Scaling Smart: KPI Strategies for Growing Tech Companies
Startups in the technology sector usually find themselves in the unique position of being at the forefront of change and faced with various challenges.
Apart from the complexities of product development, market validation, scaling operations and attracting top talent, the business side also needs attention.
Thankfully, we know what you're going through. We thought about sharing key performance indicators (KPIs) that a growing tech company needs to monitor and measure.
KPI Strategies to Scale Smart
Revenue Growth Rate
This KPI shows a company's revenue increase over a certain period and lets you know how your business is doing. Your investors would consider it one of the most significant factors in your startup's valuation process.
Two main factors contribute highly to this KPI:
- Marketing strategy: Generating more revenue for a startup would depend highly on a well-planned and executed marketing approach. The first step would be identifying your target audience and creating a marketing plan connecting them with your product. Your strategy can include social media, content, email, and other digital marketing tactics.
- High customer retention: Keeping customers signed on leads to growth, which leads to a high customer retention metric. Acquiring new customers is a sound strategy, but keeping the ones you already have is more beneficial in the long term; this will help you achieve sustainable revenue growth over time.
Customer Acquisition Cost
Growing and staying competitive in the tech space can get expensive. The customer acquisition cost (CAC) metric is an essential KPI to help make acquiring customers more cost-effective and contribute to long-term retention and growth.
The following formula calculates CAC:
CAC = Total Sales and Marketing Costs / Number of New Customers Acquired
Here are two factors that contribute to this KPI:
- Audience Targeting: Finding your customer with the correct targeting parameters helps reduce your CAC. Your marketing plan should consider who you target at the planning stage and where you intend to find them. Your choices include social media, content, email, and offline marketing methods.
- Pricing strategy: Your pricing strategy has a direct impact on your CAC. Your product or service's price must align with the industry and customer base to stay competitive. Price it too high, and you could turn potential customers away. Price it too low, and you'll have problems staying profitable, making acquiring new customers harder.
Measuring the percentage of customers who stop doing business with you over a certain period gives you your customer churn rate. It is an important data point for measuring performance and tells you the reasons behind any reduction in revenue and profits.
Here are two additional factors that contribute to the customer churn rate for a company in the tech sector:
- Poor customer support: The most apparent ways to enhance customer support include fast response times, resolving issues quickly, and being available via multiple channels. As a growing company, you must provide a good support experience, especially if your data tells you your churn rate is rising.
- Lack of desired outcomes: Ensuring that your product or service meets its target market's needs and that customers achieve the desired results helps reduce churn. Conducting customer research and gathering feedback to improve your product helps minimise churn.
If you would like, we have written a dedicated post on lowering customer churn.
Monthly Recurring Revenue
Monthly Recurring Revenue (MRR) is a significant financial metric for subscription-based businesses, particularly in the tech sector. It helps to understand the overall business health and profitability by closely monitoring monthly cash flow.
MRR is calculated by summing up the revenue generated from all active subscriptions within a given month.
The formula for MRR is:
MRR = (Number of Subscriptions) × (Average Monthly Subscription Fee)
Here are two factors that contribute to being successful with MRR:
- Effective Customer Acquisition and Retention Strategies: To increase MRR, tech companies must have a mix of efficient customer acquisition and strategies to retain existing customers. You have to reduce customer churn as it can offset the growth in MRR from new subscriptions. Providing regular product updates and customer support can improve customer retention; doing so will contribute significantly to MRR growth.
- Product Expansion and Upselling: Diversifying your product portfolio can attract a broader customer base and increase average revenue per user (ARPU). You can achieve this by introducing new features, add-ons, or tiered subscription plans. Encouraging existing customers to upgrade their plans or purchase additional services can boost your MRR.
It's important to note that KPIs can vary depending on your company's goals, objectives, and industry segment. Companies may also use a combination of KPIs to measure their success.
Livedocs can give you clear insights into your data and what is working. Try it out today.
Subscribe to our blog today for product announcements
and feature updates, straight to your inbox.
Purpose Driven Design, How Metrics Shape User Experience
Discover how purpose-driven design and metrics enhance user experience for optimal results.
How Data Analytics Can Illuminate Consumer Sentiments
How do you measure what people feel about your brand? Using Sentiment Analysis that's how.