Did you know the odds of becoming a Unicorn are about 1%?

I am not saying this to discourage you, quite the opposite. These odds also bear positive news for entrepreneurs dreaming to lead their startups into a long and wealthy journey, especially considering everything one can learn from the 99% failed attempts.

Think about the Leicester City Football Club.

In May 2016, they won the English Premier League title for the first time in their history. Any football fan knows the odds of that happening were low. In fact, statistically speaking, the odds of them winning were 5000 to 1.

But what does Leicester have to do with startup growth? Much more than you can imagine.

Turns out that Leicester’s management learned from the most important lesson a manager can learn: data. And that is exactly what can lead your startup to become the next Unicorn; knowing how to measure and understand the data presented to you. In other words, following key metrics for each stage of a startup's growth.

Yet, before we dig into those metrics, let’s take a closer look at what Leicester did, and what we can learn from it.

Learning from the Leicester data analysis case

Leicester’s title was branded one of the biggest upsets in sports history.

This is no wonder: along its 132 years of history, the team has never gotten even close to winning the championship. But the club’s use of data analysis and sports science changed it all.

During the previous years before its title, Leicester’s board of directors worked hard to embed a data-driven culture into the club’s management. And they succeeded.

During the 2016 season, Leicester’s coach could make decisions based on data collected from wearables and data analysis softwares implemented by the club. This data helped them create a tailored training program, which as a result made Leicester have one of the lowest numbers of injuries of the season.

Apart from keeping injury levels low, a culture of data-driven decision-making allowed the club to brief players before matches and improve performance. They also coded every match played using data analytics tools, being able to use benchmarks and metrics to determine further improvements.

If you want to know more about the Leicester case, you can click here and check a full article. The main point here for us is that data analysis might be the difference between having an average performance and winning one of the most competitive tournaments in the world.

And this is the same for startups trying to become a unicorn.

So how do you use data to track startup growth?

You might think that revenue is the only metric you need to track startup growth. Although revenue is the most direct indicator of a business's success, to really know what is working and change what is not you need to know what is impacting your revenue.

This is why measuring key startup metrics is paramount. They will tell you which factors are influencing your bottom line.

By now you already know that measuring the health of your startup is important, but what exactly should you measure? Unfortunately, there is no "one size fits all" approach here. The most important startup metrics for your business will vary according to your startup stage, business model, and OKRs, among others.

But to help you see the full picture, below you will find a complete list of startup metrics you should follow to track startup growth.

1. Customer Acquisition Cost (CAC)

CAC, or Customer Acquisition Cost, measures how much your startup spends to acquire new customers.

Though it seems simple, CAC should not be measured considering all of your sales and marketing efforts together. Instead, this metric can tell you which of your efforts is bringing more customers to your business. So you should calculate CAC for each of your sales and/or marketing campaigns to really make the most of it.

Basically, all you have to do is to divide the number of new customers for a given period by all of the expenses you made in a sales or marketing campaign. You can also do this to know which of your channels is driving you more sales (inbound or outbound, paid or organic, etc.).

The lower your CAC is, the better. So you will want to keep the channels that bring you more customers for the lowest cost.

But don't worry: for startups at an early stage it is normal to have a higher CAC. This is because you need to make more investments at the beginning of your business to scale it. However, your goal should be to decrease your CAC over time, resulting in a high net profit margin per transaction.

2. Retention Rate

Your retention rate measures the rate at which your startup is able to keep your current customers (especially for businesses that use a subscription model, like Software as a Service companies) or to make them come back to buy more.

You have probably heard that acquiring a new customer is more expensive than retaining an existing one. According to Harvard Business Review, 80% of consumers consider trustworthiness while making a purchasing decision. So, you will want to measure your retention rate and maximize it.

Customer retention metrics will tell you the strength of your relationship with your customers. It will also help you understand whether you need to make more investments to increase loyalty (be it marketing campaigns focused on your current customers or improvements in your product or service).

To calculate your retention rate, you will need to know the total number of customers at the start of the designated time period (S), the total number at the end (E), and the number of new customers between these two dates (N).

Here’s the formula:

• [(E − N) / S] × 100 = customer retention rate

This will give you your retention rate as a percentage. The highest, the better. But it is common for some entrepreneurs to mix their retention rate with their churn rate. These are two different startup metrics you should measure, as I will show you below…

3. Churn Rate

While your retention rate measures repeat purchases, your churn rate will measure the rate at which customers are stopping making business with you. A high churn rate is a red flag for your business, and you will want to make some adjustments to your strategy to decrease it.

The good news here is that it is quite easy to measure your churn rate. All you will need is the number of customers at the start of a given period (S) and the number at the end. Here is the formula:

• (S − E) / S × 100 = Churn Rate

Clearly, the volume of customers you have will impact your churn rate. Businesses with a higher number of customers will have a higher churn rate than those with fewer customers. Statista measures the average churn rate by industry; you can use this to benchmark the ideal churn rate for your startup.

4. Customer Lifetime Value (CLV)

CLV, or Customer Lifetime Value, represents the total amount of money a customer is expected to spend with a business throughout their relationship with them.

