autm the startup metrics
TRANSCRIPT
Startup Metrics
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C$ R$ Cost < Revenue
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Customer Relationships
© 2012 Steve Blank
Customer SegmentWho are they?
Why do they buy?
Customer SegmentWho are they?
Why do they buy?
✓✓
Your Customer Archetypes Drive How You Get/Keep/Grow
What’s their role? How this person is evaluated / promoted / compensated?
Who are they? Buyer’s name Position / title / age / sex
How do they buy? Discretionary budget (name of budget and amount)
What matters to them? What motivates them?
Who influences them? What do they read/who do they listen to?
Customer SegmentWhere are they?
How do we get them to buy?
METRICS
METRICS
# of visitors # of downloads % growth
VANITY METRICS
# of visitors # of downloads % growth
Five year forecast?
MAGICAL THINKING
$
time
the infamous J-Curve
$
time
VALLEY OF DEATH
$
time
VALLEY OF DEATH
ACTUAL CUSTOMER
Startups don’t fail because they fail to make something.
Startups fail because they fail to make something someone
wants to buy from them.
$
time
VALLEY OF DEATH
EPIC WIN
$
timeTRACTION!
$
timeTRACTION!
Profit
$
time
oops...
Profit = Revenue - Cost
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Cost?
Value?
$$$
Value?
Cost?
What does it cost to acquire one customer?
CAC
How much revenue can be extracted from one customer?
LTV
$
time
CAC << LTV
Profit
ifCAC << LTV
COST < REVENUEand
then COMPANY!
METRICS
AARRR
METRICS
Acquisition Activation Retention Referral Revenue
acquisition activation retention revenue
referral
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Example
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XYZ is a web application.
We want to sell XYZ for $500 / month.
We will find customers via ads & social media.
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XYZ
We want to sell for $500 / month.
We will find customers via ads & social media.
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Google AdWords
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Paid Demand @ $1500 / 1k Clicks
Organic Traffic @ $0.00
Google Adwords= $1.50 per Visitor
= $0.00 per Visitor
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Paid Demand = $1.50 / Visitor
Organic Traffic = $0.00 / Visitor
Suppose half of the visitors came from the ads …
… and half came from tweets, etc.
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Cost per Visitor = $0.75
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sign up now!
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sign up now! [email protected]
submit
Learn about XYZ!We can’t wait to tell you all
about XYZ! Give us your email and we’ll be in touch soon!
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Cost per Visitor = $0.75Visitor to Raw Lead
3%
Raw Lead Cost = 0.750.03
= $25
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submit
Learn about XYZ!We can’t wait to tell you all
about XYZ! Give us your email and we’ll be in touch soon!
Leads
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Cost per Visitor = $0.75Visitor to Raw Lead
3%Raw to Qualified Lead
20%
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Cost per Visitor = $0.75Visitor to Raw Lead
3%Raw to Qualified Lead
20%
Qualified Lead Cost = 0.75
0.03 * 0.20= $125
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Cost per Visitor = $0.75Visitor to Raw Lead
3%
Raw to Qualified Lead
20%
Closed Deal Cost = 0.75
0.03 * 0.20 * 0.10= $1250
Qualified Lead to Closed Deal
10%
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Cost per Visitor = $0.75Visitor to Raw Lead
3%
Raw to Qualified Lead
20%
= $1250
Qualified Lead to Closed Deal
10%
Marketing Cost Sales Cost = ?
1 closed deal 10 qual. leads 50 raw leads 1,667 visitors
marketing
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10% 20% 3%
sales
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VisitorsRaw Leads (RLC)
50 Qualified Leads (QLC)
10Closed Deals (CDC)
1
Sales Cost
Sales Cost = (1,667 * RLC) + (50 * QLC) + (10*CDC)
1,667
closed deal qual. to closed raw to qual. visitor to raw
cost
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- - - $200 $20 $2
sales action
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VisitorsRaw Leads
50 Qualified Leads
10Closed Deals
1
Sales Cost
Sales Cost = (1,667 * $2.00) + (50 * $20. 00) + (10 * $200. 00)
1,667
= $3,334 + $1,000 + $2,000 = $6,334
$2.00
$20.00
$200.00
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3% 20%
$1,250 + $6,334
10%
Marketing Cost Sales Cost= $7,584CAC =
Customer Acquisition Cost (CAC)
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LTV = ?
