What's the difference between Metrics and KPIs?

Key Performance Iindicators (KPIs) are measurable values that show you how effective you are at achieving business objectives. Metrics are different in that they simply track the status of a specific business process. In short, KPIs track whether you hit business objectives/targets, while metrics track processes.

Before giving examples of possible metrics and KPIs with the focus on startups, here are some things to think about first.

1. Purpose: What is the objective of our company?

2. Strategy: How are we going to achieve that goal?

3. Startup Stage: Is our business model validated?

3. Internal Alignment: How do we put the team on board?

We'll now look at how each of these variables can have an impact on your startup's list of KPIs.

1. How does the purpose influence business KPIs?

This one is better explained with an example. Let's use two different purposes for the same startup, and then see examples of KPIs this startup could focus on for each scenario.

Startup KPIs and Purpose: Example #1

Purpose: We want to offer people the possibility of moving from A to B in the most reliable and efficient way.

Example of KPIs:

• Average time per ride
• Average rating
• Percentage of users without any option around them
• Percentage of users that tried the service once it and never came back

Startup KPIs and Purpose: Example #2

Purpose: We want to offer people the possibility of moving from A to B in the most affordable way.

Example of KPIs:

• Average price per ride
• Average client savings per trip
• Number of trips evolution (expected lower margins demand higher growth)

In other words: your list of KPIs gives the team a focus, so make sure it is the right one!

2. How does the strategy influence KPIs?

Independently of the purpose, if the company is creating value, sustainability is expected. However, profit may be delayed for strategic reasons.

Startup KPIs and Strategy: Example #1

Strategy: Let's say our company strategy is to grow our customer base as much as possible, so we will offer them part of our services for free and then focus on upselling.

Example of KPIs:

• Number of clients
• Retention rate
• Conversion rate
• Customer Lifetime Value (LTV)
• Customer Acquisition Cost (CAC) - required as well although this strategy it clearly focusing on diluting these costs on a longer term perspective, through higher purchase frequency over time

Startup KPIs and Strategy: Example #2

Strategy: alternatively, our strategy is to achieve profitability from day one, so we will focus on a specific market and/or segment, direct all our resources to it and grow from there. 

Example of KPIs (initial stage):

• Customer Acquisition Cost (CAC)
• Revenue
• Average order value (or average price)
• Profit margin
• Oerational costs/ order 

3. How does the stage of a company influence its KPIs?

Even if you decide to delay sustainability, you should have a clear roadmap projecting when and how it will be achieved. It also makes sense that these KPIs change throughout your startup's evolution.

Example of startup KPIs from idea to MVP stage 

• Number of leads
• Number of letters of
  intent
• User Acquisition Cost (UAC)

Example of startup KPIs from the MVP stage to a Validated Business Model

• Average customer reviews
• Retention rate
• Revenue per client
• Customer Acquisition Cost (CAC)

Example of startups KPIs to use after Business Model Validation

• Customer Lifetime Value (LTV)
• Users growth rate
• Transactions growth rate
• Revenue growth rate
• Gross margin/ expenses

4. How to ensure team's alignement?

Althoug this one comes last, it is definitely not the least important factor - very much on the contrary!

Team Alignment Principle #1: Be Transparent

Make sure all the KPIs are accessible and updated for the whole team to understand progress. Also, be SMART about KPIs, meaning, all your objectives should follow five simple rules.

• Specific - detailed and meaninguful.
• Measurable - quantifiable to track progress.
• Attainable - realistic, taking into account the existing resources.
• Relevant - aligned with your startup's mission.
• Time-based - you KPIs have a clear dealine.

Team Alignment Principle #2: Reward

Or in other words, why should your co-workers bother? What’s in it for them?

Everyone in the team should have some sort of reward if objectives are met, along with a clear set of activities they are responsible for in that path.

Some examples include 1) compensation based on sales, 2) peers’ acknowledgement or 3) verbal recognition in a meeting. Yes, some of them are free and can actually have a huge impact of team's motivation, so no excuses here!

Team Alignment Principle #3: Respect

No matter what you do, if you don’t get the basics straight, people will not do it right just for the fun and/ or money.

The basics are very simple: don’t be a douchebag! If you are having issues with this one, try to put yourself in other people’s shoes. 

Getting back to our initial exercise, do you maintain your initial KPI after reading all these guidelines?

