50 innovation analytics you need to know

The definitive performance guide for 2020

This guide should introduce you to key performance indicators that help optimize your digital product performance.

With this teams will get a great understanding of what to look for, how to find it, and what it means for success of the venture.

Combine this with our analysis handbook to pull together complex breakdowns of performance.

Most of the times you don’t have to track all of the metrics used in this article – every organization needs to find the right balance between the best metrics measured and resources allocated for the process of data collection and analytics.  

If you have a hard time picking the right metrics cocktail we are more than happy to come handy. Drop us a message here and say hi.

Back of the napkin scorecard

Use these 6 KPI targets to get a quick sense of how a startup is performing or optimizing.

If these are not clear just yet – keep on reading the article – there’s a deep dive coming on every one of them (and much more).

Author: Blake Williams

Read: 15 minutes

DAU:MAU

A measure of dedicated repeat users

LTV:CAC

An LTV of 3 shows a successful business model

CACRT

CAC Recovery Time – Shorter CACRTs indicate higher growth velocity potential

Viral coefficient

A coefficient higher than 1 means exponential growth potential

NPS

Product-market fit

RBC

Retention by cohort – product stickness by audience or user behavior

#1 Active users

The number of active users is very interesting for online services and apps. Think about online software, social media platforms, online games and mobile apps. Active users represent the amount of unique individuals/visitors (not to be confused with the number of sessions) that perform activities on an app or webpage, e.g. per month.

When you have insight in the number of active users you can better predict the demand for a product and the user growth rate. Moreover, it will provide you with information regarding potential for revenue generation.

#2 Gross Margin

Gross margin = (Total revenues – total costs of production) / total revenues * 100%.

A high gross margin means that you generate relatively low costs related to the production of your products or delivery of services. Hence, it is intuitive that the gross margin of a SaaS firm is much higher than that of a 3D printer production firm as the production of printers is (likely) more costly compared to the delivery of online software.

In order to arrive at your firm’s operating profit (EBIT) you deduct operational expenses such as sales, marketing, R&D, etc. from the gross margin. A high gross margin therefore automatically means that you have more margin to cover such operational expenses. Moreover, you could use your gross margin to compare your performance to similar firms to see how competitive you are in terms of buying (raw) materials and sales price.

#3 Burn Rate

Burn rate = total cash inflow in month X – total cash outflow in month X à when outflow > inflow.

The burn rate is defined as the net outgoing cash flow (e.g. per month).

Cash is king! When you are a startup founder and have never heard about the burn rate, you should scratch your head. The burn rate is vital for determining the runway (see point ten below) and helps you establish at what point in time your firm will be out of money based on your current cash flows. Having a positive burn rate means you have spent more money in a given period than that you have earned. Say that you own €50,000 in cash at the beginning of the month and are left with €40,000 at the end of that month. That would mean that in this specific month you have spent €10,000 more than you have earned and hence your burn rate is equal to €10,000. When you have more money flowing in than out of your company, your burn rate is negative. This might seem counter intuitive, but is in fact a good thing!

Data and metrics for digital products are our sweet spot. Let’s get acquainted and get you on track.

#4 Conversion rate

The conversion rate is the number of people that performs a certain action on the basis of a ‘call to action’ represented as a percentage of the total amount of people that have been exposed to the call to action.

For instance, let’s say you curate a blog page that includes a sign up form for a weekly newsletter in which new blogs are shared. If a thousand people would visit this blog page and one hundred of them subscribe themselves for the blog’s newsletter (the call to action) then the conversion rate is 10%.

Conversions occur on various levels: from lead to client, from website visitor to newsletter follower, from Facebook visitor to webinar subscriber, etc. By measuring conversion rates and experimenting with different calls to action or webpage lay-outs you can try to improve your conversion rates and sequentially create more leads or customers.The eventual conversion to a final customer provides validates both the ability of a firm to sell a product/service and the demand of the market for that product/service.

#5 CAC or Customer Acquisition Cost

Customer acquisition costs (CAC) show the average expenses required to acquire a new customer. These typically include sales and marketing expenses.

