7 Metrics to Track After Launching Your Lean Startup Offering
We live in a fast-paced world where making a data-driven decision has become more imperative for individuals and businesses. Large businesses understand the importance of this approach.
"Without Big Data Analytics, companies are blind and deaf, wandering out onto the web like deer on a freeway." - Geoffrey Moore, Management Consultant & Theorist.
When launching a new product, optimizing your business, or seeking investment, lean analytics serves as your most reliable guide.
The lean startup method is a process of building, measuring, and learning from your product or service. The main principle is centered around the idea of "failing fast." Instead of investing months or years in building a product without real-world validation, lean startups create a minimum viable product (MVP) and test it with actual users. A lean cycle helps to test ideas, identify the right market niche, and optimise your product's value to resonate with customers and drive success. The principle consists of three steps: creating a minimum viable product (MVP), testing it with real customers, and analyzing the feedback and data.
Lean Startup Metrics
It's important to note that while certain lean startup metrics are important, not all metrics are equally essential. You should prioritize what is most critical for your stage, goals, and hypotheses. Two types of metrics should be tracked in a lean startup: vanity metrics and actionable metrics.
Vanity Metrics
According to Eric Ries in his book "The Lean Startup," vanity metrics are metrics that may make you feel good but do not provide meaningful insights into your business.
Vanity metrics make you feel good, but it does not give you the necessary information about your product or market fit. It only provides the result or numbers without revealing the methods or tactics used to achieve success or meet specific goals. This does not help you know how to get about the next step and evaluate your product. Vanity metrics are concerned with exposure, reach, and growth. Some examples of vanity metrics are page views, downloads, likes, and followers.
Actionable Metrics
Actionable metrics are tied to the ultimate goals of your business.
According to growth expert Lars Lofgren, actionable metrics should answer three major questions, which I have modified into the "3Ws" questions: What, Why, and When.
• What are the factors that contribute to gaining or losing revenue?
• Why do you gain or lose customers?
• When do people seek out your product or service for its key functions and benefits?
They help validate or invalidate your hypotheses and guide your actions. Actionable metrics are related to exposure, reach, and growth. Highlighting customer behaviour, satisfaction, retention, and revenue. Actionable metrics include conversion volume/rate, customer lifetime value, active subscriptions, average order value, total revenue, login rate, new and returning customers, etc.
Examples of actionable metrics are conversion rate, churn rate, net promoter score, and customer lifetime value. Actionable metrics point out what went wrong or right, and position you closer to your product goal. It uses data and science to identify what to change and will yield optimum results.
Actionable metrics answer important process-based questions.
How often should you track your metrics?
In a lean startup, the ideal frequency for monitoring metrics varies depending on the metric, cycle time, and goals. Here's a breakdown:
- Daily tracking: Crucial metrics directly impacting the business model, such as sales, conversion rates, customer acquisition costs, churn rates, and website traffic.
- Weekly tracking: Key metrics offering insights into performance, customer satisfaction, and churn rates, including customer satisfaction scores and website bounce rates.
- Monthly tracking: A comprehensive view of progress and market position, including website traffic from various channels, customer demographics, market share, and customer lifetime value.
Important Actionable Metrics
1. Customer acquisition cost (CAC): This metric helps startups understand the cost of acquiring new customers. By dividing the total marketing and sales expenses by the number of new customers acquired within a specific period, entrepreneurs can determine the efficiency of their customer acquisition strategies. Customer acquisition is the process of engaging new customers with a product or service. It includes attracting visitors to a website, encouraging app downloads, and fostering interactions with a business or product.
2. Customer Lifetime Value (CLTV): CLTV refers to the predicted net profit a company can generate from a customer throughout their relationship. By calculating the average revenue generated per customer over their lifetime and subtracting the associated costs, startups can determine the value of each customer. This metric helps entrepreneurs understand the profitability of their customer base and identify opportunities to increase CLTV through upselling, cross-selling, or improving customer retention.
3. Revenue Growth: Tracking the financial impact of your Minimum Viable Product (MVP) is crucial. In startups, it's important to effectively manage limited resources. This metric evaluates the growth in revenue over a specific period of time. It tests the sustainability of your business model.
4. Churn rate: The churn rate measures the percentage of customers who cancel their subscriptions or stop using a product or service within a given period. A high churn rate indicates that customers are not finding value in the offering or that there may be issues with product-market fit. It is important to keep your churn rate as low as possible and continuously work on improving customer satisfaction and engagement.
5. Conversion rate: The conversion rate measures the percentage of visitors or leads that take a desired action, such as making a purchase or signing up for a free trial. By tracking conversion rates at various stages of customer engagement, startups can identify pitfalls and optimize their marketing and sales funnels to increase conversions. For example, if a startup's website receives 500 visitors in a month, and 100 of them make a purchase, the conversion rate would be 20%.
6. Burn rate: The rate at which a startup is spending its available cash is the burn rate. This metric is very important for startups, especially in their early stages. By monitoring the burn rate, entrepreneurs know their cash runway. It will help them make informed decisions about cost and funds management.
7. Return on Investments (ROI): The Return on Investment (ROI) of your Minimum Viable Product (MVP) is measured by the value it creates, which can be generated through revenue, acquiring new subscribers, or increasing average order size. By tracking these metrics, you can evaluate the success of your MVP and make informed decisions to drive growth and improvement. This in turn increases your return on Investments.
Using these metrics will help you:
1. Identify Growth Opportunities: They provide insights into areas where your startup can expand, allowing you to focus on the most promising opportunities.
2. Optimize Resource Allocation: By measuring the effectiveness of different strategies, you can allocate your limited resources more efficiently to areas that yield the highest returns.
3. Validate Business Assumptions: Lean startup metrics help you test and validate your core business assumptions quickly, reducing the risk of pursuing unviable ideas.
4. Improve Decision Making: Data-driven metrics offer a clear basis for making informed decisions, minimizing guesswork and enhancing strategic planning.
5. Enhance Product Development: By tracking user engagement and feedback, you can refine your product offerings to better meet customer needs and preferences.
6. Measure Progress and Success: These metrics provide a concrete way to track your startup’s progress over time, ensuring that you stay on course towards your goals.
7. Increase Investor Confidence: Demonstrating that you use lean startup metrics to drive growth and sustainability can boost investor confidence and attract funding.
8. Adapt Quickly to Market Changes: With real-time data, you can quickly adapt your strategies in response to market shifts and stay ahead of the competition.
Mastering Product Growth: The Lean Startup Way
Navigating business as an entrepreneur demands a strategy that aligns with innovation, agility, and continuous improvement. This article is packed with actionable insights inspired by Eric Ries' book, The Lean Startup, and will help you understand the essence of Lean principles and how they can redefine the trajectory of your startup.
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