Lifetime Value of a Customer (LTV)
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Average Revenue Per User (ARPU)
ARPU = Total Revenue
Customers
Lifetime Value of a Customer (LTV)
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Average Revenue Per User (ARPU)
ARPU = Total Revenue
CustomersGross Margin =
Revenue - CostRevenue
Lifetime Value of a Customer (LTV)
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LTV = ARPU * Gross Margin not quite...
Lifetime Value of a Customer (LTV)
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How long is someone a customer?
churn =leavestay
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Churn
at 1%month 1 2 3 4 5
100 99 98 97 96 …
at 3% 100 97 94 91 88 …
at 5% 100 95 90 86 81 …
at 10% 100 90 81 73 66 …
Churn# months =1
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LTV = ARPU * Gross Margin
Churn
Lifetime Value of a Customer (LTV)
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LTV = 0.01
Suppose ARPU = $500 per month & Gross Margin = 40% & Churn = 1% per month
1%
$500 * 0.4 = $20,000
Lifetime Value of a Customer (LTV)
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$1,250 + $6,334Marketing Cost Sales Cost
= $7,584CAC =
LTV = 0.01$500 * 0.4
= $20,000ARPU Gross Margin
Churn
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$1,250 + $6,334Marketing Cost Sales Cost
= $7,584CAC =
LTV = 0.01$500 * 0.4
= $20,000ARPU Gross Margin
Churn
SUCCESS!
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$1,250 + $6,334Marketing Cost Sales Cost
= $7,584CAC =
LTV = 0.03$500 * 0.4
= $6,667ARPU Gross Margin
Churn
FAIL!
How do you estimate churn?
acquisition activation retention revenue
referral
acquisition activation revenue
The Happiness Metrics
retention
referral
METRICS
Acquisition Activation Retention Referral Revenue
VP CS
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C$ R$ Cost < Revenue
CAC << LTV
The Balancing Act
Viral effects Inbound Marketing Free or Freemium Open Source Free Trials
Scalable Pricing Cross Sell/Upsell Product line expansion Lead Gen for 3rd parties
Touchless conversion Inside Sales Channels Strategic partnerships
CACLTV
The Balancing Act
Viral effects Inbound Marketing Free or Freemium Open Source Free Trials Touchless conversion Inside Sales Channels Strategic partnerships
Field Sales Outbound Marketing
Scalable Pricing Cross Sell/Upsell Product line expansion Lead Gen for 3rd parties
High Churn Rates Low customer satisfaction
CACLTV
What Investors are Looking For?
A well ‘balanced’ business model!
CAC
LTV
ifCAC << LTV
COST < REVENUEand
then COMPANY!
Search Metrics
Execution Metricsvs
Value proposition product cost, mkt size/share, competition?
Customer Relationships customer acquisition costs, conversion rates, lifetime value?
Market Type revenue curves
Operating Costs basic operating costs of the business?
Channel Channel margin, promotion, shelf-space charges?
Revenue Streams average selling price, # of customers/year, achievable revenue? Burn Rate per month? When will the company run out of cash?
Metrics That Matter
CACCustomer Acquisition Cost
CAC = marketingCosts + salesCosts
# of customers
goal: CAC
LTVLifetime value of the customer
LTV = ARPU * grossMargin
churnRate
goal: LTV
ARPUAverage Revenue Per User
ARPU = Revenue
# of Customers
ARPU LTV
Gross Margina glimpse at the profit
grossMargin = Revenue - Costs
Revenue
grossMargin LTV
Gross Margina glimpse at the profit
grossMargin = Revenue - Costs
Revenue
goals: Costs Revenue
Pricingconnection between price and margin
price = cost
1 - grossMargin
$167 = $100
1 - 0.4example
Burn RateHow fast are you using up your cash?
burnRate = $$$ spent
# of months
goal: Costs
Length of RunwayHow long do you have left?
runway = $$$ available
burnRate
goals: Costs Revenue
Revenue GoalsWhat you want to see
0
17.5
35
52.5
70
April June Un2tled 1 Un2tled 3 Un2tled 5 Un2tled 7time
revenue
Revenue GoalsWhat you want to see
0
17.5
35
52.5
70
April June Un2tled 1 Un2tled 3 Un2tled 5 Un2tled 7time
revenued$dt
Revenue Goals… the real question is:
0
17.5
35
52.5
70
April June Un2tled 1 Un2tled 3 Un2tled 5 Un2tled 7time
revenued$dt
how many customers?
New Customers NeededConnecting revenue to sales
# needed = revenue goal
LTV
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