AUTM Startup Course Lecture on The Startup Metrics, and the Metrics that Matter

1. Startup Metrics

3. VP CS

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9. VP CS
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11. Customer Relationships

12. © 2012 Steve Blank

13. Customer SegmentWho are
they?
Why do
they buy?

14. Customer SegmentWho are
they?
Why do
they buy?
✓
✓

15. 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?

16. Customer SegmentWhere are
they?
How do we get
them to buy?

18. METRICS

19. METRICS
# of visitors
# of downloads
% growth

20. VANITY METRICS
# of visitors
# of downloads
% growth

21. Five year forecast?
MAGICAL
THINKING

22. $
time
the infamous
J-Curve

23. $
time
VALLEY OF
DEATH

24. $
time
VALLEY OF
DEATH
ACTUAL CUSTOMER

25. Startups don’t fail
because they
fail to make
something.
Startups fail
because they
fail to make
something
someone
wants to buy
from them.

26. $
time
VALLEY OF
DEATH

27. EPIC WIN

28. $
time
TRACTION!

29. $
time
TRACTION!
Profit

30. $
time
oops...
Profit = Revenue - Cost

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Cost?
Value?

33. $$$
Value?
Cost?

34. What does it cost
to acquire one customer?
CAC

35. How much revenue can
be extracted from one customer?
LTV

36. $
time
CAC << LTV
Profit

37. if
CAC << LTV
COST < REVENUE
and
then COMPANY!

38. METRICS

39. AARRR

40. METRICS
Acquisition
Activation
Retention
Referral
Revenue

41. acquisition activation retention revenue
referral

42. 42
Example

43. 43
XYZ is a web application.
We want to sell XYZ
for $500 / month.
We will find customers
via ads & social media.

44. 44
XYZ
We want to sell
for $500 / month.
We will find customers
via ads & social media.

45. 45
Google AdWords

46. 46
Paid Demand @ $1500 / 1k Clicks
Organic Traffic @ $0.00
Google Adwords
= $1.50 per Visitor
= $0.00 per Visitor

47. 47
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.

48. 48
Cost per Visitor = $0.75

49. 49
sign up now!

50. 50
sign up now! you@gatech.edu
submit
email
Learn about XYZ!
We can’t wait to tell you all
about XYZ! Give us your email
and we’ll be in touch soon!

51. 51
Cost per Visitor = $0.75
Visitor to Raw Lead
3%
Raw Lead Cost =
0.75
0.03
= $25

52. 52
you@gatech.edu
submit
email
Learn about XYZ!
We can’t wait to tell you all
about XYZ! Give us your email
and we’ll be in touch soon!
you@gatech.edu
Leads
me@gatech.edu
us@gatech.edu
we@gatech.edu

53. 53
Cost per Visitor = $0.75
Visitor to Raw Lead
3%
Raw to Qualified Lead
20%

54. 54
Cost per Visitor = $0.75
Visitor to Raw Lead
3%
Raw to Qualified Lead
20%
Qualified Lead Cost =
0.75
0.03 * 0.20
= $125

55. 55
you@gatech.edu
Leads
me@gatech.edu
us@gatech.edu
we@gatech.edu
Qualifying
Contract!

56. 56
Cost per Visitor = $0.75
Visitor 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%

57. 57
Cost per Visitor = $0.75
Visitor to Raw Lead
3%
Raw to Qualified Lead
20%
= $1250
Qualified Lead to Closed Deal
10%
Marketing Cost Sales Cost = ?