CAC = Total expenses of acquiring new clients / total new acquired clients

The CAC informs you about the effectiveness of your sales & marketing strategy and helps you with optimizing the return on investment (ROI) of these tactics. It is therefore important to monitor your CAC for your different sales & marketing activities so you can learn which acquisition channels are more effective than others.

Are you acquiring many new clients via Google Adwords and via Facebook advertising, but is your CAC lower for Facebook advertisements? Then save costs and increase your profits by shifting investments to Facebook advertisements!

#6 Customer Lifetime Value

The customer lifetime value (CLTV or LTV) is a prognosis of the total revenues that one client will generate on average during the full period that he/she is buying or using your services or products.

Optimize your LTV/CAC ratio to 3 or higher

LTV is the total dollar amount you’re likely to receive from an individual customer over the life of their account with your product. Since the metric hinges on looking at your customers in aggregate or at least by segment, Lifetime Value allows you to account for and accurately predict your business’s revenue and profit.

You need to care about LTV, because a successful business model requires that your customer spends more than the cost it took to acquire them. In other words, your LTV must be higher than your CAC (see image above). If your LTV is lower than CAC, you are losing money with each new customer. If that’s the case, it’s worth dropping everything else you’re doing to reduce your CAC (easier) or improve your LTV (more difficult).

#7 OPS Cost

Sales & Marketing costs: 25% of revenues;

Research & Development costs: 15% of revenues;

General & Administrative costs: 5% of revenues.

All these costs are so-called indirect costs, meaning that they do not directly depend on the number of products you create or services you deliver. This means that they are generally easier to reduce temporarily when this is required (when you need to cut costs for instance).

Moreover, if you ever need to create a financial forecast, for instance when applying for funding, then this exercise will also help you in testing the assumptions behind your financial plan. You could for example compare your forecasted revenues with your Sales & Marketing expenses expressed as a % of total revenues in all the years of your financial plan.

#8 Activation rate

The Activation Rate measures how many visitors are engaging with your website or app. Activation can be defined several different ways depending on your business including number of clicks, time on website, pages viewed, downloads, email/blog subscription, or even a trial signup. The Activation Rate can be any action that will lead a visitor to a return visit (retention).

This startup metric measures the first experience a visitor / potential customer has with your product/service/app.

“The top three metrics that are most important for early startups to track are active user numbers, 2nd month retention, and engagement rates. Do customers just open the product or do they actually use it?”

– George Northcott, Co-Founder and Head of Business Development at Founders Factory

#9 Daily Active Users (DAU)

Daily active users (DAU) is the total number of users that engage in some way with a web or mobile product on a given day. In most cases, to be considered “active,” users simply have to view or open the product. Web and mobile app businesses typically consider DAU as their primary measure of growth or engagement.

#10 Monthly Active Users (MAU)

Monthly active users (MAU) is a term that refers to the number of unique customers who interacted with a product or service of a company within a month.

Facebook’s MAU definition:

MAU: A registered active user who logged in and visited Facebook through the website, mobile app, or Messenger application in the last 30 days as of the date of measurement.

VS.

Twitter’s MAU Definition:

A Twitter user who logged in or were otherwise authenticated and accessed Twitter through the website, mobile website, desktop or mobile applications, SMS, or registered third-party applications or websites in the 30-day period ending on the date of measurement.

#11 DAU to MAU Ratio

(#) Daily active users / (#) Monthly active users = (%) DAU/MAU Ratio

The ratio of DAU to MAU is the proportion of monthly active users who engage with your product in a single day window.

The Daily Active Users (DAU) to Monthly Active Users (MAU) Ratio measures the stickiness of your product – that is, how often people engage with your product. DAU is the number of unique users who engage with your product in a one day window. MAU is the number of unique users who engage with your product over a 30-day window (usually a rolling 30 days).

“I would argue that the single most telling metric for a great product is how many of them become dedicated, repeat users.”

