lean startup metrics

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4th Feb 2012 @STUECCLES LEAN STARTUP METRICS

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My presentation on Lean Startup Metrics given at Lean Startup Machine on the 4th Feb and Startup Weekend on the 25h Jan.

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Page 1: Lean startup metrics

4th Feb 2012

@STUECCLES

LEAN STARTUP METRICS

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I NEVER FELT LIKE I WAS LEARNING

ANYTHING IMPORTANT

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“An actionable metric is one that ties specific and

repeatable actions to observed results.”

ASH MAURYA http://www.ashmaurya.com/

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EVENT BASED TRACKING

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FUNNELS

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SIMPLE SIGN-UP FUNNEL

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EXTENDED SIGN-UP FUNNEL

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A/BTESTING

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+152%

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A/B TESTING USER MAP ON HOMEPAGE

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GOOGLE BING

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“THAT BLUE WAS WORTH $80M AT LEAST”

PAUL RAY - PRODUCT MANAGER BING

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LOCALMAXIMA

AN INTUITIVE LEAP

PROPS @BOKARDO FOR LAST FEW SLIDES

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@37SIGNALS

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WHAT TO A/B TESTShort Answer: Everything

Longer Answer: That you have enough traffic to see significant results that are not trival optimisations (HINT you are not Bing/Google)

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WHAT TO A/B TESTEvery new feature should go into A/B testing.

If has negative or no real effect, pull it.

Optimise existing features/copy/design (80% existing 20% new)

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FRAMEWORK

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ACQUISITION

ACTIVATION

RETENTION

REFERRAL

REVENUE

Dave McClure http://500hats.typepad.com/

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DON’T TRY TO MEASURE TOO MUCH

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EXAMPLES

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SAY HELLO TO OUR 3 FICTIONAL STARTUPS

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Social Network for Dog Lovers.

Makes money through advertising and affiliate sales of lush dog collars.

DOGGIECOLR

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Key business drivers are:

Advertising and affiliates need large traffic/page views so growth and retention are key

DOGGIECOLR

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SIGN-UP

COMMENT

VISIT

INVITE FRIENDS

POST PICTURES

BUY COLLAR

CREATE PROFILE

SHARE PICTURES

ACQUISITION

ACQUISITION

ACTIVATION

ACTIVATION

REFERRAL

REVENUE

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Project management tool for Agile startups.

Makes money through monthly subscriptions. Has a free trial period.

AGILESAMBA

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Key business drivers are:

Conversion to paid usage and cancelation rates

AGILESAMBA

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SIGN-UP

VISIT

CREATES PROJECT

UPGRADES PAID

ACQUISITION

ACQUISITION

ACTIVATION

REVENUE

CANCELS ACCOUNT

REVENUE

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Marketplace to rent/buy drills from your neighbour (AirBnB for drills)

Takes a small percentage of the transaction between two parties

RENTMYDRILL

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RENTMYDRILL

Key business drivers are:

Two sided business model means acquisition of both lenders and borrowers and transactions per user

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LENDER SIGN-UP

VISIT

SEARCHES BORROWERS

BORROW DRILL

ACQUISITION

ACQUISITION

ACTIVATION

REVENUE

BORROWER SIGN-UP

SEARCHES LENDERS

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ONE KEY METRICThere is generally only one key metric you need to concentrate on at a time. Such as referral or sign-up conversion or cancellation rate.

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ACQUISITION

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TRACKING MARKETING CHANNELSGoogle AdwordsBannersSocial MediaPartnershipsPRBloggingAnything that links to your site!

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TRACKING MARKETING CHANNELSUse unique urls (tracking parameters) on every url you create/give-out/pay for

Use bit.ly

Use HTTP referrers to group PR

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MEASURING COST OF VISITSCost per click (site visit)

Cost of campaign / traffic generated

(Social media) Cost of effort / traffic generated

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MEASURING COST OF ACQUISITIONCost of one visit / conversion rate = Cost of an acquisition

Acquisition could be paid for acquisition or free sign-up

Unfortunately not that simple

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DIFFERENT CHANNELS CAN HAVE DIFFERENT CONVERSION RATES

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MARKETING CHANNELSPer channel track:

Scale CostConversion

Optimise and scale channels with best Cost of Acquisition (CoA) and potential to Scale

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ACQUISITIONCost of Acquisition < Customer Lifetime Profit

Then scale acquisition at a similar or lower rate

A/B test acquisition channels to optimise

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ACQUISITION INCLUDING REFERRALIf it costs £3 to acquire a customer through advertising

But that customer brought in 2 other customers through referral

The COA of that channel is £1

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ACTIVATION

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SURE THEY SIGNED-UP BUT DID THEY LIKE IT?

