Setting up a business is a lot of work, to say the least.
You enter the world of uncertainty, chaos, and sleepless working nights. Sometimes you stumble upon unexpected victories and some days are full of doubt about whether your decisions are going to be profitable or end up compromising a significant chunk of your shoestring.
And while this unpredictability might be thrilling sometimes, other times every entrepreneur wishes for a bit of certainty. Fortunately, many analytics solutions are there to offer relief to startups when it comes to making crucial decisions.
At the same time, at the very beginning of a business, new entrepreneurs can feel intimidated by the complexity of understanding analytics.
However, it does not have to be this way because, believe it or not, the analytics universe is much simpler than it appears.
Let’s see, how.
Why are numbers important?
We are all for the thrill of living in the moment but would you ever follow a stranger in a new country without being at least a little aware? Or would you buy a car from a junkyard without testing it out because “it looked nice”?
Data and numbers set the ground for reasoning and logic in every possible scenario in a startup. Intuition might be your Plan C but basing big deals, investments, and decisions on feelings is not a scientific strategy for building a successful startup.
In summary, metrics help businesses in:
- Making informed decisions.
- Identifying customer preferences and market trends.
- Determining the weak areas of your company that require focus.
- Predicting the performance of the business.
- Building roadmaps and deciding the next steps.
- And MOST IMPORTANTLY, they build your investors’ confidence in your business.
Which are the key metric for any early-stage startup?
Many times, new entrepreneurs make the mistake of getting stuck in between advanced business analytics that might be irrelevant for the initial stages of their startup.
In reality, there are only five key metrics that your startup needs in its beginning days. This becomes even more important if you are bootstrapping; you wouldn’t want to use your limited resources wastefully.
The only metrics that you should be working with initially are:
1. Cost Margin
The most vital, bottom-line metric for your business are the margins. Before taking any decision from hiring people to adding to the infrastructure, you need to make sure that your key success factors are pointing towards positive growth. In other words, ensure that your business stands where your investors and you want it to be.
In general terms, for calculating margins, your revenue must be more than you total operating costs (overheads, salaries, etc.) and the cost of goods sold (COGS).
If this is not the case, then adding people to the team is out of question and infrastructure costs will be a judgment call according to necessity and urgency. This is the only way to build a sustainable business.
2. CAC (Customer acquisition cost)
How much are you spending on acquiring one new customer makes the baseline for the feasibility study of your business and methods and it will be judged based on your business model.
For instance, if you are selling something generic like smartphone chargers, only a very low CAC will be justified. However, if you have developed new software, it might be much higher.
And if your CAC starts increasing it might be a sign of trouble.
3. Customer Retention Rate
It is the percentage of customers that you retain and that you lose calculated for a given period of time. It is especially a crucial number for businesses that have a subscription-based model.
The simplest way of calculating this is (a given period of time) –
Subtract the total number of new customers from Total customers and divide the result with Number of customers at the beginning of your assumed time frame.
4. CLV (Customer lifetime value)
This data tells you the business that you’re receiving from your repeat customers. Predicting CLV can be a tough game initially, but once you have built a comprehensive database of customer information, it becomes much easier.
This metric is important because it gives you clarity about your CAC budget.
5. Return on advertising expenditures
Advanced branding and marketing of your business will only depend upon their affordability for you. Since any kind of advertising and marketing are investments rather than costs, you can calculate the returns easily by diving your total sales by the amount you spend on marketing.
But again, if you are working on multiple channels, it will become a little complicated so look out for anomalies.
In the end,
You are your own boss now and numbers are your allies.
All the best!