– Andrew Chen, Angel Investor

#12 Customer Churn Rate

(#) Subscribers Lost / (#) Starting Monthly Subscriber Base = (%) Customer Churn

You can measure your customer churn rate in one or more of the following ways: 

– Total number of customers lost during a specific period

– Percentage of customers lost during a specific period

– Recurring business value lost

– Percentage of recurring value lost

American credit card companies typically have customer churn rates of around: 20% 

 

Software-as-a-Service (SaaS) companies usually report client churn rates of between 5-7%

 

Many retail banks have churn rates of between 20-25%

 

In 2003, the churn rate of daily newspaper subscriptions in the U.S. was 58%

 

European cellular carriers experience churn rates of between 20-38%

#13 Revenue Growth Rate

Revenue Growth Rate = Revenue this period / revenue previous period

Revenue Growth Rate is an indicator of how well a company is able to grow its sales revenue over a given time period. While the revenue is an actual number, the revenue growth rates simply compares the current sales figures (total revenue) with a previous period (typically quarter to quarter or year to year).

#14 CAC Recovery Time

CAC Payback Time = CAC / ARPC

Your CAC Payback Time or CAC Recovery Period is the amount of time it takes for your business to recover the money spent on acquiring a customer, typically expressed in months. It is a useful metric in determining how long it will take for your sales and marketing expenses to materialize into positive cash flow. (ARPC = Average revenue per customer)

Additionally, CAC Payback can be taken one step further by adding Gross Margin to your ARPC calculation in order to eliminate direct costs from the formula:

CAC Payback Time = CAC / ARPC

#15 Runway

In the physical world, a runway is a takeoff strip for airplanes. … In the startup world, runway is how long your company can survive if your income and expenses stay constant. When companies raise money, they are literally trying to increase their runway (“We spend $100k/month and have $400k in the bank.

This metric is heavily influenced by the CAC payback period and the LTV:CAC ratio. If startups have short runway they are unproven business models or aiming to create a network effect (defied later) that must be worked towards.

#16 Gross Merchandise Volume (GMV)

Gross Merchandise Volume (alternatively Gross Merchandise Value or GMV) is a term used in online retailing to indicate a total sales dollar value for merchandise sold through a particular marketplace over a certain time frame.

In terms of economics, GMV is a raw figure that doesn’t offer much insight into the value of the items sold because it doesn’t factor in any costs accrued by the retailer. Additionally, GMV doesn’t include discounts or returns, or the cost of keeping and storing inventory before it’s sold.

It’s not even a good predictor of net sales, which is a more accurate representation of a company’s overall financial health. Even for e-commerce sites like Amazon, the site’s revenue is not calculated based solely on the dollar value of items sold.

#17 User Activation Rate

(#) of website sessions / (#) activities completed = (%) Activation Rate

The Activation Rate measures how many visitors are engaging with your website or app. Activation can be defined several different ways depending on your business including number of clicks, time on website, pages viewed, downloads, email/blog subscription, or even a trial signup.

#18 Month-on-Month Growth

It’s a simple measure to keep track of the rates of change between two identical periods of time. Growth can refer to any metric – revenue, conversions or costs. It is a great indicator of momentum in the short run. From there, if you compare it agaist quarter over quarter and year over year values it is a very good method to get the idea of how your short term is running agains mid and long term. It is a great way to keep track of those in addition to Month-to-date or Year-to-date values.

#19 Viral Coefficient

(#) invitations sent per user X (%) conversion rate = (#) Viral Coefficient

How quickly does your marketing output bring in a new customer, prospect, or converter? To determine this, the Viral Coefficient needs to be found by multiplying your existing customer base by your average user-sent invitations, multiplied by the invitation conversion rate, divided by your existing customer base. If your ending calculations result in anything above a coefficient of 1, then you are definitely witnessing exponential growth.

Let’s see it in action:

Example: You have an existing base of 200 customers and received 120 referrals and closed 10 of those with newly opened accounts, it would look like: “(100/200=.50)” This means that for every two existing customers, you are gaining successfully referred customers to your business. Sounds good right and it is good, but remember viral growth is a whole new ballpark, and you may need the help of a few growth tools to help expand your start up’s efforts.

#20 Visitor to lead conversion rate

Want to get the most out of any paid customer acquisition strategy or even organic for that matter, then maximize your visitor to lead conversion rate.

What’s good look like?

Average conversion rates hoover between 2 and 4%. If you’re less than 2% then your strategy is failing. If you’re average, well you’re average. If you are above 4% you’re dialing it in and seperating from the competitive pack to be a front running.

