- How to Define (and Measure) the Metrics That are Crucial to Your Business - January 31, 2019
Metrics matter, but not all data is created equal. In the frantic hunt for indicators of growth, entrepreneurs may focus on the wrong metrics. Red herrings are an elephant in the room. This perplexing mix of metaphors reflects the confusion in the air.
With such a wealth of information at our fingertips, how do we know what to look for? Some say bottom-line revenue growth is the only key metric. Sure, but a holistic view is arguably better, with revenue as the sum of other key metrics. A mix of qualitative and quantitative data.
In this article, I’ll pick apart metrics that are typically overblown in the startup world. There is nuance to this, of course. Context is essential. This isn’t a proven gospel for what to ignore, but a cautionary guide for how to think when analyzing marketing and growth data.
Due to my background as a growth marketer, I’ll be approaching the issue from the angle of digital marketing and growth via online channels.
The north star metric (NSM)
For some, the NSM is the one metric that matters. In growth marketing, this means moving the needle on something aligned to the business that adds true value to the customer. For instance, Facebook’s NSM is known to be its number of monthly active users.
“To uncover your North Star Metric, you must understand the value your most loyal customers get from using your product,” according to Sean Ellis.
The problem is that a NSM doesn’t really help with the nuts and bolts. For example:
- The NSM doesn’t tell you which ad out of a set performs best
- The NSM doesn’t tell you which app network provided the lowest cost per impression
- The NSM doesn’t tell you which landing page variable performed best
However, narrowing in on one key metric allows you to focus amid the noise, and it allows you to work backward to discover which metrics contribute to positive movement of the NSM. If you establish this main indicator, you reveal what should guide your measurement of growth.
Takeaway: Every startup should have a North Star Metric. However, this doesn’t stand alone. It’s a useful collective target for the team, but startup founders and growth marketers must track the deeper metrics that contribute to this broad indicator.
Which digital marketing metrics should you ignore?
In this section, I’ll look at metrics that are generally overhyped. Depending on circumstances, these might be metrics to downplay, or even ignore. Some metrics don’t tell a meaningful story without deeper analysis into their subsets.
The common thread here is that superficial metrics are often given immense power. They’re not all “vanity metrics” per se, because they have utility. But they are superficial when isolated.
- Website traffic: This is a meaningless metric to track by itself. Traffic is only as good as its ability to meet specific goals. High traffic doesn’t always lead to commercial success.
- Website backlinks: First, SEO is a long game, and rarely the best channel for a startup in its earliest stages. In this sense, you may be wasting energy by obsessing over links. In another sense, the number of links by itself is not useful. As I’ll mention later, you must dig deeper.
- Bounce rate: If a high bounce rate has a cascading effect because of irrelevant traffic, this will result in an excessively high CPA (or cost per acquisition), for instance with a PPC (or pay-per-click) ad targeting the wrong keyword. But in isolation, bounce rate means very little, whether it’s a “normal” 70 percent or an “impressive” 50 percent. It’s especially futile to worry about the site-wide average.
- Social following: Follower growth is nice, but engagement is more important. Entrepreneurs often get caught up in the pursuit of likes and followers, which (alone) will rarely move the needle.
- Ad reach: Just because a lot of people are seeing your ads, this doesn’t mean you’re effectively building your brand. Do the ads make people remember you?
- Rankings: Performance in search engine results pages doesn’t mean anything, unless you’re targeting specific keywords with specific landing pages as part of a considered SEO strategy. Don’t get distracted by rankings if your priorities lie elsewhere.
- Email captures: You’re growing an email list? Great, but is it the right target audience for your product or service? Without the potential to convert people, your email list size is redundant information.
Tracking meaningful digital marketing metrics
Your set of key metrics depends on your unique status and goals.
First, you need to define what success looks like for your startup. Then you need to determine which growth marketing channels will drive that success. The third step is to ensure in-product elements are measured, too. Whether it’s a mobile app, software tool or a marketplace.
This is when you analyze the data to monitor the multiple moving parts of the whole funnel.
As I mentioned, meaningful insights often lie in deeper subsets of superficial metrics. I’ll provide just one example here to illustrate the point.
Let’s say SEO is a key channel for your startup, and therefore backlinks are important.
Should you track number of backlinks? Well, if 95 percent of those backlinks originate from the same domain, this metric morphs into a red herring. How about tracking the number of referring domains? Sure, this is better, but you can go even further:
Subnets (or subnetworks) are a subdivision of an IP network. They give the most unique backlink fingerprint. This is important information, because having lots of referring domains hosted on the same server is less powerful—another red herring. Subnet data is more granular, and accurately mirrors how Google uses links in the search algorithm.
Takeaway: Get the specialist help that you need to move beyond the superficial metrics and dig down into meaningful data about marketing performance.
Growth metrics for different businesses and stages
When tracking growth as a whole, different businesses lean on different metrics.
A SaaS startup will focus on monthly or annual recurring revenue. For example, Geckoboard breaks its metrics down into new revenue, churned monthly recurring revenue, growth and contraction from existing customers, and monthly recurring revenue from reclaiming old (zombie) accounts.
A VC-backed goliath can afford to focus solely on user growth, and shift to monetization later. However, many startups have gone bust by relying too heavily on this model. Others have failed by focusing on user experience and ignoring new user acquisition for too long.
This highlights another complication: the same business will need to utilize different key metrics at various stages throughout its journey. Nobody highlights this better than Tristan Handy in his straight-talking guide to analytics for startup founders. Recommended reading!
Can entrepreneurs proficient with marketing tools always draw useful conclusions from data? Not necessarily. Crunching data to gain insight is critical to startups, but it’s more of a specialized skill than we like to give credit for.
With so many tools and competing priorities, it’s a challenging and confusing task. We have time limitations, tool limitations and energy limitations; all of which mean we need to make a choice about what to track, when, why and how. We can’t look at all of the data, all of the time.
Another challenge are the ever-increasing variables that affect behavior. With more metrics, pages, buttons and stages of the funnel, it’s become harder to spot causality over correlation.
Entrepreneurs must define the metrics that matter and avoid the distraction of superficial data. When necessary, bring in a specialist to help, and know that meaningful metrics evolve as you grow.