By Fernando Berrocal
The biggest startups in the world would not have grown to their enormous size if they hadn't figured out how to optimize performance across every metric. Examples of important startup marketplaces include businesses such as Airbnb, DiDi, and Grab.
You might be operating a customer-to-customer (C2C) marketplace for selling stuff you don’t use anymore, or a business-to-business (B2B) marketplace for exchanging industrial spare parts. In any scenario, measuring metrics is essential to achieve business growth. This is especially true for startups. It's crucial to understand how to dissect your organization into its parts to locate the metrics; this form of dissection is known as a metrics tree.
First, you must understand that there are many levers in a business to push and pull to attain your objective of growth. Finding these relationships that will enable you to move on is essential for your startup. You may identify correlation and causation ties between various metrics with this view. This example of a dashboard will make it easier for your startup team to comprehend what is going on. When you understand your customers and industry, you can make smarter decisions.
You may link your actions to the efficiency of your startup by using this monthly view. Think about the events of the previous month as you review your figures. Have you introduced a feature? You should be able to distinguish between these metrics.
- Revenue: This is your startup's net income available. Note how we are not discussing monthly recurring revenue (MRR), since a marketplace's revenue is not recurring. If a startup's revenue for the previous month was $12,000 dollars, the percentage change from the previous month should appear on the right side of that number. If it's positive (+), then the online market performed a great job of generating sales over the past month. If it’s negative (-), then it generates losses. But how did they do it? You will find that each number is predicated on the metrics below it, following the logic of the metrics tree. Therefore, it follows that your revenue is equal to your gross merchandise value (GMV) times take rate (TR).
- Take Rate: This represents the typical commission you receive from each transaction. You might choose to divide this statistic into fixed fees and commissions depending on your financial plan. This measure should be monitored carefully if your take rate fluctuates as it has a significant impact on your revenue. Although it might not seem like much, increasing a take rate from 1-2 percent would double your revenue.
- Gross Merchandise Value (GMV): This is the overall turnover of your market (of course, you also have a take rate). The majority of your revenue-increasing levers are tied to this metric. Many investors believe that this number is more significant than the organization's actual revenue, since it provides a more accurate view of the level of market appeal without bringing take rate into account.
- Average Order Value (AOV): The easiest value to achieve out of all mentioned in this article is this. AOV refers to the average value of each transaction in the online marketplace for your startup.
- Deliveries of Orders: You can also write this specific measure as "confirmed orders". It is the total number of completed transactions in the market, excluding canceled orders for any given reason. This positively affects your startup since it provides them a good window to obtain fast revenue.
- Rate of Cancellation: This specific number can have a big impact on your market, but it could not have much of an impact on other markets. Nobody likes this measure, especially startups who rely mainly on daily sales than larger businesses do. In any case, you should keep it under control and, preferably, identify the causes of your cancellations so that you may make every effort to prevent them in the future.
- Rate of Frequency: This is a figure that varies significantly based on your market and the kinds of products and/or services that are traded there. For instance, there are various situations for Airbnb and Uber, two of the most significant startups on the market. If you run Airbnb, your customers presumably complete one transaction on average every year. However, if you're Uber, your suppliers (the drivers) engage in several transactions each day.
In any event, it's critical to raise this statistic because a high frequency in your market indicates that people find your service to be very valuable. Always compare how your users use your particular sort of services as your benchmark for this statistic. For instance, if you run Uber or any other taxi application–and your typical customer wants a cab once per week–that should also be the frequency you want to offer it.
- Rate of Activation: This is the percentage of users who were registered and active during the given month. This indicator is mainly used for software as a service (SaaS) products; however, it can be used in other types of businesses. This metric can demonstrate that you offer high value to a significant portion of the public, making it very relevant. Show the public that you have what they desire. Most startup marketplace clients have trouble with this specific measure. It has a direct impact on how long your user cohorts are retained.
Your activation rate will be 100% if all of the users that sign up return each month–or if you have flawless retention. In the long run, it can be very challenging to maintain. As the months and years pass, however, it can provide you with a particular range of amounts that will serve you well.
- Marketing/Acquisition Spend: Here, you can check how much you spent on finding customers or suppliers. The guideline states that you must include all acquisition-related expenses. That includes everything from advertising expenditures to hiring a salesperson. Note: many early-stage firms make the mistake of removing the wages of the people they recruit in marketing and sales.
- Customer Acquisition Costs (CAC): Here is a breakdown of your marketing expense per new client. This crucial marketing indicator is determined by dividing the total marketing expenditure by the number of new consumers.
- Lifetime Value (LTV): This is the overall benefit you may expect from each new merchant or buyer who joins your platform. It might not be immediately apparent how to compute it for a market. It is significantly simpler for a subscription service. If you operate a marketplace for consumer discretionary products, you might need to adjust your strategy and simply use your average gross margin per transaction as an LTV since the likelihood of repeat business is likely to be quite low.
- Ratio LTV-CAC: This indicator is significant since it gives insight into the startup's profitability and potential for growth. Lifetime value divided by customer acquisition cost gives us a solid picture of an organization's level of profitability. While your firm is expanding, the suggested range is 3 to 4. When your LTV-CAC ratio is satisfactory, you recover our client acquisition costs. Then you can organically finance gaining new clients.
This indicator shows how effectively your marketing and sales funnels are working, as well as how valuable your service is to customers. As a result, it is a fantastic figure to be able to brag about to investors.