Size Matters (part 2 - measure your progress)

Metrics are a critical part of any business. For early stage businesses, they are even more critical. In a recent conversation with Reza Hussein (one of the co-founders of the successful startup, Social Gold), he credited good metrics as one of the key factors that was critical to his business receiving its recent funding round.

In part one of this series, I mentioned that you should be measuring your growth in a number of different ways. Today I'll give you some ideas for a few different metrics you should use when measuring your progress.

Think about your metrics in terms of a feedback loop. You want to convert your idea into a product, build it, acquire customers, get feedback and use that feedback to generate more ideas which you then build into a product, etc. You need to conduct measurements at each stage of this cycle. There are tons of different numbers that you can look at, and the right ones to use will be different for each business. So you will have to put some analysis into what you need to track. The concepts I'm outlining here probably apply in many cases though.

Find your market

This is all about attracting potential customers. If you are providing a web-based business, this would be the number of people who visit your site. In this case, you should measure things like how many visitors you get (this is the no-brainer metric) and where they come from (this helps you figure out what channels help drive traffic to your site).

If you sell through more traditional channels, you need to think in terms of how many potential customers you have developed some sort of a connection with. For example, it could be as simple as the people you have met at a trade show. Presumably, those people were there because they were interested in something like what you have to offer and you made some sort of contact with them.

Get a customer

This may seem like an absurdly over simplification of something you know you need to do. But the important thing here is to figure out what your conversion rate from your market to your customer base is. Did your customers come from those people who visited your website? Did they come from people who you met? Some other source? What is the rate of conversion of a potential customer into a customer. How efficient are you at converting? Are there trends in customer acquisition based on the channel from which you acquired customers? (In other words, did 95% of your new customers come from contacts at that recent trade show? Or from clicking on a recent Google adwords campaign?)

This metric helps you determine which marketing campaigns are most lucrative. You can also figure out nifty things like the cost of acquiring a customer.

There is also something that is a little bit in between your market and your customers. These are people who you tried to close a deal with, but for one reason or another, you lost the sale. On a website maybe it's someone who went part way through your registration process, but didn't finish. Maybe its someone who abandoned their shopping cart. Maybe its someone who you sent a proposal to, but you never got that contract. See if you can figure out why. Were your terms and conditions problematic? Was the price too high? What the product not what they thought it would be? This is sort of the opposite to your acquisition rate. I just call it the rate of failed sales. This data is gold.

Keep that customer

Again, this seems like a no-brainer, but you need to measure it. How many customers come back again and again? How many customers buy once and walk away? What makes the ones who return time after time keep coming back? What made your one-timers lose interest? You may not be able to figure out the reasons why each and every customer left, but higher retention rates are, of course, better. (Hint: see if you can correlate this data to the channel you used to acquire your customers.)

Get referrals

If you have a great product that resonates in your market, you will get referrals. See if you can figure out how much of your business came from referrals. Start an affiliate plan. Have customers fill out a survey. Maybe just ask them and keep track. Who referred them? Why?

You should also ask your current customers if they would be willing to be a referral for you to other potential customers. (Hint: If you do ask and a large percentage of your customers say "no", you have a problem.) You can then use these willing referrers to provide feedback to the rest of your market and specifically to the potential customers who are in your current sales pipeline. Think of this as your own personal social network. Use it to your advantage. It's like having people pay you to sell your product.

Make money

Another "duh" item on your corporate task list. But there is probably no more important metric you need to keep track of. Are your revenues growing? At what rate? If you have seen spikes or troughs in your revenue, see what internal or external events you can match those up with. What are the trends? Can you accurately predict your future revenue?

How scalable is your model?

Now that you know how much money you are making, figure out how much it costs you to deliver your product or service. If your model relies on a user paying a subscription fee, you may want to look at things like cost per user and how that metric changes as you acquire more users. How much money will you make when you have 100 users. 1,000? 100,000? How does the rate of return change at each tier?

Use these metrics when looking at your feedback loop. See what you can learn from your metrics. Use them to tweak your processes, your product, your marketing and even your entire business model. The only way to be successful without using metrics is to be lucky. Most banks won't invest money in luck.

What metrics do you use?


photo credit, nkzs