When starting your own business or growing your own startup KPIs tracking is one of the most important tools you can use to keep your growth on track and measure the viability of your business. We’ll walk you through the traditional and news ways of doing it.
CAC:LTV Ratio
Traditionally, the CAC:LTV Ratio is the most used KPI. This important KPI measures the sustainability of your company. This ratio can be broken down into two metrics:
CAC: Client Acquisition Cost
In a nutshell, this metric indicates how much money your company spends to acquire a new single customer (through marketing, advertising, sales, including salaries and overhead).
Essentially, the lowest the CAC, the better, so a high CAC can mean flaws in your sales process, and a growing CAC can be a sign of trouble (as your CAC is expected to reduce with time as you build your brand), but it depends on the situation: it’s not a problem if you’ve introduced a new product or service with much higher margins. Essentially, following your CAC can help you optimize your return on investment.
LTV: Customer Lifetime Value
This metric measures how long a customer or user remains a client, on average, determining how much business value will derive from each customer.
Combining these two metrics into the CAC:LTV ratio, you get an indicator of the sustainability of a company. For a business to be successful, it must be able to drive more income from its customers, than the money it invests to bring them onboard, and to actually deliver the product/service the customer is receiving.
Although the CAC:LTV ratio has been traditionally used by investors and venture capitalists as a measure of growth and viability, there’s a new more viable KPI that was introduced by Social Capital and is used by Venture City and also by our own team in Lisbon Challenge by Beta-i – the Quick Ratio.
The Quick Ratio
The Quick Ratio is a shortcut metric to define where the product stands in terms of growth. It combines growth, retention and churn into one number that describes how efficiently your product is growing.
Essentially it’s the ratio between the new and resurrected clients over the clients lost in that month. Simply, if a Quick Ratio is >1 the number of users is growing and if it is <1 the number of users is declining.
It’s important to always see the number of lost clients in relation to the acquisition and retention of clients because it can tell you important information to base your next steps on. A company with a high retention rate doesn’t need to make a big effort in sales to keep growing steadily (as opposed to a company with a lower retention rate that would need a bigger client acquisition to keep growing at the same rate).
provided by The Venture City
A lower retention rate means you need to put efforts into bettering your product, and a low acquisition rate might mean you need to rethink your marketing strategy.
The only way to have a high ratio is to keep both acquisition and retention high – that means your product has a healthy life.
The advantage of using the quick ratio is that you can apply it for your product even when you don’t have paying customers yet, or apply it to several parts of the business in order to understand its challenges.
As Eduardo Sette Camara, Lisbon Challenge by Beta-i’s Head of Acceleration put it:
In a gross simplification, sustainable revenue and growth is the end result of capturing value through a great product/service delivery. But if you want to go to the core of what drives that growth, slice up the problem and variables, and really understand what sticks, applying the quick ratio calculation to more and more granular information can deliver those insights. It’s about trying to understand cause and effect.
This is why most VCs are looking into this metric as a way of evaluating the companies they want to invest in – and so should you.
Would you like to meet Elon Musk, Stewart Butterfield or Marc Andreessen in Lisbon this year? Yes? Well, this could really happen since the Web Summit will be in Lisbon this year…
We know that building a startup takes focus, commitment and hard-work. But, it’s also about talking to people and creating relationships. From customers to investors, from partners to other entrepreneurs such as yourself…
In fact, we have just opened applications for the Fall Edition of our accelerator, Lisbon Challenge. Meaning, you would be in Lisbon from September to December.
Would you be interested in applying to one of Europe’s most dynamic accelerators?
Here’s what you should keep in mind:
Alumni network of +200 startups
Our startups have raised +50 million euros
A network of +200 mentors you can reach out to
Free office space in the centre of Lisbon
Tailor-made workshops on the key challenges your startup is facing
150k in perks and no equity taken
Apply here until the 10th of June and grow startup in Lisbon.
What have people been saying about Lisbon Challenge?
“Lisbon Challenge can be the European Y Combinator”
Michael Seibel, Part-time Partner at Y Combinator
“The greatest thing about Lisbon Challenge is that it creates a cluster of entrepreneurs that are all going through the same journey. This means you get fantastic scalability and they learn a lot with each other. It’s also good for investors to meet several companies in one place.”
Mike Butcher, Editor at TechCrunch
“We were in the very first batch of Lisbon Challenge. At the time, we had just launched our student accommodation platform and it was the perfect time for us to get all the feedback from mentors and occasional speakers that Lisbon Challenge brought to us. Lisbon Challenge and Beta-i really helped us kick-start our business.”
Miguel Amaro, Founder of Uniplaces
“Popcorn Metrics was born during the Lisbon Challenge. During the program we were able to get our whole team working together in a super focused environment which enabled us to quickly get the insights to make a massive “zoom in pivot” and focus on building our current product to enable marketers to set-up their Marketing Analytics Stack without depending on IT. We built a hugely valuable network of mentors, investors and other cofounders – a network that still gives great value today. As a bonus from Lisbon Challenge, we also spring-boarded from Lisbon Challenge into London based Seedcamp (the largest seed investment program in Europe).”
Paul Boyce, Founder of Popcorn Metrics
Apply here and join us in Lisbon for the next edition.
“It sucks to be the CEO of a startup that’s doing super well” said Stewart Butterfield’s, Slack CEO, earlier this year at the Startup Grind Global Conference, on the growth his company is witnessing – “the stakes just get higher and higher”.
It might sound awkward at first but in fact it doesn’t seem an easy job to be leading a startup that is often called the fastest-growing business app ever.
It all started by developing a flash-based online game called Glitch before pivoting toward communications, launching Slack on February 2014. Two years after, they have 2.3 million daily active users and in the last two months they added the same number of users they achieved in their entire first year.
Now that’s growth on steroids.
At this speed, it’s hard to guess which are the next milestones to be met (can Slack one day reduce the role of email to an irrelevant one?) but with this kind of hyper growth the pressure deeply increases and every challenge can get harder if you don’t have all the right people working with you.
Erin Griffith, Fortune writer, sat down with Stewart at the 99U Conference to talk about the challenges they’re facing right now, being their biggest struggle “to find the right people” – the team started with 14 elements, they’re 130 nowadays and they predict to be 250-280 until the end of the year.
“Every practice that we develop for how to manage becomes obsolete in 60 days.”
Here is the entire 20-min talk on how they scaled and their next challenges.
And yes, you can also be amazed by this infographic, shared by Slack weeks ago, on their two-year anniversary:
