Regardless of your stage in business knowing your numbers is important for founders. Key Performance Indicators, commonly abbreviated as KPI, provide founders with the power to make better decisions that are grounded in fact, instead of just emotion. It helps founders determine where to focus their efforts. A key performance indicator, typically abbreviated as KPI is a critical indicator of progress towards a goal.
The following are some advantages of having KPI’s that you track.
- When pitching to investors its vital to know your numbers. Things like gross profit, conversion rates and customer lifetime value are just a few numbers that potential investors may ask you for.
- When deciding whether to pivot knowing your KPI’s can help to ensure that you’re basing your decisions on reality rather than emotions.
- Having KPI’s helps you avoid shooting from the hip and not basing your decisions on facts.
- Knowing your KPI’s helps you know what to focus on. If you know your customer churn is high then focusing on the user experience and the value that users receive can be a good approach. Whereas if you have a low number of visitors then you may want to focus less on developing features and more on getting quality traffic to your site.
While KPI’s are important, not all are created equally. KPI’s typically fall into the categories of vanity and actionable. Vanity metrics don’t provide context or nuance. They are things like followers, signups and social media likes. These metrics look good on paper but lack meaning and importance. Actionable metrics on the other hand are tied to specific tasks that you can tie to goals in your business. Only metrics that are actionable and that you can use to take some action have real value in tracking.
The following are some examples of KPI’s that you can track for a web application. Different web application and business models will have different KPI’s that make sense tracking.
- Churn Rate
- New Members
- Average Customer Revenue
- COGS (Cost of Goods Sold)
- Retention Length
One thing that can help founders create better and more actionable KPI’s is to use a framework. One of the most popular frameworks for tracking KPI’s is the AARRR framework. This is popular among startups and SaaS companies. It splits the customer life cycle into five phases and provides metrics for each one. It tracks the customer from the first interaction to them becoming a paying customer. The five phases along with a potential user action that you might track are as follows:
- Acquisition Phase: App Visits, Bounce Rate
- Activation Phase: Newsletter Subscriptions
- Retention Phase: Clicks Link in Email
- Referral Phase: Referrals Sent
- Revenue Phase: Generates Some Minimum Amount of Revenue