If I may offer a correction: 100,000 users (instead of the 10,000) worth a $1000 each = 100,000,000 users worth $1 each.
On tech news blogs, it’s common to see companies boasting about how many millions of users they have. But while user numbers can be a great indicator of general interest, they do little to tell the actual health of a company. After all, having 10 million users who register and then never come back is very different from 10 million active users.
So, when it comes to your own start-up, it’s important to focus on the stats that really matter—the ones that show both where your company is now and where it’s going. While each start-up has its own unique metrics that are important, here are three categories that are almost universal.
1. How Engaged are Your Users?
A person who signs up for your website but never does anything has little to no value. So, instead of counting the number of sign-ups, look at what your users are doing. What percent come back a second time? Third time? How many people use your site every month? Every day? And when users are on your site, what do they do? How much time do they spend?
At InstaEDU, which helps students connect with great tutors, one of the primary metrics I obsess over is total lesson time. Every morning, I look at how much time our students spent in lessons the previous day. I also watch how this time is distributed between new and returning students and what the distribution is between various lesson durations (e.g., What percentage of lessons are under 20 minute vs. over an hour?). It tells me a lot about how people are using the site, how engaged they are, and whether they’re coming back—and that’s the stuff that matters in the long-term.
2. How Much is Each User Worth (and How Much Does it Cost to Acquire One)?
Unless you’re starting a nonprofit, chances are that you expect each user to result in some amount of profit. If you’re monetizing from the start, pay close attention to what your users are spending or earning you in other forms of revenue. A business with 10,000 users who are worth $1,000 each is just as financially sound as one with 100 million users who are worth $1 each!
Also, with most companies, you’ll find that certain users spend a lot more than others. Try to determine what each spending cohort has in common. Do they come from the same lead source (e.g., referrals vs. Google Adwords)? Are they from the same demographic (e.g., high school students vs. college students)?
Once you know the expected value of each of your new users, you’ll have a better sense of what kind of marketing strategy you should adopt and how much you can afford to spend. For example, if most of your revenue is generated by people who come in through customer referrals, you know to prioritize that channel. Or, if users who come in through search advertising are worth twice as much as users who come in through your affiliate program, you know you can spend twice as much on each user you acquire through search.
3. What is Your Rate of Growth?
In many of your metrics—revenue, new users, time spent using your product—the rate of change can be more important than the metric itself. A company with 1 million active users that’s losing 5% of them every month is generally much worse off that a company with 1,000 active users that’s doubling every month.
Y Combinator founder Paul Graham has stated that a healthy early-stage start-up should be growing roughly 7% week-over-week across its key metrics. While weekly metrics can be sporadic, each month you should be thinking about how you can more efficiently attract, convert, and engage your users to show a healthy rate of growth.
And think of it this way: Getting to $100 million in yearly revenue can seem daunting, but if you’re growing revenue exponentially, as opposed to linearly (or randomly), you’ll start moving more and more quickly toward that goal.
These three categories are a good baseline, but you’ll want to determine what metrics make the most sense for your company. For example, while we focus on lesson time, your site could focus on number of messages sent or pageviews.
And whatever your key metrics are, start tracking them early on. The more you can show growth and traction, the more excited both your employees and your investors will be. And when you don’t show the growth you hoped for, the more prepared you’ll be to pinpoint the areas you can improve upon.