Consumer Startup Metrics | Startup School

Intro

• Growth of user base is essential for consumer companies
• A good growth rate is 15% month over month

Growth Rates

• 15% monthly growth can 5x the user base annually
• 10% monthly growth can triple the user base annually
• 5% monthly growth or lower is unlikely to lead to breakout success

Organic vs. Paid Growth

• Organic growth is through virality and network effect
• Virality involves users sharing the product, while network effect improves with more users
• Viral mechanics and network effects enhance growth organically
• Incorporating both viral loops and network effects pays back forever

Paid Growth

• Paid growth involves pay-per-click campaigns, TV advertising, etc.
• Good tracking is necessary to measure the effectiveness of paid campaigns
• Understanding customer acquisition cost (CAC) is essential
• A split of organic vs. paid growth of 80% organic to 20% paid is ideal
• Relying too much on paid growth can be worrisome and unsustainable

Cannibalization

• Paid referral schemes may lead to cannibalization
• Fraudulent activities can exploit paid referral schemes

The text covers the importance of growth rates, distinguishing between organic and paid growth, and the potential pitfalls associated with paid growth, including cannibalization and fraud. It emphasizes the significance of viral loops and network effects for sustainable growth in consumer companies.

Unit Economics (00:10:59)

• Measure revenue per customer minus variable or incremental costs associated with serving the customer
• Understand profitability on a per customer and cohort basis
• Optimize by reducing costs and investing in advertising channels bringing in high revenue, low cost customers
• Fixed costs, like engineering salaries or office rent, are excluded from variable costs
• Scaling with negative unit economics is dangerous; aim for positive unit economics before scaling up

Net Promoter Score (NPS) (00:17:04)

• Measures the likelihood of customers to recommend the product to a friend on a scale of 0 to 10
• Net Promoter Score (NPS) is calculated by subtracting the percentage of detractors from the percentage of promoters
• NPS correlates with word-of-mouth referrals and is crucial for consumer companies
• Asking the NPS question consistently is important to generate reliable data
• Influencing NPS: asking qualitative questions to detractors and fixing the identified issues

Recap (00:20:23)

• Growth rate of at least 15% month-on-month for active users is the target
• Aim for at least 50% organic growth to achieve scale and focus on virality and network effect
• Start tracking unit economics and address negative unit economics before scaling
• Identify a "magic moment" in the product to improve retention
• Minimum NPS of +50 for great consumer startups; consistency in measurement is crucial
• Different metrics for different businesses; benchmarks may vary based on industry and business model