About Business Metrics in Startups

Business is something that is measurable, calculable and has a formula for each measurement. In digital startups, basically measurement (metric) that is used as a benchmark for achievement standards is no different from business, it's just that the approach sometimes needs to be adjusted to its characteristics. Understanding about business metrics It is necessary for startup actors to understand the condition of the business they are running and to determine the best strategy for strengthening in the business lines that need it.

In general, in a digital startup business, there are two main metric categories, namely (1) business and financial metrics and (2) product and financial metrics engagement-his. Within each category there are points that refer to specific measurements for each field. This helps to know which parts are working well and which parts need improvement in terms of performance and acceleration.

The following is some descriptions about the business metrics measured in a digital startup.

#1 Business and financial category

This metric category relates to the financial cycle that exists within the startup body. Usually determines whether or not the startup's business journey is healthy. This metric consists of several things, including:

Amount booking(Booking) and income(revenues) become one of the measurements that are often referred to to measure how business performance is related to consumer acceptance of the services or products being sold. Both are different things. Order is defined as the value of the contract between the company and the customer. It reflects the contractual obligation of the customer to pay the company. On the other hand, revenue is recognized when the service is actually provided or rented out during the subscription period.

Then there is also the term ARR (Annual Recurring Revenue) and MRR (Monthly Recurring Revenue). ARR and MMR are measures of recurring income components, which will come on their own. Startups can make an indication as to whether the ARR in sales of their services is growing or flat. If the startup experiences upselling or cross-selling customers, then this metric indicator should grow, which because it becomes a positive indicator for a healthy business. For every profit that has been predicted its measurement through LTV (Lifetime Value).

Gross profit (gross profit) is also included in the measurement in this category. This measurement provides an overview of how effective the revenue stream is achieved by the business. This metric measures the level of efficiency in controlling cost of goods or production costs, indicating the company's ability to produce efficiently. The higher the gross profit, the better the business from an operational perspective.

[Also read: Financial Terms That Startup Actors Must Pay Attention to]

Associated with a business contract there is what is called CVT (Total Contract Value) and ACV (Annual Contract Value). TVC is a measurement of the total value of a contract, either short term or long term. While AVC is a measurement of the contract value for 12 months. If the ACV is increasing, it will be an easy indication that consumers are paying more for the products offered. This means that there is a good acceptance of the features and capabilities of the products presented.

In business mockup like being booming currently in Indonesia, the term GMV (Gross Merchandise Value) is also an indicator of business metrics. That is, the total sales transaction from merchandise through marketplace in a certain period. The GMV measurement is carried out to find out what consumers like in their products marketplace. CAC (Customer Acquisition Cost) is the total cost of getting a customer delivered on a per user basis. This metric measurement is quite diverse and takes various forms.

#2 Product category and acceptance

Metrics in this category relate to how many users or consumers of a startup's product. This measurement is important, and has complexity diversity. Starting from counting active users, monthly growth, turnover to burn rate. The following is a brief description of each item:

Simply active users (active user) is defined as a registered user and still using the subscribed service. In practice there are many specific indications that explain what the "active" status looks like, it really depends on the service. Usually also measured from certain graphs in the system that have been added to the administrator panel. One service to another will be very different in defining active users.

MoM (Month-on-Month) growth rate be a measure of the average user growth measured in a monthly period. Sometimes compared to CMGR (Compunded Monthly Growth Rate), which is a measurement of growth on a regular basis. This metric helps startups to benchmark the growth rate of other companies. Otherwise it will be quite difficult to compare due to uncertainty and other factors.

[Also read: Seven Signs Consumers Are Leaving Your Company]

churn rate is the percentage of customers (subscribers) from a service that decided to discontinue the subscription. This is needed when startups want to expand, one of the indications must be to ensure that growth rate from the company (or the number of new customers who subscribe) must exceed churn rate-New.

Burn rate is the rate at which cash on hand is reduced. Especially in startup companies in the early stages, it is very important to know and continuously monitor burn rate them because they will fail if their company's cash runs out and don't have time to find the next stage of funding for their company. Whereas net burn is the correct way to calculate the cash issued each month.