What Are the Key Business Models and Metrics for Startups?

TL;DR

Startups should focus on understanding nine key business models: enterprise, SaaS, subscription, ecommerce, marketplace, hardware, advertising, transactional, and community. For each model, key metrics to track include bookings, revenue, monthly recurring revenue, user retention, and customer acquisition cost. Accurately defining metrics and avoiding common mistakes is crucial for effective business management.

Transcript

thank you all for having me and it's so awesome to see so many of you at 9:00 a.m. in the morning to discuss metrics so let's hope we keep you engaged till the end of the session so how do we think about what metrics to track and our advisors find out which business model you fit in you know the most common thing people do is which industry vertica... Read More

Key Insights

• 📈 Enterprise business model: Focus on tracking bookings, unique customers, and revenue. Avoid confusing bookings with revenue and ensure contracts are written and signed before counting them.
• 💰 SaaS business model: Key metrics to track include monthly recurring revenue, annual recurring revenue, churn rate, and customer acquisition cost.
• 🛒 E-commerce business model: Measure monthly revenue, gross margin, and customer acquisition cost. Avoid confusing gross profit with revenue and include all costs when calculating the margin.
• 📱 Advertising business model: Monitor daily active users, monthly active users, and percent logged in. Define what "active" means for your app and avoid cumulative charts.
• 💻 Marketplace business model: Track gross merchandise value, net revenue, monthly growth rate, and user retention. Pay attention to both revenue and number of users.
• 💳 Transactional business model: Monitor gross transaction volume, net revenue, user retention, and customer acquisition cost. Differentiate between transaction volume and actual revenue.
• 📦 Hardware business model: Focus on monthly revenue, gross margin, and customer acquisition cost.
• 📝 Community business model: Track daily active users, monthly active users, and percent logged in. Define what "active" means for your app and measure user retention on a monthly basis.
• 💡 Moonshot business model: Consider building something in one of the nine business models mentioned or focus on finding product-market fit before deciding on a specific business model.
• 🔍 Common mistakes: Avoid cumulative charts, label the y-axis clearly, and define what "active" means for your app. Include all costs when calculating profit and be cautious with customer acquisition cost.

Questions & Answers

Q: What are the key metrics that should be tracked for an enterprise business model?

The key metrics for an enterprise business model are bookings, total number of unique customers, and revenue. It is important to differentiate between bookings and revenue, as bookings represent signed contracts, and revenue is recognized once the service is delivered. It is crucial to avoid common mistakes such as confusing bookings with revenue or counting verbal offers as bookings.

Q: What are the key metrics that should be tracked for a SaaS business model?

For a SaaS business model, the key metrics to track are monthly recurring revenue (MRR), annual recurring revenue (ARR), churn rate, and paid customer acquisition cost (CAC). MRR and ARR represent the revenue generated from subscriptions, while churn rate measures the percentage of customers who stop using the service. Paid CAC measures the cost of acquiring customers through paid marketing efforts.

Q: How should user retention be measured for a transactional business?

User retention for a transactional business should be measured by tracking the percentage of customers who continue using the platform after a certain period, such as six or twelve months. Instead of focusing on dollar churn, it is more important to measure unit churn, which considers the number of users lost rather than the revenue lost. This is because transactional businesses often have a high volume of customers with lower individual transaction values.

Q: What are the key metrics that should be tracked for a marketplace business model?

In a marketplace business model, the key metrics to track are gross merchandise volume (GMV), net revenue, monthly growth rate, and user retention. GMV represents the total value of transactions that occur on the platform, while net revenue is the portion of the transaction volume that the marketplace retains. Monthly growth rate measures the rate of user acquisition, and user retention measures the percentage of customers who continue using the platform over time.

Q: How should gross margin be tracked for an e-commerce business?

For an e-commerce business, gross margin should be tracked on a per-transaction basis to ensure profitability. It is important to include all costs associated with the product, such as shipping, customer processing, and payment processing costs. By accurately measuring gross margin, e-commerce businesses can determine the viability of their pricing strategy and ensure they are making a profit on each transaction.

Q: What metrics should be prioritized when presenting to investors?

When presenting to investors, the focus should be on demonstrating the potential of the business and the uniqueness of the founder's insight. However, it is still important to track and discuss the burn rate, gross margin, and key metrics relevant to the specific business model. Investors will be interested in understanding the financial health and growth potential of the business.

Summary & Key Takeaways

• The video provides an overview of different business models, including enterprise, SaaS, subscription, ecommerce, marketplace, hardware, advertising, transactional, and community.

• For each business model, the speaker highlights the key metrics that should be tracked, such as bookings, revenue, monthly recurring revenue (MRR), monthly active users (MAU), percent logged in, gross margin, gross transaction volume (TPV), net revenue, user retention, and paid CAC.

• The speaker emphasizes the importance of accurately defining and measuring metrics, avoiding common mistakes, and focusing on the short-term goals and objectives of the business.