While most of you will roll your eyes when you hear that “metrics are important”, this won’t be as dry as a mathematics lecture..promise!
What gets measured, gets managed. Peter Drucker
Whether your a data person or not, this is not a step to be skipped while building and launching your business.
2 awesome outcomes from metrics:
- If you define how you will manage success – you’ll know when to pop the champagne corks!
- Even if you don’t find numbers sexy, there is always the Hawthorn Effect
It’s day 6 (so close!) in our 7 Day Startup – Set Targets.
ONE METRIC THAT MATTERS (OMTM) Rule:
THEORY
You must have a framework that helps you gauge your business’s progress because it is not always easy figuring out whether to give up on a business. To know where your business is going, identify one metric that matters at different stages. At every step you need to decide what to measure, how to measure it, and what represents success.
CRITERIA
- Use financial metrics, like revenue or monthly growth not the number of website visits.
- Pay attention to who is signing up, and get excited when you don’t know them.
- Set a goal for the first month and re-visit it monthly.
- Only measure important components at that time; OMTM changes with time.
HOW TO SET TARGETS
Using an example of recurring businesses, here is a model for applying the OMTM rule.
- Problem/Idea Validation Stage- You measure do people need the product by asking current customers if they would be disappointed if the product is discontinued. If at least 40% say they would be disappointed that is success.
- MVP Launch Stage- You measure how many people sign up for the product by counting the monthly sign up rate, and if it grows regularly you are on the right track.
- Business Model Validation Stage- You measure the profit margin by comparing how much you make if the founder was working and if you hire replacements for the founder. If the business can run with paying the founder and the replacements you are in good shape.
- Growth- You measure your
- Life-Time-Value (LTV) and your
- Cost per Acquisition (CPA) by
- figuring out how many subscribers were lost in a period divided by the total number of subscribers at the start of that period and
- how much it cost to get a customer.
- Ideally your LTV is a lot higher than your CPA.
ACTION
Create a spreadsheet that sets targets like revenue, number of sign ups/customers, and monthly growth for your business’s first months. If you need a hand or want to share your goals, leave a comment below