One of my favorite CEOs likes to tell me a metric is only useful if it answers an important question.
Earlier in the week we reviewed how to build a simple product roadmap. Today I want to outline the metrics I’ve found to be most useful in board meetings. They answer the question how should you be measuring your business at the highest level. You should have many more metrics than these, but I’ve highlighted the ones that you should present to your board and you should review every week.
Great data leads to helpful conversations. I’ve found the following format works best to drive the board to focus on the right questions. I suggest presenting three slides, one for each category (Distribution, Engagement, Revenue) in the following format as the first set of slides in your board deck:
|Metric||This month||Last Month||% change||TSM Average||Goal|
|Total User Base||500,000||400,000||25%||7%||10%|
The one column you may not recognize is TSM Average which stands for Trailing Six Month Average. It is calculated in this way: (ending_value/starting_value)^(1/num_periods-1)-1.
In most businesses, a monthly growth percent is too volatile to be meaningful. However a TSM Average smooths out the monthly average into a rolling average. Comparing the monthly to the TSM, I can get a sense of whether the monthly growth is accelerating or decelerating and how it compares to the goal you set each quarter. In this example, the total user growth was slower this month than in the past six month, but activity is way up. The next question, the one board members should ask, is why?
Now that we have the base format of the metrics, let’s talk about which metrics matter. Each metric is followed by the question it’s designed to answer. Pick the ones that are relevant to your business.
- New users added last month by channel/TSM growth rate: How are well are we growing the user base? Which user sources are the best?
- Total user base/TSM growth rate: How important is our monthly growth compared to our total user base?
- Cost of customer acquisition, lifetime value, pay back period: Can we grow faster through paid acquisition? Are we acquiring customers profitably? How much can we afford to spend on new customers? How is this changing over time?
- Active users (can defined in several different ways depending on your product) by channel/TSM growth rate: Are we getting better at giving our customers what they want/need? Which channels of users are most effective in finding us the right kind of user?
- % of users using top 3 key features in a given month: Are our product initiatives the right ones?
- Revenue / TSM Revenue growth: Are we growing our revenue?
- Conversion to paid rate in that month/by cohort: How many users converted to paid? Are we improving our ability to convert customers to paid?
- Avg spend per paying customer of a managed account vs solo account: What is the impact of the account management team?
- Churn rate/ TSM Churn rate: How well do we retain our customers?
- Burn rate: When are we profitable? When do we run out of cash? When do we need to raise?
These are the metrics that have been most valuable/insightful for me working with our companies. Let me know if there are other metrics you use to measure your business that might be useful to add to this list. This list is most useful for e-commerce/freemium businesses.