6/3/2017 TheCompleteGuidetoBuildingaMetricsDrivenCompany|BrainscapeBlog

The Complete Guide to Building a Metrics-

Driven Company
Modied on September 15, 2015 (https://www.brainscape.com/blog/2015/08/building-metrics-driven-culture-company/)
by Andrew Cohen (https://www.brainscape.com/blog/author/andrew/)

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At nearly every type of organization, the ability to communicate effective business metrics both internally and externally
is among the most important capabilities that can be established. Good metrics can help you motivate your team, stay
focused on key objectives, create realistic forecasts, impress investors, and become acquirable by larger companies. The
ability to create a strong metrics-driven culture is arguably one of the most critical skills for any new manager or CEO to
possess.

The problem is that learning to think like a business metrics analyst is really hard! I myself took a few years to truly
understand how to manage startup metrics as CEO of Brainscape (http://brainscape.com), despite having nearly 10 previous
years of experience in economics, nance, and statistics. The existing litany of books and blog posts did not suciently
prepare me for the best practices used in the world of business management analytics.

Driven by Data
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Driven by Data
How to Gather It and Make Sense of It
This article is my attempt to summarize my lessons learned while building a metrics-driven culture at Brainscape. I have
been lucky enough to teach this curriculum in both a General Assembly class (https://generalassemb.ly/instructors/andrew-
cohen/1933) and as a mentor at the Kaplan / TechStars EdTech Accelerator (http://kaplanedtechaccelerator.com/), and now I
am happy to share my startup metrics philosophy with the interwebs.

Well break this down into ve steps that I recommend you follow:

1. Start With a Solid Business Model

2. Set Up Your Data Collection Tools

3. Dene Your Monthly Data Collection and Communication Processes

4. Analyze and Act on Your Data

5. Constantly Iterate Your Model

Lets look at the details of how this works for us at Brainscape.

1. Start With a Solid Business Model

Much of the literature about growth metrics assumes that you are beginning with a series of Key Performance Indicators
(KPIs) that you already know you want to optimize. Want to improve retention? Just do a cohort analysis. Want to measure
engagement? Simply calculate your DAU/MAU ratio. Want to boost monetization? Just x your churn and your cart
abandonment rate. These metrics may indeed be important for some companies, yet every company is different. Looking at
KPIs in a vacuum can risk losing the forest for the trees.

Rather than just starting with arbitrary metrics and tools like Google Analytics or MixPanel, I recommend that every
company begin its metrics-driven transformation by developing a complete Business Model Dashboard. By this, I generally
mean a shared Google Spreadsheet(s) with a high-level multi-month performance summary, which allows all stakeholders to
dig down and explore all the drivers that affect business growth. Starting with the structure of the model that you need
helps keep you focused and will help you better target which data you need to actually collect.

Business Models can generally be divided into two types: Revenue models, which help you understand all the components
of your growth; and Marketability models, which help you understand how protably you can scale your business with paid
marketing activities.

Lets look at each of these in more detail.

a. Revenue Models
You can think of Revenue Models like a P&L on steroids. A good revenue model contains not only rows containing dollar
values, but also rows containing contributors to revenue.

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For example, if you have a jewelry store, you might have rows for:

Number of Store Visitors

% Who Engage w/ a Salesperson

% Who Make a Purchase

Avg. $ Amount Spent per Customer

All of those are drivers of revenue that your companys stakeholders would want to know each month. Seeing your high-
level revenue drivers in one place is a critical rst step to becoming a metrics-driven company. The example spreadsheet
shown here is onlyone way to break out your revenue contributors. There are many ways you could slice & dice a single
business, and every company is itself unique. You need to pick the model that works best for your particular line of
business.

(http://www.brainscape.com/blog/wp-content/uploads/2015/03/Untitled1.png)Once you have determined the right way to

break down your business into its highest-level drivers, you can keep digging down several more levels. The eCommerce
website shown in this example spreadsheet might think of the world in terms of a formula like this:

Revenue = Visitors * Avg. Revenue / Visitor

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For such a company, carefully breaking down their sources of visitors is critical to understanding how they are performing
from one month to the next.

The important thing is that you organize your model in the hierarchical format that makes the most sense for your particular
business. If you do this, you will likely discover several places where you actually might not have the data available using
your current tools (as illustrated in red above). We will take care of addressing these items in section 2.

b. Marketability Models
If Revenue models illustrate how businesses can optimize each part of their funnel, Marketability models illustrate how
businesses can scale by pouring new resources into the top of that funnel. Marketability models are a primary concern of
venture capitalists when determining how fast and protably you will be able to grow the business once they invest. At the
crux of the Marketability model is the ratio of the Lifetime Value of a customer to the Cost of Acquiring a Customer, or
LTV/CAC.