This is an excellent metric to tell you what your Ideal Customer Profile is and to show you for how long your business is able to keep them. You want to build a long and lasting relationship with your customer, and measuring your CLV is the way of making sure you will get there.

Furthermore, your CLV will also dictate if your CAC is justified and it can be used for deciding the best pricing strategy. To calculate it, you will need to know the annual customer value (S) x average customer lifespan in years (E). The formula for your CLV will be:

• S x E = CLV

CLV is also a metric for measuring satisfaction. A high CLV means your customers are satisfied with your product or service. But we still encourage you to ask your customers for feedback. If you are not sure how we have a bonus tip for you at the end of this post.

5. Monthly Recurring Revenue (MRR)

Monthly Recurring Revenue, or MRR, is the revenue generated on a monthly basis by your active users. This is a metric mostly used by businesses with a subscription model, especially SaaS.

For subscription-based companies, MRR is one of the most important startup metrics to measure growth. This is because it will help you anticipate how much money you will get each month and understand your business stability.

By analyzing historical trends, you can also understand weak gaps that need to be adjusted in order to support your startup growth. After all, recurring revenue is the lifeblood of a SaaS business.

Moreover, some variations of MRR will also help you see the business's financial health. For instance:

• new MRR will tell you the monthly revenue brought by recently acquired customers;
• expansion MRR will show you the additional revenue from existing customers; and
• churn MRR represents how much revenue you lost for cancelations or downgrades.

To calculate MRR, you will need to know your ARPA (Average Revenue Per Account). Your ARPA is basically your total recurring revenue divided by the total number of active accounts (S). Once you know that, the formula to calculate your MRR will be:

• ARPA x (S) = MRR

Remember to normalize your revenue on a per-month basis. This means that if you have a contract paid annually, you should divide the price by 12 to know your average revenue per month. This is the same for quarterly-paid contracts, and so on.

6. Profit Margins

Gross and Net Margins play a key role in analyzing a company's financial health, even when sales are going well. This is because an increase in revenue doesn’t always represent an increase in profitability.

The Gross Margin measures the profitability of the business and indicates the percentage of return on the investment made in the company.

The Net Margin, on the other hand, shows how much your company makes in net profit for each dollar in revenue.

While the Gross Margin indicates how much the company gets back from sales, the Net Margin shows what the net profit is for each unit of the company's sales.

The higher the Gross Margin, the greater the profitability of the business. The higher the Net Margin, the greater the surplus the company will have after receiving sales and taking out all taxes and deductions.

Measuring this is pretty straightforward for most entrepreneurs, so I won't take too long on this. But it is worth mentioning that your profit margins will vary depending on your industry. If you want to know how well you are doing, we recommend you check the average profit margins by industry measured by New York University.

7. Conversion Rate

Conversion Rate represents how many people have moved from one stage of the sales funnel to another, whether visitors become leads or leads become customers.

This helps you understand how many opportunities throughout the funnel bought your products. In other words, you can know if your sales and marketing efforts need adjustments and at which stage of the funnel you are having more problems.

To calculate the Conversion Rate you can simply divide the number of conversions (S) by the number of total visits (E) or contacts you have. The formula is:

• [(S) / (E)] * 100 = Conversion Rate

Of course, the bigger your top of the funnel is, the bigger the bottom should be. So working to bring in more opportunities is one way of increasing your conversion rate. But measuring this metric should be combined with a deep understanding of your sales' bottlenecks and performance.

Bonus: Net Promoter Score

NPS or Net Promoter Score is a metric created by Fred Reichheld to measure customer satisfaction. The metric is calculated by asking your customer the following question:

"On a scale of 0 to 10, how much would you recommend Company X to a friend?"

To calculate your NPS, all you have to do is organize them into three categories:

• Customers who give a score from 0 to 6 are considered detractors, i.e. they are not satisfied with your brand, your product, your service, or anything about your company. These are the people who are likely to badmouth your company to their contacts. Moreover, they can still be a great risk for churn or not buying more from your company. Pay attention to them.
• Customers who score 7 or 8 are considered passive/neutral: they are not dissatisfied, but they are not loyal either. They may also bring up a few points about your company in their comments but are not intended to leave your business (at least not yet).
• Customers who score between 9 and 10 are considered promoters: those who love your company and are likely to recommend it to friends and even on social networks. These are valuable treasures that can be used to work on your word-of-mouth marketing.

After separating your responses between these three groups, you must subtract the percentage of detractors from the percentage of promoters to determine your overall Net Promoter Score.

It is important to have a space for open comments so that respondents can say why they gave that score. But I must add that this is not an easy metric to measure. You will need a relevant number of answers to really get an accurate view of the customer's perception of your brand. To get to know more about it, I recommend you check Fred Reichheld's book on the topic.

Conclusion

By all means, I hope this will serve you as a guide to what matters when tracking startup growth. You may or may not have heard of some metrics here, but hopefully, this post gave you some light on their uses and the context in which each one should be used. If you want to keep learning, you can also check our post on modern agile and its applications in business management. Read it now!