Why tracking your business performance is crucial

Post by 
Viktor Dessov
September 12, 2020

ata is arguably the most important asset that a company can possess. Whenever it isn’t gathered or utilized in a proper manner, invaluable opportunities are being wasted. Tracking business performance is especially crucial for startup teams that need to make quick decisions and apply rapid adjustments to their strategies. Without having all the relevant metrics there can be no adequate ‘feedback loop’ - an essential part of the Lean Startup Methodology. The feedback loop basically allows entrepreneurs to test, change, and iterate their product or service based on all the information they’ve obtained - until they reach product-market-fit. From there on, the compilation of vital data can be used to enhance the overall performance. 

KPIs (Key Performance Indicators) vary from industry to industry. Among the most important ones that apply to the majority of companies in the tech world (both B2C and B2B) are CAC (Cost of Acquisition), LTV (Lifetime Value), NPS (Net Promoter Score), Churn rate, Burn rate, OCF (Operating Cash Flow), MRR (Monthly Recurring Revenue), ARPU (Average Revenue Per User), Net Profit, Gross Margins, etc.

While one or two of these metrics may display your business performance in a very favourable manner, it could be deceiving. You need to take into account the combination of all of them in order to be sure that you are truly heading in the right direction.

For instance, the lifetime value of a customer and the net promoter score may be above the industry average but if you require that your clients make recurring payments and the churn rate is off the chart, then you’re in trouble.
Similarly, having an extraordinarily low churn rate, which is, however, combined with a high cost of acquisition and a low LTV will most likely prove to be detrimental to your business. 

Sure, founders need to have a North Star metric - for example in the case of eCommerce this would most likely be ‘Number of orders’. However, it should only be viewed as being a greater factor in the overall performance analysis, not the sole metric to focus on.

At the end of the day, Profit is King. No investor will care how many shares in the social media channels you are getting, nor how short your sales cycle is if it doesn’t actually translate into revenue - those are all called ‘vanity metrics’. It is expected that a business would most likely be losing money in the first months (or even years) of its existence. Nevertheless, if the stats show that this trend will not change before you run out of money, then you have to take precautions. This can also be true when you are profitable for several reasons.

First of all, you need to be prepared for rapid growth. It may sound strange to you, but oftentimes rapidly scaling the business is what leads to its demise. If you don’t have the team that is able not only to maintain the quality of your products or services but to also improve them, then you will end up with some extremely dissatisfied customers. You might even lose your most fervent fans - the early adopters. And as they say, you don’t hire people for tomorrow but for 6 months ahead. The recruitment process can be long and excruciating, especially if you are aiming to acquire top experts. If you are properly tracking your numbers and you are foreseeing the tendencies for growth, then you can expand the team before you start feeling the pressure.

Second, you may be really far from the optimal performance a business can reach. What if you could increase your revenue within a month just by changing your pricing or by concentrating your marketing efforts on a different customer segment? The lost opportunity cost can make even the top managers lose sleep. Sure, €1 million ARR (annual recurring revenue) sounds nice but what if it could have been €5 million instead? This is where the analyses based on KPIs come into play.

Without having tracked your performance thoroughly it would be hard to determine where the issues lie. It’s like a doctor trying to figure out what his patient suffers from exactly without having looked at all of his health indicators. It might turn out that your unappealing website leads to a high bounce rate - and by fixing the front-end you actually manage to get more leads. One simple adjustment can turn your whole efficiency around. Therefore, make sure to become obsessed with numbers and your business will have a higher chance to thrive.  

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