It might seem obvious, but sometimes people forget, that every stage in the development of a startup has its own KPIs. Unfortunately, intuition and feeling are not effective tools in the strategical and methodical development of the product, but the numbers are. What metrics you should follow and process, and what not? How to properly analyze the data and make decisions on improving the product and adjusting its direction? We will answer these questions and break down what metrics you should pay attention to for the early-stage startups.
Why do bother with KPIs and goals in the first place? Because they will give you realistic feedback on your efforts and point out flaws in your decision-making. KPIs should reflect the core ideas of your product and correlate with the goals. For example, when the main goal of your product is to generate revenue directly, this is the metric you should focus on. Unfortunately, most of the time, things are not that obvious. In different industries and business models, the KPIs can change dramatically. E-Commerce business owners should keep a close eye on things that are entirely different from metrics for Software-as-a-Service startup founders.
The key metrics for the early-stage startups
How to choose your primary metric?
As a startup owner at the early stages, you need one metric, that’s called ‘primary’, to get your feedback from. Why just one? Because you will already have enough things to worry about and improve! So, having just one single metric to measure nearly 90% of your success is a wise idea that lowers the number of possible variables.
Your primary metric must be an indicator of the real value that your startup delivers to the users. For example, for a hotel reservation service, the main metric will be the number of reservations in a particular period of time. Meaning that the entire analysis is targeted at active users. In another example, a food delivery service must focus on the number of orders.
The primary metric must be an indication of the real delivered value and not something that has only potential value. Going back to the hotel reservation service example, it is important to calculate the number of app users, but actual reservations will still remain a primary metric. You need to have your goals clear and focus on increasing the number of reservations, not the number of app users.
Considering all the above, there are basically two sets of metrics suitable for fulfilling the role of the main indicators for your business: revenue and the number of active users.
Revenue is the most popular metric, chosen by most of the companies, and the real proof that your product is desired by customers. Make sure not to fall into a trap, making your product free for the early users, when you have paid product in the future. While free access will attract more people at the beginning, the feedback from them could be very misleading.
The number of active users is used by B2B companies as the main metric very rarely. B2C companies, however, use this metric more often as a primary one. If you don’t have something like Airbnb, where the company needs a huge network to be profitable, then you don't achieve much by focusing on the info about active users. With an advertising-based revenue model, you need millions of customers visiting your website every day before you can actually engage brands in monetization programs.
Here are three metrics for each of the two main groups:
Twitter is a good example of an app that doesn’t use Revenue as a primary metric, but rather the daily activity of users, that works better for this service.
How to choose your secondary metric?
The truth is, there is no single metric that provides you with a complete understanding of your situation. You could see 90%+ of the story, but not the whole picture. That’s why you need to have some secondary metrics - to obtain a holistic overview of your current status. There is a considerable amount of options for secondary metrics, but it will be a good idea to choose 3 to 5 of them. Too much information from secondary metrics can be misleading by creating a little chaos, and we don’t need that!
In order to pick your secondary metric or metrics, you have to describe the path your user takes from the first interaction to the completed action.
The following table contains examples of the most popular metrics for early-stage startups:
Determining whether your product is a great fit for a market
In the previous table, we assigned each secondary metric to the particular area. In the next section, we will explain how to interpret these areas. Now that you picked your primary metric and a few secondary metrics, it's time to answer a question: Is your product really needed by the market?
To measure that, we recommend you divide your analysis into 4 key areas, described in the following table:
This area covers the value, which users experienced using your product or service. Depending on each particular case, it might be very different. For YouTube, for example, it might be for a new user to follow 20 accounts and view 30 videos for two minutes or more. For other cases, getting value from a product for a user might reflect in a first transaction or subscription. Anyway, you can't miss while having a formula: the percentage of users that experienced a product value is the number of specific actions divided by the number of new users.
30% can be considered a benchmark for the activation rate. Anything less than 10% is considered a negative activation rate, and anything more than 30% can be considered a positive.
This area answers whether the users see a value in your product or service at all. Your active users have different levels of commitment and engagement. It is possible to measure the depth of engagement per user. In order to do so, you need to divide the number of key actions completed by your users (it may be subscriptions, transactions, videos watched, etc.) by the number of active users (you may leverage here such metrics as weekly or monthly active users).
50% can be considered a benchmark for the engagement rate. You can consider a negative engagement rate anything less than 20%, while a 50%+ engagement rate can be considered a positive.
This area helps you understand whether your users have enough reasons and motivation to come back for your product and whether you bring in the right users. You can draw a user retention graph to see how retention changes over time, but before that, it is important to define key action and usage interval.
The final area we need to cover is loyalty. It will help you understand not only the reasoning for users to come back to your product but also the level of habit they have. Loyalty can be measured by such metrics as Customer Lifetime Value (CLV), multiple product purchases or repurchasing levels, Customer Loyalty Index (CLI) from customer surveys. However, the Net Promoter Score (NPS) is, probably, the right metric to apply to understand whether customers really want your product.
Choosing, measuring, and analyzing KPIs is the only way to determine whether your product is a market fit. Timely strategy adjustments for early-stage startups are crucial to the success of the entire endeavor. With the correct data and proper analysis, you can’t go wrong in your planning.
After deciding on the key performance indicators, make sure to measure them consistently at each iteration of the product development process and follow each change in their values. Those indicators will help you monitor the health of your organization and predict the future success or failure of chosen strategies.
To truly achieve product-market fit for early-stage startups, you need to cover all four areas we mentioned above: ACTIVATION, ENGAGEMENT, RETENTION, and LOYALTY. If you want to have a product that is desired by your users, you can’t leave a single one of those out! All of them contain measurable, actionable, and tangible metrics that will allow you to evaluate the real value of your product for the customer.
If you have any additional questions related to early-stage startups in particular and software development of innovative products in general, feel free to contact us at Visual Craft. We have years of expertise in IT, delivering products entirely from scratch. We would love to share our practical experience and turn your product into another success story. Recently, in one of our articles, we covered 7 mistakes you need to avoid while building an MVP. If you are interested in this topic, read the article and share your opinions. We would love to hear back from you!