Standards vs Superficial Tricks: A Review
In the dynamic world of startups, understanding the key metrics that quantify progress is essential. Joseph Benson-Aruna, head of product at DFS Lab, offers valuable insights on this matter.
Benson-Aruna recommends three important metrics for startups: Customer Acquisition Cost (CAC), Lifetime Value of a Customer (LTV), and Monthly Recurring Revenue (MRR). Startups should aim for a minimal customer acquisition cost, with users generating returns that pay off this cost by a significant margin.
Cohort analysis is crucial for startups to get a clear sense of how users appreciate a product over time. By analysing active users, startups can measure churn and retention rates in cohorts (of say months or quarters) to see how they interact and return.
Revenue is undoubtedly an important metric, but it's not enough if the burn rate is high and revenue per customer is low. Focusing on transaction volume can help startups break down the numbers to see the types of people who return to make transactions and influence their long-term plans.
Benson-Aruna advises focusing on transaction volume instead of transaction value, as it provides more valuable product and business insights. For instance, Flutterwave's Store platform grew from 1,000 users in May to 17,000 users in November, while Takealot, an e-commerce platform based in South Africa, sold $407 million worth of merchandise between April and September.
However, it's important to distinguish useful metrics from vanity metrics. Metrics like registered users, downloads, and raw pageviews can be easily manipulated and do not necessarily correlate with active users, engagement, cost of acquiring new customers, and revenues and profits.
Startups can get a clear sense of where their product stands by carrying out surveys of customers to find a unique selling proposition (USP), net promoter score (NPS), and high user retention. For example, Jumia, an e-commerce platform, sold $736 million worth of merchandise between January and September, operating in 12 countries, while earning $119 million in revenue during the same period.
Benson-Aruna believes that active users, transaction volume, and revenue are the three most important metrics for startups to judge progress by. Early adopters of this approach include Facebook, whose early employees found that users who had more than 7 seven friends in the first 10 days after signing up were most likely to use the product consistently, making user retention a key metric for them.
Twitter's early metric for judging adoption was taking note of users who visited 7 times in a month. Similarly, COVID-19 affected South Africa's economy when it hit, impacting Takealot's revenue numbers.
In conclusion, startups should focus on business metrics and product metrics, as they overlap and influence each other. Useful metrics will result from usable, desirable products, and startups' main obsession should be on basic things like ease of signups and onboarding. By adopting these principles, startups can navigate their journey towards success more effectively.
