Lesson 3: Market KPI’s

Industry/Market KPIs and Measuring Your Achievement

How do you measure success? The answer largely depends on your industry. There are standard financial metrics like EBITDA or NOPAT, but they might not be useful. Early-stage companies are rarely profitable, and most tech valuation models are based on projected future performance. The question then is what key performance indicators (KPI’s) are available to demonstrate your future potential? If you want to successfully raise funding, you have to know how to measure your success. Let’s examine potential KPI’s that you can use and what they mean to investors.

Let’s say your business is a website or digital content platform. Maybe you’re trying to be the next BuzzFeed and have an innovative content offering to sell. The KPI’s you would want to showcase would reflect how well you can monetize that content. What investors will look for is how well you can grow your audience, connect with your audience, and keep your audience. Common digital content metrics include:

• Audience Growth Rate: How fast is your audience growing each month?

• Audience Engagement: How much time is your audience spending on your site?

• Subscriber Growth Rate: How fast are you growing your subscriber base (if you offer multiple tiers for access).

• Advertising CPM: What you can charge advertisers marketing to your audience.

Notice that these metrics did not include revenue or earnings. If you’re a new digital platform, you likely are a long way from profitability. These KPI’s help investors evaluate your future performance and timeframe for reaching profitability.

Now let’s say your product is a software solution that you plan to sell to other businesses. Maybe it’s a tool that helps businesses better conduct market research on their target customers. As a SaaS company, there again are common metrics that are used to evaluate your future potential. You’ll notice that they differ significantly from the previous KPI’s:

• Customer Lifetime Value (CLV): The total earning potential for a particular customer relationship or all of your customers.

• Customer Acquisition Cost (CAC): How much it costs to attract each customer through various marketing channels.

• Time To Recover (CAC): How long into a customer relationship it takes to recover your CAC and start earning money.

• Customer Retention Cost: Any additional marketing costs to prevent customers from leaving.

• Churn: How many customers you lose on a monthly or annual basis.

Unlike those in the first example, these KPI’s examine how well you can monetize customer relationships. SaaS businesses need to show that they can attract and keep a growing number of customers. Significant customer growth and retention shows investors that you have a product that customers want.

Investors want to understand your potential for success and what kind of return they can earn. Strong KPI’s help you answer those questions and attract additional investors. You need to demonstrate your achievements with objective, measurable KPI’s that investors can understand. Your KPI’s will depend on your industry and business model, but they always try to measure your company’s potential. KPI’s are especially important for start-ups and early-stage companies that aren’t profitable. Strong KPI’s are the difference between securing a new round of investment or being passed over by investors.

You need to select two or three KPI’s that are specific to your core business or industry. If none of the above KPI’s are relevant to your business, find some data points that you can use instead. Talk to your sales team or your marketing professionals; that’s often where most of your KPI data will reside. You need some objective metrics to demonstrate your accomplishments and current progress. There is the temptation to cherry pick KPI’s that are attractive but don’t accurately represent your business performance. Resist that temptation at all costs. Nothing breaks faith in your business faster than poor integrity. Investors that feel misled will never invest and will tell others to do the same. You need to portray your company in the best light possible but have integrity at the same time.