure and consumer base growth trends.
Here is a formula to calculate your RPU:
RPU = total customers/total revenue
6. Active Users
Not all users are created equal, so tracking the number of active users who use your product or service is important. Knowing how many active users you have can help you focus your marketing efforts on those most likely to convert into paying customers.
The active user’s measure keeps track of how many people interact with a website or service over time. Depending on how the activity is defined, the processes to calculate active users can seem straightforward at first but end up being more difficult.
To determine your active users, you must first (1) identify your criteria for an active user. Second, (2) Choose the time frame that interests you to study (e.g., day, week, month). Lastly, (3) Gather information, then add the total number of distinct users who fit your active user criterion for each time period.
Conclusion on KPIs for Tech Startups
While there are other KPIs for tech startups to consider, the six mentioned above provide a good starting point for tech startups. Tracking these KPIs will help ensure that your tech startup is on track for long-term success. Each one will help you assess your company’s strengths and weaknesses and identify areas where you need to make changes before it’s too late.
When we say adjustments, more and more companies are realizing that flexibility is a key differentiator. There are certain business processes in your company that you can offshore. Moving costly operations offshore will undoubtedly help improve those KPIs!
Full Scale clients get access to world-class remote developers who work full-time for your team while also benefitting from being part of the Full Scale outfit. Our management system streamlines daily reporting and time tracking and spots potential communication gaps. We even organize in-person outings between teams located near each other! Our employees love working at Full Scale!
Are you ready to have a good KPI score for your startup? Expand your team with remote software developers. Partner with us!