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ACTIVATION AT FACEBOOK(i) which data points predict whether a user will stay?

(ii) if they stay, which data points predict how active they’ll be after three months?

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ACTIVATION AT FACEBOOK(i) having more than one session as a new user, and entering basic profile information.

(ii) how often a user was reached out to by others, frequency of third party application use, and how forthcoming a user was on the site.

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ACTIVATION METRICS OFTEN DRIVE OTHER METRICS IN REFERRAL,

RETENTION, REVENUE

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RETENTION

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RETURNING USERSTracking unregistered users that return often (useful for content sites with advertising)

Tracking registered users that return and take some sort of action.

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COHORT METRICS - CREATED PROJECT

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COHORT METRICS - CAME BACK

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REFERRAL

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REFFERAL MECHANISMSSocial Media Sharing

Invite a friend type mechanics

App Reviews

Word of mouth

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VIRAL COEFFICIENTThe average number of customers each customer refers

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VIRAL COEFFICIENT - EXAMPLEEach Doggiecollr customer invites 5 other customers by email

20 % click on that email link

50 % of those users convert into customers

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VIRAL COEFFICIENT - EXAMPLEViral coefficient =

Refferals x click through x conversion

5 x 0.2 x 0.5 = 0.5

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VIRAL COEFFICIENTA viral co-effiecient greater than 1 means that every customer gets more than one other customer on average

Therefore your product will grow virally

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VIRAL COEFFICIENTMeasure automatically for all your in built referral mechanisms.

Give customers unique invite URLs and track conversions

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VIRAL CYCLE TIMEThe average time taken for a referral to turn into a customer

With the viral coeffiecent and viral cycle time you can determine your viral growth

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NET PROMOTER SCORE

Number of people who would recommend your product to a friend.

A single question survey

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NET PROMOTER SCOREHow likely is it you would recommend AgileSamba to a friend or colleague?

1 2 3 4 5 6 7 8 9 100

NPS = % Promoters - % Detractors

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NET PROMOTER SCORE

Survey a small percentage of your customers by email weekly

Record who you sent to so you don’t repeat the same people every week

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NET PROMOTER SCORE

NPS is not a direct measurement that translates to key metrics

Can act as a leading indicator of other metrics

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REVENUE

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MAKING MONEY

Key for any business is to find out how much profit they make for every customer and scaling the number of customers

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LIFETIME CUSTOMER VALUE

How much money you make for every customer you acquire

For some this is a single transaction

For subscription businesses it depends on retention

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CANCELLATION RATE

Is the percentage number of customers who cancel in any given month compared to total (paying) customers

[Cancellation rate] = [product utility] + [service quality] + [acceptable price]

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LIFETIME CUSTOMER VALUE (LTV)

LTV = monthly revenue x no months in lifetime

No months = 1 / cancellation rate

LTV = monthly revenue / cancellation rate

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LIFETIME CUSTOMER VALUE (LTV)

For example:

If £20 a month and cancelation rate is 10% a month

LTV = £200

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LIFETIME CUSTOMER VALUE (LTV)

Often not that simple. Short term cancellation rates are much higher than long term

Use Cohort Analysis to determine

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LIFETIME CUSTOMER VALUE (LTV)

r = short-term cancellation rate (e.g. 0.15)p = long-term cancellation rate (e.g. 0.03)s = number of months in the “short-term” age group (e.g. 3)

(1-r)^s × (s + 1/p) = expected months

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TIPS

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TIPSConcentrate on macro metrics

Everything you do should be an attempt to change a metric

Measure if it did

Try to use as few tools as possible

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TIPSAutomate it and put it in a dashboard

If it can’t be automated make a simple spreadsheet and an easy way to update it

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TIPSDon’t forget to measure marketing

Make metrics a habit

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THANKS