As the saying goes, “If you can’t measure it, it didn’t happen.” A key aspect of building a startup is focusing on making progress towards a sustainable and impactful venture. Every impact-driven startup should track key metrics to know they are on the right path… but what should you track?
Let’s break it down for you! There are two broad categories of metrics for impact-driven ventures – business metrics and impact metrics.
Business Metrics: These measurements look at the health and sustainability of the business. Business metrics are like taking your blood pressure regularly – they help gauge how the business is doing.
Impact Metrics: For startups and companies that are focused on creating social change in the world, they should be able to articulate this in numbers. Impact metrics tie your mission to tangible outcomes.
I am sure you are thinking, “Ok, great… but what do I actually measure?”
Here are a few of the most common metrics to track as an entrepreneur:
Pro-Tip – get out a pad of paper and write each metric down. Do you know each of these for your business?
1. Revenue: Revenue is when someone pays your company for a product, service, or technology. This is proof that you are solving a problem and IS the lifeblood of all ventures (for-profits, social enterprises, and nonprofits). Tip: You should know your monthly and annual revenue like the back of your hand. Bonus points if you know your annually recurring revenue (ARR) and monthly recurring revenue (MRR).
Annual Recurring Revenue (AAR): Annual recurring revenue, sometimes referred to as annual run rate, is the normalized annual revenue from your existing subscriptions. It gives you an overview of how your business is performing year on year, and enables you to more accurately forecast your growth.
Monthly Recurring Revenue (MRR): Monthly recurring revenue, sometimes referred to as monthly run rate, is the normalized monthly revenue from your existing subscriptions. It gives you an overview of how your business is performing month on month, and enables you to more accurately forecast your growth.
2. Gross Margin: When a person or company purchases your product, are they purchasing this product, service, or technology for more than it costs you to produce? Great! Now, by how much and what percentage.
Here is the calculation for Gross Margin: (Gross Profit/Sales) x 100 = Gross Margin Percent
3. Customer Acquisition Cost (CAC): For an early startup, the CAC is hyper important. This metric helps identify how much you need to spend to “acquire” a new customer. To calculate your CAC cost, divide your sales and marketing costs, including overhead expenses, for a given period of time by the number of customers you picked up during that period of time.
A high CAC means you are spending too much money to acquire new customers.
4. Customer Lifetime Value (CLTV or LTV): This metric is very important! Generally, it is cheaper to retain an existing customer than to attract a new one. So, CLTV is how much one customer in their lifetime will spend on your product(s), service(s), or technologies.
We know that for an early-stage startup this is hard to calculate, but you need to know and have a hypothesis how long a customer will stay with you! If you are selling mattresses, the CLTV is based on their one-time purchase. If you have a subscription box service, the CLTV is based on how many months that customer stays a customer!
CLTV = average value of a purchase X number of times the customer will buy your product X average length of the customer relationship
Impact metrics are tailored to your business model and impact model. We suggest thinking about a few high-level questions for your impact model:
1. What is the impact you want to see in the world from your venture?
2. How will you know that the impact has occurred?
3. Can you measure the impact?
Once you have defined the vision of impact, there are databases that help hone in on the right impact metric. We suggest utilizing the Impact Reporting Investment Standards (IRIS) that was developed by the Global Impact Investing Network.
All of the metrics discussed are the tip of the iceberg for understanding your venture, but they are a great place to start. The key to being able to gauge the health of your company is focusing on the metrics that help you the most. At first, start by understanding and following a few very important metrics. As your enterprise becomes more sophisticated, feel free to add more… but don’t try to boil the ocean! Keeping it simple helps create clarity for you as an entrepreneur.
Interested in starting a new venture? Check out the upcoming 2-Day Launch Camp on Dec 10-11, 2020.
Looking to scale your business, hone your metrics, and prepare to raise capital? Apply to the Spring 2021 Impact Accelerator.