Key Performance Indicators (KPIs) are essential to monitor the success or failure of business in any phase of its lifecycle. However, KPIs are critical for measuring the growth of a start-up when the entire organization is in a flux and a baseline for the meaning of the organization’s success has not been established. This need for regular and effective monitoring becomes even more acute when the start-up decides to grow further and enter a new market or launch a new product.
The KPI framework for a start-up also varies from that of a mature business. This is inherent in the very nature of a start-up, as the KPIs for a start-up need to focus on product-market fit for the whole team, rather than in a mature business where different teams are responsible for different areas of business and thus, have different KPIs.
The product-market fit is based on user behavior and acceptability of the product in that market rather than traditional KPIs. This also implies that a product suitable in one market might not be successful in a new market due to different user behavior and product enhancement might be necessary to ensure long-term success in the new market.
An important area where KPIs can play an effective role is in measuring success in a new market that the start-up has decided to enter based on factors such as past leads, past sales, competitor behavior, trade shows, and requests from existing customers. Although revenue might seem like the most important criteria to measure, there are a number of significant KPIs that can be more effective in ensuring start-up success at this early stage. As a start-up needs to focus on a well-defined set of KPIs, below are the ten most important KPIs to measure while entering a new market.
Number of Customers: Customer data is an asset for any start-up and enables a start-up to understand consumer behavior and thus, have new insights into customer needs and requirements for its product. Product enhancement based on these insights from customers in a new market will lead to a better product-market fit and result in greater sales.
Consumer Perception: Consumer perception is a measure of the awareness and satisfaction of a product by its intended target consumers. KPIs, such as net promotor score (do your customers promote your product to others?), degree of satisfaction with the product, brand comparison with competitors and measure of brand attributes are common indicators of consumer perception.
Price Response: Price is definitely a KPI to measure, especially when your start-up is entering a new market. It is one of the main determinants of the buyer’s decision to purchase (or otherwise) your product or service and consumers in different markets might value your product or service at different price points. Therefore, it is imperative to measure the price response of the customer to determine whether price is a factor that is limiting sales in this new market.
Cost per Lead: Cost per lead (CPL) is a measure of the effectiveness of your marketing campaign. When your company is entering a new market, a low CPL will show that the marketing campaigns of your company are successful in the market and are attracting potential customers to your start-up.
Conversion Rate: Of course, just getting the leads is not enough, and you need to convert those leads into revenue-generating sales. Conversion rate measures the success of your sales efforts into converting the leads generated from marketing into actual sales.
Repeat Purchase Rate: The best sale is a repeat purchase from an existing customer. If your start-up is able to have a few customers who regularly purchase your product/service, these can be an important source of referrals and become champions of your start-up in that new market.
Net Profit: At the end of the day, business is about profit and net profit is the KPI that clearly expresses that profit in dollar figures. Net profit is also a good measure of the impact of costs in any market to deliver the same products or services.
Return on Investment (ROI): ROI is one of the most common profitability ratios in business. However, it becomes even more vital to measure ROI when you are entering a new market since significant investment would have gone into enabling that new venture. ROI would be a key measure of that decision to invest in entering a new market.
Target vs. Actual Sales: One of the most important criteria while entering a new market is to set a realistic target for revenue and then measure it against the actual sales that the company achieves after it enters the market. This would help highlight the complete sales process and is invaluable for you to assess the performance of your start-up in this new market.
Month-on-Month (MOM) sales growth %: Larger companies usually measure year-on-year, quarter-on-quarter and month-on-month sales growth percentage, but for a start-up entering a new market, MoM sales growth percentage can be a key indicator of the direction of your start-ups efforts to grow and to build a baseline of the performance of your company.
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Written By: AJ Khan, CEO, International Institute of Certified Innovators & Entrepreneurs (IICIE)