You’ve done it. You’ve come up with an amazing idea for an on-demand app. It’s gonna be huge – the next Uber! Now all you have to do is get some financing or maybe even some venture capital (VC) in order to make your idea come to life. Well, hold on! You may be convinced that your idea will make you millions, but potential lenders and investors won’t be so sure. They’re going to need some assurance in the form of statistics and hard data. In other words, they are going to need to know your KPI metrics – which means YOU are going to have to know your KPI metrics.
What are KPI metrics?
KPI stands for “key performance indicators”. These are numbers that show lenders and investors how well your company is currently doing as well as where there is room for improvement. In the case of an on-demand app, some important KPIs include its active user base, cost of acquisition, churn rate, etc.
Have you ever watched an episode of CBC’s Dragon’s Den, and saw someone pitching an idea – but they got absolutely annihilated by the dragons because they didn’t know their numbers? That’s because – like it or not – ideas on their own aren’t worth a whole lot. They have to be backed up by performance.
So whether you are making your pitch to a lender, a venture capitalist, or maybe even a dragon, here are a few of the KPIs that you are going to need to know for your on-demand app.
- Active user base. This one is fairly self-explanatory – it is simply the number of active users that are using your app. To get VC, you will typically need a number of active users that is at least in the tens of thousands. And that means you’re going to have to hustle long before you get to the funding stage.
- Cost of acquisition. This number is how much it costs you to get one active user – including any costs associated with advertising, SEO, PPC, etc. To arrive at this number take the total amount of money you spend on acquiring users and divide it by the number of users. (eg. If you spend $100,000 and get 30,000 users, the acquisition cost is $3.33.) Learn more about the cost of marketing your app here.
- Revenue per user. How much money does each user make you? Hint: if you want to get investors, this number better be higher than the cost of acquisition! You may want to break this down further into revenue per buyer and revenue per seller.
- Churn rate. This has more to do with retention. In other words, are you gaining users more quickly that you are losing them? Since getting a new customer is about six times more costly than retaining one, it is a smart business strategy to keep the churn rate low. For a simple way to calculate churn rate, click here. And again, you will want to know the churn rate for both buyers and sellers.
Getting started on getting funding
As a new start-up, getting your first round of funding is typically going to be the most difficult. Your first round is called your “series A” funding. Investors and venture capitalists who are willing to put money into this round are typically taking the biggest risk – and that means they will be seeking the biggest reward.
They will likely also want to see that you are doing what you can to mitigate their risk. Having an exit strategy to sell their shares in series B or series C funding will be important to them.
Alternatively, as the developer of a new on-demand app, you might also be able to source smaller investments from a larger amount of people through crowdfunding. Popular websites such as Indiegogo and Kickstarter have made this method of raising capital popular among start-up companies.
But however you decide to raise money for your on-demand app, knowing your KPIs will be critical to getting the business cash you need to turn your idea into a thriving business.