What should your northstar be?

Unicorns have conversion ratio’s of 11% + which means that 1 out of every 10 people driven to the website buys before leaving.

#21 Retention By Cohort (RBC)

A cohort is a group of users that share a common characteristic. Cohort analysis is looking at the retention analytics of those users over time. If you’re only looking at DAU / MAU, you’ll be blind to retention issues that will kill your app if left unaddressed.

There are 2 main ways to break your users into cohorts for cohort analysis:

Acquisition cohorts: divide users by when they signed up for your product. With a consumer app, you might break down your cohorts by the day they signed up. SaaS services are more likely to track monthly cohorts.

Behavioral cohorts: divide users by the behaviors they exhibit in your app within a given timeframe. These could be any number of discrete actions that a user can perform — sharing a photo, playing a song, buying gold coins, or any combination of these actions.

Cohort analysis is critical because DAU / MAU counts are highly distorted by growth. If your app is growing rapidly, new user signups will mask where your existing users are dropping off in your DAU / MAU numbers.

#22 Monthly Recurring Revenue (MRR)

Monthly Recurring Revenue, almost always referred as MRR, is probably the most important metric at all of any subscription business. It’s what makes this business model so great. Once you acquire a new customer you got an recurring revenue, which means you don’t have to worry about one-off sales every month.

#23 Quarterly Recurring Revenue (QRR)

Quarterly Recurring Revenue (QRR) is a metric used to understand how much money customers are paying quarterly for subscriptions for a product or service.

#24 Annual Recurring Revenue (ARR)

Annual Recurring Revenue, or ARR, is a subscription economy metric that shows the money that comes in every year for the life of a subscription (or contract). More specifically, ARR is the value of the recurring revenue of a business’s term subscriptions normalized for a single calendar year.

#25 Annual Revenue Per Account (ARPA)

ARPA = MRR / Total # of Customers

Average Revenue per Account (sometimes known as Average Revenue per User or per Unit), usually abbreviated to ARPA, is a measure of the revenue generated per account, typically per year or month. You could also say that it represents the Average Revenue per Customer, but remember that a customer may have more than one account depending on your product/services characteristics.

There is a good practice of measuring the Average Revenue per Account separately for new customers. So instead of having an ARPA metric for all your customers, you’d have two different metrics: Average Revenue per Existing Account and Average Revenue per New Account.

#26 Total Contract Value

Total Contract Value = (Monthly Recurring Revenue * Contract Term Length) + Contract Fees

Total contract value measures how much value a contract is worth once executed. It includes any recurring revenue from the contract, as well as all one-time charges like professional service fees, onboarding fees, and any other charges incurred throughout the contract term.

#27 Deferred Contract Value

In some business models, especially the ones with long sales cycle and on-demand production deferred contract value is a measure, that helps manage the cash flow and financial predictions. It is especially crucial in early-stage startups, where the cash flows are usually a challenge. 

#28 Customer Concentration Risk (CCR)

Customer concentration is a risk which many investors may not be aware of when researching a company. It arises when a company earns more than 20% of its revenue from a single customer. … Another definition of customer concentration is when the bulk of a company’s large customers come from a certain industry.

#29 Cost per Click (CPC)

If you run digital campaigns, you want to measure your CPC across different channels to identify which perform highest. PPC (Pay per click) campaigns are usually very easy to measure, while content marketing and growth hacking could be a bit more of a challenge, altough it is good to run cross channel analytics to understand what is working best.

#30 Total Addressable Market

(#) Daily active users / (#) Monthly active users = (%) DAU/MAU Ratio

Total addressable market (TAM), also called total available market, is a term that is typically used to reference the revenue opportunity available for a product or service. TAM helps to prioritize business opportunities by serving as a quick metric of the underlying potential of a given opportunity.

#31 Net Burn Rate

(#) Daily active users / (#) Monthly active users = (%) DAU/MAU Ratio

A company’s net burn is the total amount of money a company loses each month. So, if a technology startup spends $5,000 monthly on office space, $10,000 on monthly server costs and $15,000 on salaries and wages for its engineers, its gross burn rate would be $30,000.

