One of the most difficult tasks when starting a new company is actually know how things are going; everything is going on at the same time, you’re running everywhere, profits are still out of sight and you have no idea how to measure anything so you’re anxious, stressed and confused… With all that chaos is easy to make mistakes and hard to know where you are.
That’s why it’s important that you study certain metrics even before starting your enterprise so, when you find yourself in this situation, you’ll manage to stay calm and really have a clue of how things are going on. For that, we are going to give some tips on what to measure for knowing if your startup company is on the path to profitability (but take into consideration that even with these metrics, the value is only a forecast and not an exact prediction.
Growth rate
One of the easiest ways to measure the path of your company is by paying attention to growth rates. Most of the companies tend to start with a huge growth rate of more than 200x but this can’t be sustainable in time. It’s well known that when companies consolidate, the growth rate diminishes so the right ratio for an established company must be between 20x and 35x.
Remember that in different moments of your company, the winning strategies may change so don’t get stuck in what worked at first, but keep studying new a better tactics to keep your growth at pace.
The term or timeline to ROI
Another good way to measure your profitability is the time it takes you to ROI. Especially if you are a SaaS company, the time you take for retrieving the investment of getting a client is essential to measure your status; if you take more than 2 years for getting that investment back, then you’re not being profitable. The regular time is about a year for subscription SaaS services that bet for long-term profit. In the case of physics products well measuring your sells against your investments with interests and every payment included.
Cash Burn
When you receive the funding you were expecting, it’s normal to be in a little rush an spend at vertiginous speed. But you need to refrain that urge and take meticulous care of how you spend the money. If you organize your finances and plan ahead to be able to find funding again before being in a cash crisis, then you’re pointing right.
Churn rate
Maintaining clients is another vital part of a startup company’s success especially when it comes to SaaS enterprises. It’s natural that most costumers actually leave after a while and of course, a small part will stand by your side for many years. If you calculate an estimate of 10% of clients during 10 years but for safety, purposes cut off two or three years. Then plan a whole strategy around these numbers. Take into consideration the conditions where the client was engaged and you’ll find out if you’re gaining promising costumers or losing them.
Posted by Randy Blakeslee – GetnSocial
