Startups! Are you measuring performance analytics? Of course you are. But wait! There’s a good chance that everything you’re measuring is pretty much completely useless.
Let me explain…
Introducing ‘Vanity Metrics’
Open Google Analytics and you will see a number of ‘vanity metrics’.
“Vanity metrics are all those data points that make us feel good if they go up but don’t help us make decisions.” – Lars Lofgren, Kissmetrics
Take pageviews as an example. You may notice vast fluctuations in pageviews in your Google Analytics graphs. But what do they mean? Why did your traffic increase by 50% for 2 weeks last April? Why does no one visit your site on a Saturday?
Vanity metrics show you what’s happening, but they don’t explain why and they don’t help you decide what to do next.
So what should you be measuring?
Actionable metrics help you make decisions
Take conversion rate as an example. A low conversion rate shows you that only a small percentage of people who come across your product/website/service are completing the actions you want them to complete.
For an e-commerce store, for example, a low conversion rate might indicate that, while plenty of people are visiting your store, very few are actually buying anything. By gathering more data on where people are exiting the site, you can narrow down the reasons why and make decisions as to what you need to change (such as the pricing, checkout process, “add to cart” button etc).
So what makes a good, actionable metric?
What makes a good metric?
The bad news is that there’s no ‘one-size-fits-all’ set of metrics that every startup should be measuring.
For example, one 2-year-old company might be taking monthly £50 subscriptions from 1,000 established customers, while another, early stage startup, is still trying to find its first 50 free users. While both are technically “startups”, they clearly have very different goals and need to collect and measure data accordingly.
What you measure should depend on your business goals, business model and what stage in development you’re at.
Ben Yoskovitz, co-author of Lean Analytics, defines a good metric as having four qualities. According to Yoskovitz, a good metric:
- Is comparative – comparative metrics help you compare data across time periods, groups of users and/or competitors.
- Is understandable – your metrics should simply explain your business to outsiders. If outsiders, or worse your team, don’t understand your metrics, they’re too complex.
- Is a ratio or rate – ratios and rates are easier to act on and help you understand if you’re on track to hit your business goals.
- Changes the way you behave – your metrics should help you to understand what to do differently based on changes in the numbers.
What are some examples of metrics I can measure?
While you need to assess what data would be most useful to your business, the following examples of actionable metrics should help to get you started…
Retention and churn rate
Your retention rate is the percentage of users who retain their subscriptions every month. Similarly, your churn rate is the percentage of users who cancel their subscriptions every month.
“Keeping track of your churn rate is tantamount to success. Normally, it’s cheaper and easier to retain customers than it is to go through the process of acquiring new ones. Monitoring churn allows you to consider what you’re doing to keep customers, and see what actions might result in a higher retention rate.” – churn-rate.com
Revenue per subscriber
This one’s pretty obvious. You need to know how much money you’re making and make sure it’s on the rise. Simple.
If you offer a range of price plans, it’s also a good idea to measure your revenue per subscriber.
“It’s important to remember, “Metrics are people, too.” Vanity metrics tend to take our attention away from this reality by focusing our attention on abstract groups and concepts. Instead, take a look at data that is happening on a per-customer or per-segment basis.” – Eric Ries, Author of The Lean Startup
Measuring revenue per customer allows you to experiment with different price plans and figure out what plans work best for you and your subscribers.
Once you know how much money each of your customers is paying, you can work on upselling (encouraging users to shift to a more expensive package) and cross-selling (encouraging users to buy extra features).
“Whatever the ultimate point of your website is, a conversion is the successful completion of that action. The ‘conversion rate’ is the percentage of traffic to your website that is completing that specific action.” – Christopher Ratcliff, Econsultancy
“Conversions” doesn’t have to mean purchases. You might want to measure the percentage of visitors who sign up for your newsletter, send a message through your contact form, create an account, download an app…etc.
Conversion rates help you can understand which Calls to Action aren’t working on your site so you can find new ways to encourage users to convert.
Customer Acquisition Cost vs Lifetime Value of a Customer
Customer Acquisition Cost (CAC) is the amount of money it costs you to acquire each customer. This includes expenses like sales and marketing efforts.
Lifetime Value of a customer (LTV) is the gross margin you would expect to make from a customer over the course of your relationship.
If you’re CAC exceed your customers’ LTV, your business model is going to fail. While it seems obvious, if you’re not keeping an eye on these metrics, you could end up spending thousands of pounds more on marketing campaigns and hiring new staff than you’ll actually make from your customers.
“If you are entrepreneur planning your next business, you can’t afford to ignore the cost of customer acquisition. The earlier you work on this the better, as many of the best techniques require you to build your product differently.
It is also important to ask yourself the question: can my business realistically expect to acquire customers for considerably less than the amount that I can monetize them?” – David Skok, VC
There are hundreds of metrics you can measure but most of these won’t help you to truly understand your business.
Take care to measure actionable metrics that help you compare and understand sets of data and help you decide what changes to make in the future.