Beginning a new company can be complicated. How difficult? That is difficult to the point that 8 out of 10 aren’t able to last past the fifth year. For software development companies, the situation could be more difficult than this. The reasons are numerous. In one sense, the majority of software development firms rely on one product to power their business from the beginning — and there’s a lot that could go wrong with inexperienced software products.
The reality is that any software development startup must perform a flawlessly choreographed high-wire show if they hope for their business to last for long enough to flourish. However, doing so requires vigilance and the most operational and real-world data as is possible. However, not every software development startup has a clear idea of what KPIs they should be watching to evaluate the overall condition of their business and the likelihood of success. To help here are the three most important KPI categories for software development startups and five specific KPIs to track for software startups.
Three Types of Relevant KPIs
The KPIs software companies need to track fall into three primary categories. They include:
The latter is this KPI category that covers every aspect of the business’s operations. It encompasses things like productivity measures as well as project completion metrics and efficiency metrics. Together, these categories help businesses get the best value for their money.
This KPI category covers all the information you need to be aware of the financial condition of the business. It includes things such as net profit metrics, budget accuracy metrics, and revenue figures. It’s the one that gives managers an overview of the overall health of their company.
In the case of startups in the early stages customer metrics KPI category shouldn’t be too difficult to monitor. This is due to the fact that most software companies have only a handful of key customers to discuss. However, KPIs such as customer lifetime value form a part of this group and are essential information that software companies can utilize to perform fairly precise revenue forecasting.
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Five Key KPIs to Track Software Startups
In the categories mentioned above there are around five crucial KPIs every software development startup must track. This will give them the information they need to make the right choices and increase their chances of achieving long-term success. Let’s look at what they are.
1. Revenue Concentration
For software startups, There’s virtually no financial measure that’s more important than the ratio of revenue. It’s an important KPI that reveals where the company’s revenues are getting its money from and how it’s distributed among the customers. This is important as it allows managers to know what kind of financial loss the loss of a key customer would cause.
A business could fail if a single customer is responsible for 10 percent or more of its total revenue, or if its most important five customers comprise 25 percent or more of its revenue base. Thus, analyzing the concentration of revenue will alert management to the need to increase the company’s customer base in order to secure it against the possibility of a devastating income loss.
2. Customer Churn Rate
It’s important to know the percentage each customer makes up of the revenue base of a software company but that’s not enough without knowing the probability of losing a client. This is where the KPI for customer churn is crucial. It’s a gauge of the number of customers that a company should be expecting to lose during a particular time.
This data is crucial to creating new revenue forecasts and budgets as well as aiding the business in deciding how much to invest in marketing and retention strategies for customers. Also, it informs the business whether they are able to count on the loyalty of their clients or have to be aggressive to secure new customers to ensure that money continues to flow into the company.
3. Customer Lifetime Value
Value of customer lifetime KPI which is in conjunction with the concentration of revenue. It’s a measure that allows businesses to understand in a relative way how valued each of its customers actually is. As mentioned earlier it’s a crucial data which a company needs to use to forecast its revenues. But that’s not all.
It’s also a KPI that can guide the software development process for specific changes and feature development. The main point is that software companies must be aware of the needs of customers who are worth their money. If a huge client is looking for a certain software feature or functionality in an application it’s best to provide it. Data on the lifetime value of customers could be used as a method to prioritize requests for change from customers so that the top customers will always receive the features they require from any product.
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4. Release Burndown
The second crucial KPI is from the category of performance metrics. It’s the burndown of releases. This is a test of how well the company’s software developers team is keeping pace with the release schedules. It’s an important way managers will be able to monitor the pace of work in a specific software project.
This is crucial because the majority of software users require predictable release schedules for software either quarterly or monthly. In both instances, the release of burndown information can assist an organization that develops software to set release dates that they are able to meet. In the absence of this, they’ll run the possibility of making promises to their customers that they aren’t able to fulfill, which is usually the only way to avoid failing to launch.
5. Wasted effort
A wasted effort KPI is a measurement that allows an organization that develops software to be aware of how much they’re investing in tasks that don’t ultimately make it into their software products. This could include the development of aspects that don’t end up in a product, or changing codes in ways that do not explicitly enhance a product. It’s believed that software development teams across the world lose a total of daily $1 billion in wasted effort.
Tracking the costs of wasteful effort helps software development companies determine the decision-making processes and aspects of the development process that require rethinking. It will help them be as efficient as they can this is vital for any software startup that hopes to get through the beginning stage.
Obviously, it’s a given that a startup in the field of software development must produce high-quality software to thrive and grow. But, the past is filled with companies that produced great software but failed because didn’t translate it into real revenues. Through monitoring the KPIs mentioned above a a software startup manager can ensure that they keep their business on the right track towards long-term achievement.