All paid marketing activities should be viewed through this lens to determine if the unit economics are protable before
stepping on the gas.

LTV Calculation
The LTV tends to be easier to calculate than the CAC. It is generally a product of the net revenue earned from a single
paying customer throughout her entire time as a customer. In equation terms, you could say something like:

LTV = [Revenue / Customer / Month] * [Average Months as Paying Customer]

The structure of this equation may vary between subscription-based software companies, consulting rms, and eCommerce
websites, but the general idea is the same. LTV = Net revenue earned from the average paying customer, over all time. A
subscription business with a monthly price of $10 and an average customer lifetime of 10.5 months would have an LTV of
$105.

CAC Calculation
The CAC calculation tends to have many more forms than the LTV, since there is technically a different CAC for each
marketing channel that a company employs. To oversimplify, a basic CAC calculation could be as follows:

CAC = [Cost to Capture 1 Eyeball] [% of Eyeballs who become buyers]

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(http://www.brainscape.com/blog/wp-content/uploads/2015/03/Untitled2.png)A typical CAC example is a Google AdWord

campaign. In fact, this example is so typical that many startups use it as a proxy for paid marketing costs, when pitching
VCs before having actually begun actively marketing the product. This image is a simple version of this Google AdWords
CAC calculation for a freemium business.

In other words, in this particular example, you need to spend $200 worth of Google Ads to be able to get one paying
customer (unless you have a Viral Growth Multiplier that can help you deate your effective CAC). This example of a $200
CAC is a big number, so if thats your company, youd better hope that your LTV is signicantly higher.

As a general rule of thumb, if you want to raise venture capital, you need to prove an LTV/CAC ratio of at least 3:1 (in
addition to showing that there is a massive market). You need to show investors that you would be able to immediately
magnify growth by boosting spending on proven marketing initiatives. And even if you are just a lifestyle business,
continually optimizing for the LTV/CAC ratio will help you better market your product like the smart businessperson you are.

Every new company should build both of these types of models assuming they already have all the data available. But
really, the data doesnt matter at rst. Build the right storytelling framework to demonstrate the viability of your business,
and you can worry about collecting the actual data later.

2. Set Up Your Data Collection Tools

Now that you have a solid framework with which to tell your companys story with data, you can actually start nding the
right tools to collect that data. This could involve a combination of web analytics (e.g. Google Analytics, Kiss Metrics), mobile
analytics (e.g. Flurry), user surveys, nancial data from Quickbooks, data exports from Salesforce.com, custom queries of
your own database, and any other number of tools that offer the data you need to complete your spreadsheet.

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(http://www.brainscape.com/blog/wp-content/uploads/2015/03/Untitled3.png)You may in fact need to consult one of your

software developers to help you set up the proper integrations for collecting each data point. Collecting the right data can
require quite a bit of work, so dont underestimate this step.

The important thing is that you properly document the source of each individual data point, preferably within your central
Google Spreadsheet itself. This way, you will be able to more easily delegate your monthly data collection responsibilities
later. At Brainscape, to keep the spreadsheet clean, we consolidate the bulk of the data collection instructions into a
note attached to the respective cell. Our monthly data collector simply mouses over the respective cell and follows the
directions for exactly how to collect each data point.

3. Dene Your Monthly Data Collection and

Communication Processes
Your new centralized business model spreadsheet, with its proper data collection procedure and clear instructions, can now
serve as the basis for an ongoing data collection and communication process. Youll just need to delegate and
communicate the right messages.

a. Find a data collection assistant

Assuming that your business has a signicant number of data points that aggregate up to your overall story, you will
probably want to delegate the collection responsibilities to a more junior employee or virtual assistant. Brainscapes model,
for instance, has over 200 feeder stats that represent several intricate elements of our user experience funnels. I would
rather not do all that data entry myself!

If your junior employees are not right for the task (or if such a repetitive task is not the best use of their time), then you
might want to consider hiring a virtual assistant (http://www.brainscape.com/blog/2015/03/triple-businesss-eciency-using-
virtual-freelancers/). Freelancers from services like oDesk can be perfect for such projects and can even, over time, evolve
into a multi-year employee at your company.

b. Suciently train your collectors

No matter how good your initial data collection instructions, theres bound to be a few confusing stats. Be sure to work
closely with your data collector and allow him/her to ask plenty of questions until you feel that they are 100% self-sucient.

c. Establish a collection schedule.

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c. Establish a collection schedule.

