A KPI (Key Performance Indicator) is a quantifiable measure of performance over time for a specific objective. KPIs evaluate the success of an organisation or a particular activity the organisation engages in.
Every startup will have its own set of KPIs depending on what they are aiming to achieve. However, in this blog, we will outline some of the key metrics you can use as a starting point.
Monthly Recurring Revenue (MRR)
The MRR is the predictable total revenue generated by a business from all the active subscriptions in a particular month. Therefore, this is particularly relevant to subscription businesses that will have new customers signing up and existing customers cancelling. The MMR will give you a good way of evaluating the growth of your company and enable you to project ahead.
MMR = number of customers on monthly subscription x average revenue per user
The Churn Rate of a company is the percentage of customers that cancel a subscription during a given period of time. If a company has a high Churn Rate, it can be a sign that there are issues with the product, or that the service does not provide long term value for the customer.
Customer Lifetime Value (CLV)
Customer Lifetime Value is a measure of the average customer’s revenue generated over their entire relationship with a company. You can compare the Customer Lifetime Value to the Customer Acquisition Cost to estimate a customer’s profitability and the potential long-term growth of a business.
CLV = average purchase value x average number of purchases the company obtains
It is worth taking into account the fact that customers’ future behaviour might change. For example, their purchases may become more or less frequent due to external factors.
Customer Acquisition Cost (CAC)
Customer Acquisition Cost is the cost to acquire a new customer. For early-stage start-ups, this will typically be high as they will have limited insights into their target customer and have yet to optimise their conversion funnel.
CAC = (cost of sales + cost of marketing) / new customers acquired
Breaking Even is the point in a business venture when the profits are equal to the costs. When a start-up reaches the break-even point, any money earnt above that is profit.
These are just a few of many KPIs you can measure for your start-up, but the ones we have explained in this blog may be a good starting point.
For more on KPIs, click here.