In our earlier posts, we talked about what makes a Minimum Viable Product successful. Now let’s talk about measuring its success! The first thing to do after releasing an MVP is to start tracking key performance indicators. KPIs are important because they allow us to see if the efforts put in were all worth it. They also provide insight into whether we should continue pursuing our goals or not.
What is MVP, Briefly
The Minimum Viable Product is a term coined by Eric Ries in his book The Lean Startup. A MVP is a strategy that enables startups to quickly develop new ideas into marketable products without spending too much money upfront. Many companies have used this approach, including Amazon, Google, Facebook, Twitter, Netflix, Spotify, Uber, Airbnb, Dropbox, and Kickstarter.
The Goals of Your MVP
The most common way to measure success is by looking at how many people in your target market have tried out the MVP. You need to see whether there’s enough interest to justify further investment beyond the MVP. If there isn’t, then you’ve got to rework on your idea and refine it further. But even when there is sufficient demand, you still don’t necessarily get a return on your efforts unless you can prove that the MVP works. That means gathering some kind of evidence that shows users find the MVP helpful.
Essentially, you have to measure two things:
- The attractiveness of your offering to a viable pool of people / early-evangelists
- How valuable is your MVP in solving a problem for your target user
One metric that can help answer both questions above is the acquisition rate. AR measures the number of potential buyers who come across your offer within a given period. For example, if you run a website where people can sign up for free software trials, you could calculate AR based on the number of visitors per day. Another related metric is bounce rate, which tells you how often someone leaves your site immediately after visiting it.
Customer Acquisition Cost
Another metric that helps determine whether your MVP was worthwhile is Customer Acquisition Cost. CAC refers to the total amount spent acquiring one customer over the lifetime of the business (LTV). So, if you spend $10k to acquire 10 customers, but only 1 of those customers becomes profitable, then your cost per customer would be $1000. However, if you spend $100k to acquire 100 customers, but 50 become profitable, your average cost per customer drops down to $50.
Another metric that helps determine whether your MVP is worthwhile is conversion rate. CR measures the percentage of visitors who convert into paying customers. For example, you might be offering a trial plan for your web app, product or service. It is easy to determine how effective your MVP is by looking at how many people become paying customers after the trial period.
Return on Investment (ROI)
Return On Investment is another metric that helps determine whether an MVP is thriving financially. It compares the value created by the MVP against its costs. A simple formula looks like this: Value Created – Costs Return On Investment.
So, let’s say you launch an MVP that generates $5K in revenue during the first month after launching. Let’s also assume that you spent $20K developing the MVP. Then ROI can be determined based on the value created. Now, we need to know what “value created” represents. Well, here are three ways to do so:
- Value Created 1: Revenue generated by the MVP
- This is probably the easiest method because it doesn’t require any additional data collection. Simply look at the numbers reported by your payment gateway(s).
- Value Created 2: Number of new subscribers acquired through the MVP
- Instead of focusing solely on revenue, you might consider the number of new subscribers acquired through your MVP.
- Once again, you should report monthly subscriber counts for each market segment (countries, regions, etc.). You can find more information about using GA’s audience insights tool here.
- Value Created 3: Average order size
- To calculate the average order size, divide the number of users by the number of active accounts. For example, if you had 1000 active accounts and 500 ordered something, the average order size would be $500. If you could track these values, they would give you a great idea of which market segments generate the most sales.
The last metric we’d recommend tracking is the referral rate. Referrals refer to the number of unique referrals made by existing customers. As mentioned above, referring customers is a meaningful way to grow your user base. Tracking referral rates lets you see where your best-performing markets are.
In addition to the metrics mentioned above, other essential learning metrics help us understand our progress towards building a sustainable company beyond a successful MVP. These include things such as retention rates, churn rates, and user satisfaction scores.
The retention rate indicates the proportion of existing users who continue to use your application/service. Retention rates help to understand the value created by our application/service. It requires a sound strategy in place to retain an existing user.
During any given timeframe, churn is the number of users leaving your system. High churn rates indicate poor quality of experience. They could mean – too many bugs! Or, perhaps, not enough functionality to entice the user. Either way, it’s a big red flag and you must focus all your efforts on addressing the overall quality of your application/service before increasing your marketing budget.
User Satisfaction Scores
Finally, the User Satisfaction Score measures customer happiness. Customer Happiness is calculated based on ease of use, performance, reliability, security, and support. The higher the score, the happier the customer. A straightforward way to measure customer happiness is to get user feedback by asking your current customers what they think of your service.
As you can see, there are several different types of metrics available to evaluate your Minimum Viable Product and improve your learning about your target customers. Each has strengths and weaknesses. However, no matter which ones you choose, make sure that you keep them consistent across projects.
We’ve intentionally left out metrics like customer lifetime value (CLV), average revenue per user (ARPU) and revenue per account because they’re better suited for the post-MVP stage.