5 Key Metrics for Your Lean Startup

Lean-Starup-Questions-e1326387153613You’ve got a lean startup.  There’s a lot you’re trying to accomplish on a shoestring budget.  What’s more, you might not even have started turning a profit yet.  That makes it darn near impossible to measure your success, right?  WRONG!

There are no limit of metrics you can use to measure your startup’s progress.  Let’s look at some of the most common ones that you’ll want to start tracking right away.

CUSTOMER ACQUISITION COST

To remain fiscally viable in the long term, you’ll need to have a solid operating business model.  Once you do start bringing in revenue, you need to make sure it doesn’t cost too much to keep bringing in new customers.  Customer acquisition cost can kill you at every stage of business development.  How do you measure customer acquisition cost?  You can use a mathematic model to estimate it if you’re early on and don’t have a lot of data.  If you’ve got the following actual data, you can calculate customer acquisition cost:

  • Number of new customers per month
  • Costs to develop product/service
  • Estimated life of product/service
  • Monthly marketing costs
  • Monthly maintenance costs

Customer acquisition cost can change over time, due to rolling out new products and services, streamlining or complicating operations.  Make sure to reevaluate it on a regular basis to see if you are still on target.

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CUSTOMER RETENTION

One of the wonderful things about a lean startup is the short product development cycles and iterative product releases.  That same excitement can be a killer in the marketplace.  Customers who have adopted your business model early on may be completely turned off by a subsequent product release, and others could be engaged.  What you really need to measure is your customer retention rate.  That way, you’ll know when you’ve reached a sustainable point where customers perceive a value and are willing to continue to pay.

Measuring customer retention is relatively straightforward.  With all the different advertising channels out there, you should track the retention of those customers you engaged using different media approaches.  Then you can better target future advertising dollars.  Quarterly measurement of customer retention is a good place to start, so that it coincides with quarterly financial earnings reports.  Beware that customer retention is a lagging indicator, so once you see it drop, you probably should have made a business change several months ago!

VIRAL REACH

Viral reach is how many you’ve engaged via social media outlets like Facebook, Instagram and Twitter.  Social media is great advertising when done right, and growth rates for viral reach vary widely.  If your reach metrics look good, then maybe it’s time to tease apart the quality of those connections to see how valuable they really are.  Don’t be discouraged if you have slower viral growth but more relevance.  But you should be concerned if you have rapid viral growth without quality participators.

TURNOVER

Turnover, or churn rate is a metric that measures how rapidly your startup is losing team members or customers.   When used as an internal metric, turnover needs to be assessed to see if it’s an expected, natural part of the startup’s evolution, or a sign of something deeper.  When faced with high customer churn rate, you might look at whether you can recoup some of those lost costs by upselling to the lost customers or cross-promoting other products and services.

REVENUE

You’re probably most familiar with revenue as a metric, but you may be focusing so much on whether you’re turning a profit to realize if your revenue metric is looking good!  Operations and maintenance costs can vary widely for the first few years of a startup, so make sure to focus on revenue, not just overall profit.  If revenue looks good, then you’ll need to seriously work on reducing your operations cost.  When you do get your O&M under control, let the rest of us know what your secret trick was!

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Shane Barker is a digital marketing consultant who specializes in sales funnels, targeted traffic, and website conversions. He has consulted with Fortune 500 companies, influencers with digital products, and a number of A-List celebrities.

4 Comments

  1. Stan Faryna 02-03-2013 at 7:39 pm - Reply

    One approach to managing O&M costs is to build profitability AND low cost strategies into the business model from the outset. Obviously, easier said than done. But also often ignored in the thrill of the chase going afoot.

    While you’re in development, kickstart your social media and online presence a year before launch of product or services – for example.

  2. […] 5 Key Metrics for Your Lean Startup […]

  3. Frank Woodman 07-03-2013 at 12:28 am - Reply

    Very good article and over all a great breakdown on starting lean and mean. I suggest to most of my clients that they consider starting with minimal investment in a new business and let the business grow organically rather than throw money at it. A business either earns it’s way or it doesn’t and just pumping more money in at the start doesn’t guarantee success just greater financial risk. You said much the same thing here. Thanks for a great read.

  4. Quora 29-10-2014 at 12:19 pm - Reply

    What is the minimum amount of detail that I need to put into my projections in order to create financial projections that will be credible enough to present to a VC for seed or Series A funding? (Assuming I have a product/idea worth investing in).

    Depends on the stage – e.g. early stage will want less evidence than later stage (which would want management accounts!). Even early stage will probably not just want revenue they’ll want to see that you’ve thought about customers up. Customers x rev…

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