This is a guest post by Harry Cobbold, Managing Director of Unfold
Employing user-led KPIs in digital products to prove ROI to investors
Anyone who has attempted to gain funding will know that there is a degree of hoop-jumping required to assure funders or investors that your project is on track and market-worthy. This is particularly so in the earlier stages, when you’re tenuously testing the waters of your product/market fit.
If your business is making an investment in tech as a part of this growth (such as a new website, web app, digital platform or SaaS product), proving the effectiveness of this is of key importance in order to guarantee the release of future funding. In this article we’ll explore some of the key performance indicators (KPI’s) you can implement to understand your users, some tools and tips to track them and crucially how this relates back to your investors through ROI.
Users are at the centre
Naturally, every business will be looking to achieve different outcomes from fundraising but there are a few universal truths which apply. The first and most obvious is that your investors will be looking for a return on their investment (ROI). There are many different routes to achieving ROI, so the KPIs we track on route will differ for everyone. However, when it comes to websites and web apps, your digital product’s long-term success can really be drilled down to one thing; positive User Experience (UX). Without nailing the fundamentals and continuously learning from your user-base, your efforts will quickly fall by the wayside in exchange for competitors who are willing to listen and innovate.
Funders and investors are increasingly aware of the importance of User Experience, making tracking and improvement in this area a valuable asset. Even where investors don’t stipulate UX changes explicitly, the effect of neglecting these issues will quickly tell in the performance of other essential metrics.
For example, it doesn’t matter how much money you spend on marketing, if your landing pages aren’t set up to convert and your proposition doesn’t meet the needs of users, then they won’t buy from you. Without addressing these fundamentals your business will run sub-optimally; it’ll be difficult to make sales and your other efforts may be fruitless. If you’re hoping to hit the KPI and ROI targets set by your funders, it’s paramount that you get your UX nailed as a matter of priority.
Should you be measuring ROI or KPIs?
The short answer is both. Your KPIs should be considered smaller incremental metrics that keep you on the course for achievement of your ROI target. Some people make the mistake of attempting to measure ROI too early on. In doing so, you could easily fall into the trap of believing the product has failed, when actually it just hasn’t reached the scale required to deliver a positive ROI. When communicating with your board and investor tiers, it’s important to maintain transparency. If they’re expecting an ROI measurement too early on, let them know that ROI is something you’ll be reporting on in the future and in the meantime you’ll be using KPIs to indicate your future ROI success. Read our full guide on setting up your ROI tracking here.
It’s likely that funders will have desired KPIs for you to hit
Most good investors will work closely with you to consider the metrics they want proven in order to unlock subsequent rounds of funding. It’s a good idea to maintain open communication with investors, find out what wider achievements they want from the business and align the rest of your strategy around them. This will put you in the best possible position to raise at a competitive valuation in future.
Bear in mind the targets you set here will play a vital role in your next funding cycle. They need to be ambitious enough to prove the proposition and get future investors excited but also remember you’ll need to actually achieve those targets in order to be in a strong position for the next raise.
Common metrics investors will assess
Aside from the obvious income-related metrics, investors will also want to know that you’re honing-in on more specific usage stats. Again, this will depend on the nature of your website or web app, but are likely to include;
- income generated through specific projects or campaigns,
- traction (likely as number of customers in a given period),
- number of active users,
- number of users, paying users, and percentage of paying users,
- churn rate (how many customers you lose on a monthly basis),
- conversion rate,
- customer lifetime value (LTV),
- customer acquisition cost (CAC).
These are just a few examples and of course, your goals might change and so your approach to the above will have to be adaptable.
Using data to dive into the detail
Your investors will likely be focused on increasing conversion rates and other high-level metrics stated above, but there are a number of secondary metrics which can help you impact on these top level metrics.
For example, if you were looking to grow an online ecommerce business and noticed that your website traffic was high but your conversions remained low, you’d want to examine the analytics to understand where the issue might lie. For example you might find:
- The percentage of people who add a product to their basket is low on certain product lines, highlighting unpopular products
- A page speed test might show that site loading times are slow, causing higher bounce rates
- You might find that users are progressing all the way through your sales funnel, but dropping out on a specific page where you ask them to sign up for an account.
Harnessing the best KPI data to impress your investors – Tricks of the trade
- Data accuracy: First and foremost we need to discuss accuracy of data, which is an essential but overlooked issue. This is particularly so in the current age of automation where we easily take for granted that our tools are taking care of the work and our data will be accurate. It is far too common for Google Analytics to be firing incorrectly, causing businesses to be making data-led decisions based on the wrong information. In the worst case scenario this can be detrimental. Get Google Analytics configured by a professional and constantly monitor it for any strange-looking metrics, don’t accept what you see at face value.
- Qualitative as well as quantitative data: whilst quantitative data might be more readily available, you would be seriously missing a trick to not also be examining the qualitative data pertaining to your digital efforts. Using interviews and on-site feedback forms to get information back from your users will help to give you a much deeper insight into their preferences and whether you’re meeting their needs or not. This information can be invaluable particularly when you’re struggling to explain poor performance.
As well as offering these data-led insights into your product’s viability, there are a few other things you should tick-off to increase your chances of getting funded.
- MVPs: we HOPE that you’re using a prototype to release your digital product. By pushing an MVP or prototype to market as soon as possible, you’ll be able to get out of the fruitless unpublished stage and start learning about real users quickly. MVPs mean you can take a far more scientific approach to your product development, pushing one incremental change at a time resulting in a more accurate idea of which changes can be attributed to which improvement. This is the stage to really go to town with testing your user base, learning from them making changes based on their behaviour rather than your own assumptions.
- Transparency and business-wide consistency: To implement these metrics fully and consistently, transparency with the entire team is essential. For this, the Kaizen Continuous Improvement model is a principle we’re a particular fan of. This model suggests that people at every level of the business should be responsible for noticing opportunities for improvement. Not only does this ensure a quicker finish line, but it also reduces waste and improves commitment, retention and competitiveness. So make sure your team is kept up-to-date with any changes and why they’re being made. It’s also a good idea to have regular check-ins asking for feedback and rewarding good input.
- The best tools aren’t necessarily Google’s: We’ve all heard of Google’s tools such as Google Analytics with their ability to provide an invaluable level of data. But there are some things that Google Analytics just can’t offer (yet). One of the most powerful tools we use is Hotjar, a session recording tool offering you the ability to record how users actually use your website. There is only so much you can learn from looking at data and conducting interviews. The information offered from this tool is invaluable when improving UX and increasing conversion rates.
- Ask for investment before you really need it. When attracting new investment, stable and consistent performance metrics are an absolute must. This is why it’s essential to approach investors before you get to the point of really needing the investment. Build relationships early, and ask for advice without asking for financial support in the first instance.
We hope this article has been useful. As a web development agency, we work with ambitious start-ups and scale-ups on a daily basis who each have individual metrics they must hit to achieve their next raise. From experience we can say that if you maintain a laser-sharp focus on the right metrics, with the right timing and the right tech stack, you’ll have a recipe for success.
If you would like to work together with Unfold, visit their website here.