#32 Gross Churn Rate

Gross MRR churn rate is the percentage of total monthly revenue lost from contracts that your customers canceled. Net MRR churn rate is the percentage of total monthly revenue lost from canceled contracts, modified by any additional revenue from upgrades or service expansions from your remaining customers.

#33 Sell Through Rate

Sell through rate is a calculation, commonly represented as a percentage, comparing the amount of inventory a retailer receives from a manufacturer or supplier against what is actually sold to the customer.

#34 Net Promoter Score (NPS)

The Net Promoter Score is an index ranging from -100 to 100 that measures the willingness of customers to recommend a company’s products or services to others. It is used as a proxy for gauging the customer’s overall satisfaction with a company’s product or service and the customer’s loyalty to the brand.

#35 Platform risk

Platform risk is the debt associated with adopting a platform. Platform risk becomes an anti-pattern when three conditions are met:

The platform dependency becomes critical to company operations.

The company is unaware of the extent of the risk it has assumed.

There is increased likelihood of adverse platform change.

Here are 8 subpatterns to look into
Lock-in. …
Forced upgrades. …
Forced platform switch. …
The partner dance. …
Swinging. …
Hundred flowers. …
Failure to deliver. …
Divergence…

#36 Network Effect (Metcalf’s Law)

A network effect is the effect described in economics and business that an additional user of goods or services has on the value of that product to others. When a network effect is present, the value of a product or service increases according to the number of others using it.

#37 Contribution Margin

Contribution Margin = Revenue – Variable Costs

When you make a product or deliver a service and deduct the variable cost of delivering that product, the leftover revenue is the contribution margin.

#38 Average Order Value

Average order value (AOV) tracks the average dollar amount spent each time a customer places an order on a website or mobile app. To calculate your company’s average order value, simply divide total revenue by the number of orders

#39 Contribution Margin

Whale Curves are graphical representations of the concentration of firms’ profits, usually plotting cumulative profits against cumulative products ranked by profitability.

#40 Channel Scalability

There are two primary channels that unicorns use at scale. SEO and Referral. s

The reason why SEO is such an effective scaled growth channel is the sheer number of searches done per day with high intent. Google processes over 3.5 billion searches per day, which can be thought of as 3.5 billion chances per day to show up for free to a user. In addition, it scales very well since the costs don’t scale with the amount of acquired users, so your effective “CAC” goes should decrease over time.

#41 Unit Economics

LTV, CAC, LTV:CAC Ratio

the numbers are the direct revenues and costs associated with a business model expressed on a per unit basis. Let me explain more:

#42 LTV to CAC Ratio

3:1. This is often given as a healthy ratio (a greater ratio is even better) at which to benchmark the LTV:CAC of your SaaS business. Importantly, this ratio is telling us that for every €1 it costs to acquire a customer the business gets €3 back. When a business knows it’ll get €3 back for every euro invested, their attention typically switches to scaling the business quickly and investing in growth.

#43 Listing Conversion Rate

(#) purchases from listing / (#) of listing views= (%) Listing Conversion Rate

the percentage of buyers who viewed a particular listing and then completed a purchase.

#44 Net Seller Growth Rate

The number of new sellers minus the sellers who left in a given time period, over a growth rate for another historical time period.

#45 Net Buyer Growth Rate

#46 Percentage of Active Listings

This is a measure that calculates the proportion of listings which show up in buyers’ searches. As marketplaces are very varied, this metric is individual and depends on the business model and specifity.

#47 Percentage of Active Sellers

#48 Percentage of Engaged Buyers

A metric that should not be a stand-alone KPI as you might oversee some threats that come up, but it’s worth to have an eye on alongside other KPIs like total buyers number or conversion rates. How you define engagement depends on your business model, usually a number of interactions or communication across different channels.

#49 Percentage of Satisfied Transactions

#50 Average Revenue Per User

total revenue from users / number of users

A metric popular especially among subscription based services. It helps companies compare growth patterns. It can also come handy in pricing strategy. As the goal is to maximize the ARPU and you offer different pricing plans, you definitely want to know which cohorts generate highest ARPU.  

Data and metrics for digital products are our sweet spot. Let’s get acquainted and get you on track.

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