Or do you still have doubts on how to test the validation of your central KPI?

One way to validate it is to structure all relevant KPIs in a cause-effect perspective, starting with your main goal. To do that, you should choose a central KPI and go from there. Make some experiments, elaborate your assumptions and mind your budget!

Cause-effect Business KPIs - a simple example

Using the same example of a company that wants to move people from point A to point B, here are some example of cause-effect KPIs, which brings us to the concept of Key Performance Drivers (KPD) - values that drive a Key Performance Indicator. Of course, a KPI on one context may be a KPD on another perspective.

Example of a Central KPI: Number of Trips

• Target: 30% growth Month over Month (MoM)
• Example: 1000 transports in September 2020

Taking that central KPI, what KPIs could inflluence that result? Or in other words, what are the KPIs that will move/ drive the business in order to achieve that central objective?

Example #1 of Driving KPI: Number of Active Clients

With its reasoning being something like: with a repeat rate of 2 trips/ month, we should have 50 active clients in September 2020.

Example #2 of Driving KPI: Conversion Rate

Again, try to make some sense of it: considering a User Acquisition Cost of €5, and with an average margin of €20/ transport, the target should be x% for breakeven (depending on the company's strategy and/ or stage).

As mentioned above, KPDs on one context can also be KPIs on another context - for example, new users and conversion rate are Key Peformance Drivers of the Number of Active Clients could be New Users along with the Retention Rate, and so on and so forth... You get the picture!

To finish, if these starting points are not enough, take a look at some Key Performance Indicators and Drivers used by some startups to measure their performance.

Examples of Common KPIs for Startups

• MRR (Monthly Recurring Revenue) - The amount of revenue you make that recurs monthly; a rule of thumb says that 30k for a Software as a Service (SaaS) business is the minimum MRR required by investors to consider a Series A round of investment.

• ARR (Annual Recurring Revenue) - The amount of revenue you receive that recurs yearly; both the previous KPI and this one are great measures as they tell something about revenue predictability, lowering the risk of investment.

• Gross Profit - Total revenue minus the cost of goods sold; this is a purely financial KPI, and it is one of the mandatory lines on your startup's Income Statement.

• LTV (Lifetime Value) - Prediction of the net profit from the entire future relationship with a customer; this is usually calculated by: Average Margin per Sale (in the respective currency) x Purchase Frequency/ Client in a Period of Time (e.g. months) x Number of Periods of Time you expect a Client to keep purchasing your services, i.e., customer lifespan (e.g. 18 months). 

• CAC (Customer Acquisition Cost) - How much it costs, on average, to acquire a customer; you should try different acquisition channels (social media, organic reach through SEO efforts, paid search, direct commercial sales, among others), and have a balanced set of options that work, as it is better to not depend entirely on just one channel.

• CCR (Customer Concentration Risk) - Revenue from largest customer / total revenue; this will give you an idea of how much of your revenues depend on your biggest client - ideally, one client alone shouldn't represent the majority of your revenue, as that represents higher risk for your investment (and may keep potential investors reluctant when considering your company for their portfolio).

• DAU (Daily Active Users) - The number of users that return to your startup’s platform or app on a daily basis.

• MAU (Monthly Active Users) - The number of users that return to your startup’s platform or app on a monthly basis.

• MoM (Month-on-Month) Growth - The rate of growth from month to month, comparing the current month or past 30 days to the previous month or last 31 to 60 days; it is very common for investors to use this metric as a condition for future investments.

• MCR (Monthly Churn Rate) - Lost customers this month / prior month total.

• Retention by Cohort - % of original installed base - for example, cohort of users registered on the 1st month - that are still transacting.

• Monthly Cash Burn Rate - rate at which a company is losing money; it's usually measured monthly, dividing available cash by monthly operating expenses (gross) or monthly operating losses (net).

• TAM (Total Addressable Market) - also known as total addressable market, TAM represents the revenue total opportunity available for a product; it is calculated in potential annual revenue or unit sales if 100% of the available market is achieved.

• Gross Margin - Difference between revenue and cost of goods sold; if you don't know what these terms mean, check this other post where we talk about financial projections and how to get to its first inputs as a startup.

• NPS (Net Promoter Score) - index that measures how likely a user is to recommend a company's products or services to someone they know, ranging from -100 to 100.

And lastly, please count on us to help your startup succeed! We're more than glad to help you with any question you might about these topics.