The CMO is a chief factor in any startup’s success. Not only is the position of CMO integral to a startup’s progress and profit, an effective chief marketing officer must be skilled at efficiently overseeing and executing both individual and team achievements.
The role is a demanding one, and a good startup CMO is hard to find.
Matt Fairhurst, the founder of Skedulo spoke to Forbes about the difficulty of finding a chief marketing officer with “the flexibility to operate both strategically and roll-up their sleeves to work tactfully.” Additionally, startup CMOs need “to work well with the executive team but also have the ability to execute at a transactional level.”
Thus, it’s vital for the founder and chief marketing officer to thoroughly understand their company’s key performance indicators (KPIs). Without KPIs, your startup will flounder and likely collapse.
Here are the top 10 KPIs every startup CMO should be tracking.
- Active Users: DAU and MAU
The number of Daily Active Users (DAU) and Monthly Active Users (MAU) can reveal the efficacy of a startup’s marketing efforts.
In terms of general definitions, an “active user” denotes any unique user logging into the application. Beyond signing in, an “active user” could also be someone who completes a specific activity. The DAU is hence the total number of unique users in a day.
“Monthly active users” is the number of people who have engaged with your product in the past 30 days. The MAU can give you insight into your program’s ability to retain users.
Dividing the number of daily active users from monthly active users reveals the user ratio percentage.
WhatsApp is on the high-end with a DUA/MAU ratio of 70%. The average ration is said to be between 10-20%. That being said, there are so many variables at play, so the DUA/MAU is by no means the be-all-end-all for startups.
- Gross margin
The gross margin measures the difference between total production costs and total revenues. In equation form, that looks like this:
Gross margin = (Total revenues – total costs of production) / total revenues * 100%
A high gross margin indicates your company generates low costs in relation to production costs. From there, you could also calculate your startup’s operating profit margin by deducting operational costs.
Remember, profit margins are industry-specific.
- Burn rate
A burn rate is a startup’s outgoing cash flow, typically in a month. The formula is as follows:
Burn rate = total cash inflow in month – total cash outflow in month when outflow > inflow.
Burn rates are positive when one spends more money than they have earned. On the flip side, a burn rate is negative when one has more income than money being spent.
- Conversion rate
Let’s say a user is presented with a “call to action” (CTA) and then fulfills said action. This user is deemed “converted.” Moreover, a conversion rate measures the percentage of users that perform a CTA out of the total number users that come into contact with the CTA.
For example, let’s say that at the end of your blog post, you invite readers to sign up for your upcoming webinar. If one thousand people read your post, and one hundred sign up for the webinar, you have a conversion rate of 10%.
There can be many instances of conversion: when a lead becomes a customer, when a website visitor becomes a blog subscriber, when an Instagram follower becomes a newsletter subscriber, and so on. As the CMO, you can play with different CTAs and ways to convert.
Ultimately, high conversion rates point to a successful marketing strategy and product that meets the needs of the market.
- Customer Acquisition Costs
Customer acquisition costs (CAC) are the average amount of funds it takes to acquire a new client. Most startups factor in sales and marketing expenses into CAC. To calculate, you divide the costs total by the total of new customers:
CAC = Total expenses of acquiring new clients / total new acquired clients
The CAC helps evaluate sales and marketing tactics and provides insight into improving the return on investment (ROI). Chief marketing officers should pay attention to how the CAC varies between different marketing and sales strategies.
- Customer Lifetime Value
The customer lifetime value (CLTV) predicts how much revenue one customer brings in during the amount of time they are an active user.
In a case study, Starbucks’ CLTV was calculated by multiplying a customer’s average number of visits per year by the customer’s average visit amount. This number was then multiplied by the number of years this customer would presumably continue to visit Starbucks. Here’s that broken down:
(Number of visits * sales per visit * “lifetime” of customer)
The CLTV viewed alongside the CAC is useful information as you don’t want customer acquisition costs to exceed the amount of money they are generating for your startup.
- New leads and customers
This KPI is self-explanatory. Your startup should have goals pertaining to the amount of new leads and customers. Once you determine a conversion rate, you can figure out how many leads you need to reach your new customer goals.
If your startup’s product is subscription-based, it’s helpful to determine the turnover rate, also known as the churn rate. To calculate the user turnover rate for one month, you would:
(Number of customers at the beginning of the month – number of customers at the end of the month) / the number of customers at the start of the month * 100%
The churn rate is revealing in terms of how many of your customers are continuing to subscribe to your product and services.
Revenue is simple in theory, but complex in reality due to the expected fluctuations startups experience. To account for those oscillations, you can analyze revenue growth in year chunks.
The Compound Annual Growth Rate formula is:
CAGR = ((Revenue start period/revenue end period) ^ (1/end period – start period)) – 1) *100%
- Operational costs as percentage of revenue
CMOs should be mindful of their startup’s operational costs as a percentage of revenue. To get started, divide expenses into categories, like “Sales and Marketing,” “Administrative,” etc.
After determining the categories, you can convert them into a percentage of revenue. To do that, you simply divide each category’s costs by total revenue then multiply by 100%.
This kind of breakdown helps figure out where cuts are possible.
The runway is defined by the amount of time your startup can exist until it is out of funds. Similar to the burn rate, the runway formula is:
Current amount of funds / monthly burn rate
The burn rate allows you to look at your total amount of funds in turns of how many months your startup could survive with that amount.
Every CMO should determine the most critical KPIs to their startup and enact a plan to measure them. Not only will you gain greater insight into the effectiveness of your marketing, but you will also figure out the best ways to help your startup grow and take off.
While it may seem daunting, a skilled CMO can structure the use of KPIs into quantifiable and accessible components that directly lead to positive growth. By putting the puzzle pieces of your KPIs into an effective marketing scope, success is your final destination.