Most important metrics for measuring a startup’s growth

The best thing about working at a young startup is that we really work on a lot of things. Kudos to my team mates – Jason, Teena and Steven for the great mentorship.

More recently I have been reading a lot on how startups track their growth and measure their success. I thought of sharing the same with everyone.

Think the business as your own and try to find the critical business questions that will help us grow and succeed. – Jason Van, Hoolah

Why we need Metrics?

It’s hard to improve, what we don’t measure.

While revenue might be the best measurement of success, it is very broad and doesn’t highlight the details of what causes growth. Metrics are data driven and helps the startup to set measurable goals.

Most Important Metrics to track

Here is a list of most important metrics that we should track for our success.

Active Users

We might have already heard of the terms Daily Active Users (DAU) and Monthly Active Users (MAU). This metric was popularised by Facebook. They used DAU / MAU ratio for measuring their growth.

One point to note however, MAU doesn’t always make sense for lot of young startups because of the longer duration. Many companies have proposed DAU / WAU (Weekly Active Users) to measure the growth of young startups.

I will be using WAU in my examples below, but feel free to replace it with MAU if that makes more sense for your business.

DAU = Count of unique customers for a given day
WAU =  Count of unique customers for the last 7 days, including the given day

User engagement = DAU / WAU 

Further reading :

Classification of Active Users

Active users shouldn’t just be a count but we should also capture if the active user is a new customer or an existing customer. This will help us compare and understand the behaviour between the two types of customers.

Few companies also capture the customers who did not visit us again. They are called Dormant Users.

Another interesting type of Active user is Reactivated users. This is a user who went dormant for a while and became active again.

Types of Active Users :
- New Users
- Existing Users
- Dormant Users
- Reactivated Users

Customer Churn Rate

This is the percentage of users that stopped using our services. Customer churn affects our growth and is an important metrics that we should have our eyes on.

Customer churn can be calculated as :

E = Active users at the end of week
S = Active users at the start of week

Weekly customer churn = (E - S)/S

Further reading :

Customer Retention Rate

This is the opposite of customer churn. This shows us the number of customer that we retained over a give time period. Customer retention is a positive metrics and affects our revenue.

It can be calculated as :

E = Active users at the end of week
S = Active users at the start of week
N = No. of new active users in the given week

Weekly customer retention = (E - N)/S

Further reading :

Customer Acquisition Cost

This is an important metric to calculate the cost to acquire a new user. It’s slightly more completed than other metrics since it requires two datasets. It involves using the active user data along with the financial data to compute the cost of acquisition of a single user.

The simplest way to calculate this is to calculate the total expenses in the given time window and divide that with total new users acquired in the same time window. Note that we should only consider new users and not existing users.

E = Total expenses by business on customer acquisition in last 7 days
N = No. of new active users in the given week

CAC = E/N

Further reading :

 

Finishing notes

Thats all for this post, it has been a great learning so far. Hope the post was useful. Cheers.

 

Checkout my portfolio here: https://confusedcoders.com/nikita-sharma-greenhorn-data-science-student

I am a greenhorn Data Science student with interest in finding patterns in data. My language of choice is Python and I am starting to get my hands dirty with R.

I blog on Medium.com [1] and ConfusedCoders.com [2]. I share my code on Github.com [3].

  1.  https://medium.com/@nikkisharma536
  2. https://confusedcoders.com/author/nikita
  3. https://github.com/nikkisharma536

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