A Founder's Guide: 3 Metrics You Should Follow to Track Startup Growth

Amanda Veloso
March 22, 2023
<p>Did you know the <a href="https://www.cbinsights.com/research/venture-capital-funnel-2/">odds of becoming a Unicorn</a> are about 1%?</p><p>I am not saying this to discourage you; quite the opposite. <strong>These odds also bring positive news for entrepreneurs</strong> dreaming of leading their startups on a long and prosperous journey —, especially considering all that one can learn from the 99% of failed attempts.</p><p>Think about the Leicester City Football Club.</p><p>In May 2016, <strong>they won the English Premier League title for the first time in their history</strong>. Any football fan knows the odds of that happening were low. Statistically speaking, the odds of them winning were 5000 to 1.</p><p>But what does Leicester have to do with startup growth? Much more than you can think of.</p><p>It turns out that <strong>Leicester’s management learned from the most important lesson a manager can grasp: data</strong>. That's precisely what can propel your startup to become the next Unicorn; understanding how to measure and interpret the data presented before you. In other words, it involves tracking key metrics for each stage of a startup's growth.</p><p>However, before we delve into those metrics, let’s closely examine what Leicester did and what we can learn from it.</p><h2 id="learning-from-the-leicester-data-analysis-case">Learning from the Leicester data analysis case</h2><p>Leicester’s title was branded <strong>one of the biggest upsets in sports history</strong>.</p><p>This is not surprising: over its 132 years of history, the team has never come even close to winning the championship. However, the club’s use of data analysis and sports science changed everything.</p><p>In the years leading up to their title, Leicester’s board of directors worked diligently to instill a <strong>data-driven culture within the club’s management </strong>— and they succeeded.</p><p>During the 2016 season, Leicester’s coach was able to make decisions based on data collected from <strong>wearables and data analysis software</strong> implemented by the club. This data helped them create a tailored training program.</p><p>Apart from keeping injury levels low, <strong>a culture of data-driven decision-making</strong> allowed the club to brief players before matches and improve performance. </p><p>If you're interested in learning more about the Leicester case, you can <a href="https://www.simplilearn.com/data-analytics-behind-leicester-city-16-epl-win-article">click here</a> to read a full article. The primary takeaway for us is that <strong>data analysis could be the difference between achieving average performance and securing victory</strong> in one of the most competitive tournaments worldwide.</p><p>This is the same for startups trying to become Unicorns.</p><h2 id="so-how-do-you-use-data-to-track-startup-growth">So how do you use data to track startup growth?</h2><p>You might believe that revenue is the sole metric you need to <strong>monitor for startup growth</strong>. While revenue is the most direct indicator of a business's success, in order to understand what is effective and make adjustments where needed, you must identify what exactly is impacting your revenue.</p><p>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 <strong>startup stage, business model, and OKRs, among others</strong>.</p><p>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.</p><h3 id="1-customer-acquisition-cost-cac-">1. Customer Acquisition Cost (CAC)</h3><p><strong>CAC</strong>, or Customer Acquisition Cost, measures <strong>how much your startup spends to acquire new customers</strong>.</p><p>All you have to do is divide the number of new customers acquired during a given period by the total incurred in a sales or marketing campaign. The lower your CAC is, the better. So you will want to keep the channels that bring you more customers for the lowest cost.</p><p>But don't worry: <strong>it's normal to have a higher CAC for startups at an early stage</strong>. 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.</p><h3 id="2-retention-rate">2. Retention Rate</h3><p>Your <strong>retention rate measures the speed at which your startup can retain its current customers</strong> or entice them to come back for more.</p><p>According to <a href="https://hbr.org/2022/06/3-ways-marketers-can-earn-and-keep-customer-trust">Harvard Business Review</a>, 80% of consumers consider trustworthiness while making a purchasing decision. So, you will want to measure your retention rate and maximize it.</p><p>Customer retention metrics will tell you the <strong>strength of your relationship with your customers</strong>. To calculate your retention rate, you will need to know the total number of customers at the start of the designated period (S), the total number at the end (E), and the number of new customers between these two dates (N).</p><p>Here’s the formula:</p><ul><li>[(E − N) / S] × 100 = customer retention rate</li></ul><p>This will give you your retention rate as a percentage. The highest, the better. </p><h3 id="3-churn-rate">3. Churn Rate</h3><p>While your retention rate measures repeat purchases, your <strong>churn rate measures the rate at which customers cease doing business with you</strong>. 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.</p><p>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:</p><ul><li>(S − E) / S × 100 = Churn Rate</li></ul><p>The volume of customers you have will impact your churn rate. <strong>Businesses with a higher number of customers will have a higher churn rate than those with fewer customers</strong>. Statista measures the <a href="https://www.statista.com/statistics/816735/customer-churn-rate-by-industry-us/">average churn rate by industry</a>; you can use this to benchmark the ideal churn rate for your startup.</p><h2 id="conclusion">Conclusion</h2><p>By all means, I hope this will serve you as a <strong>guide to what matters when tracking startup growth</strong>. You may or may not have heard of some metrics here, but hopefully, this post gave you some light on their uses.<br><br>If you want to keep learning, you can also check our post on <a href="https://www.vinta.com.br/blog/2019/modern-agile-better-people-better-company-long-term/">modern agile</a> and its applications in business management. Read it now!</p>