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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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Lean startup metrics

  1. 1. LEAN STARTUP METRICS @STUECCLES 4th Feb 2012
  2. 2. I NEVER FELT LIKE I WAS LEARNING ANYTHING IMPORTANT
  3. 3. “An actionable metric is one that ties specific and repeatable actions to observed results.” ASH MAURYA http://www.ashmaurya.com/
  4. 4. EVENT BASED TRACKING
  5. 5. F UNNELS
  6. 6. SIMPLE SIGN-UP FUNNEL
  7. 7. EXTENDED SIGN-UP FUNNEL
  8. 8. A/B TESTING
  9. 9. +152%
  10. 10. A/B TESTING USER MAP ON HOMEPAGE
  11. 11. GOOGLE BING
  12. 12. “THAT BLUE WAS WORTH $80M AT LEAST” PAUL RAY - PRODUCT MANAGER BING
  13. 13. AN INTUITIVE LEAP LOCAL MAXIMA PROPS @BOKARDO FOR LAST FEW SLIDES
  14. 14. @37SIGNALS
  15. 15. WHAT TO A/B TEST Short Answer: Everything Longer Answer: That you have enough traffic to see significant results that are not trival optimisations (HINT you are not Bing/Google)
  16. 16. WHAT TO A/B TEST Every 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)
  17. 17. F RAMEWORK
  18. 18. ACTIVATION REFERRAL RETENTION REVENUE ACQUISITION Dave McClure http://500hats.typepad.com/
  19. 19. DON’T TRY TO MEASURE TOO MUCH
  20. 20. E XAMPLES
  21. 21. SAY HELLO TO OUR 3 FICTIONAL STARTUPS
  22. 22. G GIE CO LR DO Social Network for Dog Lovers. Makes money through advertising and affiliate sales of lush dog collars.
  23. 23. G GIE CO LR DO Key business drivers are: Advertising and affiliates need large traffic/page views so growth and retention are key
  24. 24. ACQUISITION VISIT ACQUISITION SIGN-UP CREATE ACTIVATION PROFILE POST ACTIVATION COMMENT PICTURES SHARE INVITE REFERRAL PICTURES FRIENDS REVENUE BUY COLLAR
  25. 25. IL ES AM BA AG Project management tool for Agile startups. Makes money through monthly subscriptions. Has a free trial period.
  26. 26. IL ES AM BA AG Key business drivers are: Conversion to paid usage and cancelation rates
  27. 27. ACQUISITION VISIT ACQUISITION SIGN-UP ACTIVATION CREATES PROJECT UPGRADES REVENUE PAID CANCELS REVENUE ACCOUNT
  28. 28. T MY DR ILL R EN Marketplace to rent/buy drills from your neighbour (AirBnB for drills) Takes a small percentage of the transaction between two parties
  29. 29. T MY DR ILL R EN Key business drivers are: Two sided business model means acquisition of both lenders and borrowers and transactions per user
  30. 30. ACQUISITION VISIT LENDER BORROWER ACQUISITION SIGN-UP SIGN-UP SEARCHES SEARCHES ACTIVATION BORROWERS LENDERS BORROW REVENUE DRILL
  31. 31. ONE KEY METRIC There is generally only one key metric you need to concentrate on at a time. Such as referral or sign-up conversion or cancellation rate.
  32. 32. A CQUISITION
  33. 33. TRACKING MARKETING CHANNELS Google Adwords Banners Social Media Partnerships PR Blogging Anything that links to your site!
  34. 34. TRACKING MARKETING CHANNELS Use unique urls (tracking parameters) on every url you create/give-out/pay for Use bit.ly Use HTTP referrers to group PR
  35. 35. MEASURING COST OF VISITS Cost per click (site visit) Cost of campaign / traffic generated (Social media) Cost of effort / traffic generated
  36. 36. MEASURING COST OF ACQUISITION Cost of one visit / conversion rate = Cost of an acquisition Acquisition could be paid for acquisition or free sign-up Unfortunately not that simple
  37. 37. DIFFERENT CHANNELS CAN HAVE DIFFERENT CONVERSION RATES
  38. 38. MARKETING CHANNELS Per channel track: Scale Cost Conversion Optimise and scale channels with best Cost of Acquisition (CoA) and potential to Scale
  39. 39. ACQUISITION Cost of Acquisition < Customer Lifetime Profit Then scale acquisition at a similar or lower rate A/B test acquisition channels to optimise
  40. 40. ACQUISITION INCLUDING REFERRAL If 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
  41. 41. A CTIVATION
  42. 42. SURE THEY SIGNED-UP BUT DID THEY LIKE IT?
  43. 43. 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?
  44. 44. 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.
  45. 45. ACTIVATION METRICS OFTEN DRIVE OTHER METRICS IN REFERRAL, RETENTION, REVENUE
  46. 46. R ETENTION
  47. 47. RETURNING USERS Tracking unregistered users that return often (useful for content sites with advertising) Tracking registered users that return and take some sort of action.
  48. 48. COHORT METRICS - CREATED PROJECT
  49. 49. COHORT METRICS - CAME BACK
  50. 50. R EFERRAL
  51. 51. REFFERAL MECHANISMS Social Media Sharing Invite a friend type mechanics App Reviews Word of mouth
  52. 52. VIRAL COEFFICIENT The average number of customers each customer refers
  53. 53. VIRAL COEFFICIENT - EXAMPLE Each Doggiecollr customer invites 5 other customers by email 20 % click on that email link 50 % of those users convert into customers
  54. 54. VIRAL COEFFICIENT - EXAMPLE Viral coefficient = Refferals x click through x conversion 5 x 0.2 x 0.5 = 0.5
  55. 55. VIRAL COEFFICIENT A viral co-effiecient greater than 1 means that every customer gets more than one other customer on average Therefore your product will grow virally
  56. 56. VIRAL COEFFICIENT Measure automatically for all your in built referral mechanisms. Give customers unique invite URLs and track conversions
  57. 57. VIRAL CYCLE TIME The 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
  58. 58. NET PROMOTER SCORE Number of people who would recommend your product to a friend. A single question survey
  59. 59. NET PROMOTER SCORE How likely is it you would recommend AgileSamba to a friend or colleague? 0 1 2 3 4 5 6 7 8 9 10 NPS = % Promoters - % Detractors
  60. 60. 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
  61. 61. NET PROMOTER SCORE NPS is not a direct measurement that translates to key metrics Can act as a leading indicator of other metrics
  62. 62. R EVENUE
  63. 63. MAKING MONEY Key for any business is to find out how much profit they make for every customer and scaling the number of customers
  64. 64. 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
  65. 65. 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]
  66. 66. LIFETIME CUSTOMER VALUE (LTV) LTV = monthly revenue x no months in lifetime No months = 1 / cancellation rate LTV = monthly revenue / cancellation rate
  67. 67. LIFETIME CUSTOMER VALUE (LTV) For example: If £20 a month and cancelation rate is 10% a month LTV = £200
  68. 68. LIFETIME CUSTOMER VALUE (LTV) Often not that simple. Short term cancellation rates are much higher than long term Use Cohort Analysis to determine
  69. 69. 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
  70. 70. T IPS
  71. 71. TIPS Concentrate 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
  72. 72. TIPS Automate it and put it in a dashboard If it can’t be automated make a simple spreadsheet and an easy way to update it
  73. 73. TIPS Don’t forget to measure marketing Make metrics a habit
  74. 74. T HANKS

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