Don't make these mistakes with metrics
Most investors and operators have a core set of KPIs they track. But many are doing it wrong. Here are 6 common mistakes with metrics that can kill a company over time.
> 1/ Blindly copying a KPI from someone else
Not all metrics are meant for all companies. For example, if you sell to Small Businesses and plan to land and expand over time, you probably shouldn't be copying Oracle's Enterprise sales KPIs just because it's Oracle.
"Data without context is a weapon of mass destruction."
Wish I could put that on a billboard somewhere.
> 2/ Not Tracking Revenue per Employee Over Time
As your company grows it should see operational leverage - that means the ability to do more with less. The best way to check if you are getting leverage is simply (# of employees / revenue )
In particular, this metric is great for evaluating unprofitable high-growth tech firms. You're drilling down to the core economics - you can't drill down any further.
Most SaaS firms in the high-growth stage have a rev per employee between $250k and $350k.
> 3/ Accepting High CAC for Too Long
Customer Acquisition Cost measures how much it costs to land a net new customer.
Ideally you want to get it as low as possible by using efficient sales and marketing channels.
CAC can create a money-losing flywheel that starts at acquisition. If CAC is too high, each new customer extends losses rather than growing profits. Without sufficient cash, accelerating losses aren't sustainable. To make things worse, adding more customers creates more admin costs.
Beware of the CAC trap.
> 4/ Really high LTV : CAC
“TOO MUCH VALUE?!” you say! Bear with me! A massive LTV to CAC ratio may actually mean you're not spending ENOUGH on S&M. It could indicate you’re actually leaving growth on the table.
Since valuation is often tied to growth, you may be restraining shareholder value. And from a competitive standpoint, you might be making life too easy for your competitors by not more aggressively chasing new customers.
Beware of double-digit LTV to CAC!
> 5/ Quoting GMV as Revenue
This one really grinds my gears...
Public service announcement: GMV is not Revenue!
GMV is commonly used for marketplaces (Etsy) and payment gateways (Stripe) that charge a fee or take rate. GMV is not a true reflection of a company's revenues, but rather its through-put, as most of the revenue goes to the original seller.
> 6/ Looking at Revenue Growth Rate without the Context of Profit Margins
Growth is great. Growth at all costs is not. Using one of these metrics without the other can lead to a skewed view of company performance. Making choices purely based on topline can lead to poor investment decisions.
Not all growth points are equally beneficial to the company.
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