For most companies, its most practical to aggregate all business model data on a monthly basis. Of course, there will
always be cases in which you need to analyze data on a shorter time frame like when you are evaluating results of an
experiment or testing the effect of a new software release but for those cases you can always perform an ad hoc analysis
using a temporary spreadsheet. The main record of your KPIs will likely be the one that will align with your P&Ls and other
monthly reporting tools.

Whatever your data aggregation frequency, you should set up a recurring calendar reminder for both yourself and for your
data collector(s), on the day that the previous periods data becomes available. This will help remind you to check the
results so that you can begin the process of communicating your reports to stakeholders.

d. Extrapolate forecasts and what if scenarios

Having a well-organized model of your businesss growth drivers is not only helpful for evaluating what already happened;
it is also critical for forecasting what will happen. I recommend drawing a vertical line down your spreadsheet to divide the
months that are Actuals (past) from the months that are Forecast (future). (I even have my Forecast months data in light
gray text to help distinguish it from the Actuals.) Then you can adjust the formulas in the Forecast columns to ensure that
your conversion rates are appropriately tied to growth.

To help use your spreadsheets as a conversation tool, Ive also found it helpful to highlight your key assumption cells with
a yellow background. This basically tells the viewer Tweak me to see what happens to the rest of the forecast. For
example, if you want to illustrate the potential effects of improving Retention or Signup Conversion Rates by 1%, simply
tweak the yellow assumption cells and watch the Forecast adjust itself.

e. Communicate results with relevant stakeholders

One of the best features of Google Spreadsheets is the ability to set custom Permissions for specic viewers. Perhaps you
only want the document to be edited by you and your data entry assistant, but you want your investors to be able to view
the data, and you want to ensure that your board of directors can comment.The exibility of Google Spreadsheets makes it
easy for you to use the exact same document for many types of communications.

For most companies, I recommend sharing results with your entire team (and soliciting comments) as soon as the updated
data is ready each month. Get explanations for any big movers on the spreadsheet. Then, once you feel you have a
comfortable understanding of what happened this month, share the spreadsheet with your board of directors (or immediate
management team) and encourage them to add Comments to any cell that they still have questions about. Starting by
virtually discussing KPIs makes it easier to subsequently discuss them verbally in a metrics meeting.

For the rest of your investors (or potential investors), you can use your discretion regarding whether you want to share the
complete business model spreadsheet with them. If you are particularly transparent, then you can share the entire
spreadsheet with them (with view permissions only), but you may also just want to share a master high-level spreadsheet
that you might paste into a different standalone le.

In general, the goal of your data collection and communication process should be to make it so automated that you dont
even have to think about it each month. Building stories with data can be exhausting, so the more fully you can get the data

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even have to think about it each month. Building stories with data can be exhausting, so the more fully you can get the data
collection and communication tasks off your plate (or into a no-brainer monthly calendar reminder), the more mental
resources you will have available to analyze your data.

4. Analyze and Act on Your Data

Monthly team data discussions are typically full of insightful talking points. Is the market really as big as we thought? Is one
demographic using our product more frequently than others? Are we really losing that many customers because of that one
single web page? Having a transparent, tweakable business model spreadsheet makes such discussions as productive and
actionable as possible.

The type of corrective action required to act on a single metric deciency (or opportunity) naturally varies depending on the
metric in question. Improving a specic KPI may require focus groups, A/B tests, email blasts, mobile push notications, new
product features, or more targeted marketing campaign spending. Prioritizing your KPIs and determining the right
corrective actions is a management skill that comes with experience.

5. Constantly Iterate on Your Model

Earlier in this guide I mentioned that the goal of your data collection process was to make it so automated that you no
longer have to think about it. That was kind of a lie. While you certainly do want to modularize and delegate data collection
responsibilities, the reality is that the business models structure itself may constantly change as your business activities
evolve. Every new feature or business line may necessitate a change to your central spreadsheet and a revision of your
data collector training materials. Updating your spreadsheet every time you update your product or marketing can help you
from falling behind in your understanding of your business itself.

Becoming a truly metrics-driven company requires you to constantly strive for a state of metrics automation that you will
never permanently achieve. In his famous book Predictable Success, Les McKeown advises business leaders to relentlessly
challenge the status quo while maintaining a formal, regular process for informed decision-making. Such a level of
predictable success is impossible to reach if you have not rst instilled a metrics-driven culture in your companys DNA.

[Want more articles like this? Follow me on Twitter @acohenNY (http://twitter.com/acohenNY).]

Brainscape is a web & mobile education platform that helps you learn anything faster, using cognitive science. Join
the millions of students, teachers, language learners, test-takers, and corporate trainees who are doubling their
learning results. Visit brainscape.com (https://www.brainscape.com/) or nd us on the App Store .

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