58. 1 closed deal
10 qual. leads
50 raw leads
1,667 visitors
marketing
58
10%
20%
3%
sales

59. 59
Visitors
Raw Leads (RLC)
50
Qualified Leads (QLC)
10
Closed Deals (CDC)
1
Sales Cost
Sales Cost = (1,667 * RLC) + (50 * QLC) + (10*CDC)
1,667

60. closed deal
qual. to closed
raw to qual.
visitor to raw
cost
60
- - -
$200
$20
$2
sales action

61. 61
Visitors
Raw Leads
50
Qualified Leads
10
Closed 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

62. 62
3%
20%
$1,250 + $6,334
10%
Marketing Cost Sales Cost
= $7,584CAC =
Customer Acquisition Cost (CAC)

63. 63
LTV = ?
Lifetime Value of a Customer (LTV)

64. 64
Average Revenue Per User (ARPU)
ARPU =
Total Revenue
Customers
Lifetime Value of a Customer (LTV)

65. 65
Average Revenue Per User (ARPU)
ARPU =
Total Revenue
Customers
Gross Margin =
Revenue - Cost
Revenue
Lifetime Value of a Customer (LTV)

66. 66
LTV = ARPU * Gross Margin
not quite...
Lifetime Value of a Customer (LTV)

67. 67
How long is someone
a customer?
churn =
leave
stay

68. 68
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

69. 69
LTV=
ARPU * Gross Margin
Churn
Lifetime Value of a Customer (LTV)

70. 70
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)

71. 71
$1,250 + $6,334
Marketing Cost Sales Cost
= $7,584CAC =
LTV=
0.01
$500 * 0.4
= $20,000
ARPU Gross Margin
Churn

72. 72
$1,250 + $6,334
Marketing Cost Sales Cost
= $7,584CAC =
LTV=
0.01
$500 * 0.4
= $20,000
ARPU Gross Margin
Churn
SUCCESS!

73. 73
$1,250 + $6,334
Marketing Cost Sales Cost
= $7,584CAC =
LTV=
0.03
$500 * 0.4
= $6,667
ARPU Gross Margin
Churn
FAIL!

74. How do you
estimate churn?

75. acquisition activation retention revenue
referral

76. acquisition activation revenue
The Happiness Metrics
retention
referral

77. METRICS
Acquisition
Activation
Retention
Referral
Revenue

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CAC << LTV

79. 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
CAC
LTV

80. 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
CAC
LTV

81. What Investors are Looking For?
A well ‘balanced’ business model!
CAC
LTV

82. if
CAC << LTV
COST < REVENUE
and
then COMPANY!

83. Search Metrics
Execution Metrics
vs

84. 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

85. CAC
Customer Acquisition Cost
CAC =
marketingCosts + salesCosts
# of customers
goal: CAC

86. LTV
Lifetime value of the customer
LTV =
ARPU * grossMargin
churnRate
goal: LTV

87. ARPU
Average Revenue Per User
ARPU =
Revenue
# of Customers
ARPU LTV

88. Gross Margin
a glimpse at the profit
grossMargin =
Revenue - Costs
Revenue
grossMargin LTV

89. Gross Margin
a glimpse at the profit
grossMargin =
Revenue - Costs
Revenue
goals: Costs Revenue

90. Pricing
connection between price and margin
price =
cost
1 - grossMargin
$167 =
$100
1 - 0.4
example

91. Burn Rate
How fast are you using up your cash?
burnRate =
$$$ spent
# of months
goal: Costs

92. Length of Runway
How long do you have left?
runway =
$$$ available
burnRate
goals: Costs Revenue

93. Revenue Goals
What you want to see
0
17.5
35
52.5
70
April June Un2tled
1 Un2tled
3 Un2tled
5 Un2tled
7
time
revenue

94. Revenue Goals
What you want to see
0
17.5
35
52.5
70
April June Un2tled
1 Un2tled
3 Un2tled
5 Un2tled
7
time
revenue
d$
dt

95. Revenue Goals
… the real question is:
0
17.5
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52.5
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April June Un2tled
1 Un2tled
3 Un2tled
5 Un2tled
7
time
revenue
d$
dt
how many
customers?

96. New Customers Needed
Connecting revenue to sales
# needed =
revenue goal
LTV

97. VP CS
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