It takes a lot of calculations and efforts for a person to “start-up”. Both the calculations and the efforts are required to continue even after the start-up has started. At the beginning you calculated the finances, now you need to calculate the performance of your Start-up.
For calculating the performance of your Start-up, you would need some Metrics. Metrics refers to the measure you would use to track your Start-up’s performance. There are many start-up metrics that can be used to measure your start-up’s performance, let’s take a look at some of them.
Below is the infographics by founders and funders on different types of startup metrics that every Entrepreneur should know.
Monthly Recurring Revenue (MRR)
- MRR is a monthly income that is recurring in nature and can be predicted very easily.
- This is an income that you are certain to earn in a month.
- It excludes all one-time payments and fees and includes only those payments which reoccur every month.
- MRR can be easily calculated by summing up all the monthly recurring payments received from every individual customer.
Average Revenue per Account(ARPA)
- The amount of income you earn from a customer on an average is known as APRA.
- It is also called Average Revenue per User/ Customer/Unit.
- It can be calculated monthly as well as annually by dividing either MRR or ARR by total number of customers.
Total Contract Value (TCV)
- Total Contract value is a metric that measures the total income you can earn from all your customers or contracts including both one-time and recurring payments.
- TCV is the sum of the one-time payments made by all the customers and the recurring payments obtained every week/month/ year from every customer.
- It can be calculated on weekly, monthly, quarterly or annual basis.
Lifetime Value (LTV)
- LTV is a futuristic metric and it measures the revenue that you can collect from a particular customer through all his/her purchases with you.
- LTV can be estimated on the basis of historical data.
- It can also be estimated using predictive techniques.
- Deferred Revenue is the unearned income that you have received before the actual delivery of the product/service.
- It is considered as a liability for a company until the product or service is actually delivered to the customer.
- Deferred Revenue is a metric to measure how much do you owe to your customers.
Customer Concentration Risk
- Customer Concentration Risk is a scenario when more than 8% of your annual revenue comes from a single or a few of your top customers.
- Generally, a higher purchase from customers is a good thing. But when a large chunk of your revenue comes from a single or a few of your big customers, you are at a risk of losing your bargaining power.
- To avoid this risk, it is essential to calculate customer concentration.
- It can be calculated by dividing revenue from the largest customer by total revenue of a year.
- If you have an e-commerce start-up, this metric is the most useful to you.
- Activation rate is the number of customers who have actually derived value from your products/services after subscribing or signing-in.
Monthly Churn Rate
- It is the number of customers that discontinued their subscriptions or stopped deriving value from your products/services within a month.
- Monthly churn rate is equal to (the number of customers at the beginning of the month – the number of customers at the end of the month)/ the number of customers at the beginning of the month.
Retention by Cohort
- In the context of customers, cohort is generally the date of first purchase. All the customers who made their first purchase on the same date will be grouped into one cohort.
- Retention by cohort can be calculated by subtracting the number of customers, acquired on a certain date, that are still transacting with you from the total number of customers acquired on that particular date.
- It is the rate at which a start-up is using its venture capital to finance its operating expenses.
- Net burn can be calculated by subtracting gross burn from total revenues received in a month.
- Gross Burn refers to the total amount of operating and overhead expenses incurred by a company in a month.
Annual Run Rate
- Annual run rate is an estimate of recurring revenue that you can earn in a coming year.
- It is calculated by multiplying the current monthly recurring revenue by 12, assuming that the MRR remains constant for each month.
- It measures the number of products that were sold during a given period which can be month or a year.
- It is calculated by dividing the no of items sold in a month/year by the inventory received in the beginning of the month/year.
- Value of product/service increases as the network grows i.e. no of users increases.
- Ex – Mobile, telephone, social media where we can say if the network of n people, then total no of possible connections are – nC2
- So, as n increases the value increases.
- Virality is the tendency of an electronic content to spread quickly from one internet user to millions of others.
- Virality as a metric that measures the efficiency of the viral content in creating conversions.
Net Promoter Score (NPS)
- Net Promoter Score determines how likely your existing customer is to recommend your product/services to someone.
- A high NPS means that your customer relationship management is effective and is contributing directly to your revenue growth.
- Direct traffic refers to the number of visits on your website that came directly without any intermediary.
- It is the traffic that was either generated by directly typing your website URL or by clicking on a bookmark or through the referrer which could not be recorded by the Analytics.
- Organic traffic is the visits that your website receives through unpaid search results also called organic search results.
- Organic search results are the search results that came up on a search engine because of their relevance to the search keyword.
- Organic traffic comprises of the visitors who came to your website through search engine results as opposed to direct traffic that comes through directly typing your URL.