Know Your Numbers: KPIs for FinTech Startups
FinTech is one of the fastest-growing sectors globally, with India having the highest rate of adoption globally and China. The key drivers behind this growth are said to be increased smartphone usage, internet penetration, and expansion of the middle class in India. The Government has also been vocal about Digital India initiatives, which have further helped FinTech’s cause.
Many investors are taking note of changing trends and are looking favorably towards FinTech. The sector is attracting hundreds of millions of dollars in investments every year, and the amount will only grow in the times to come.
FinTech, as a space, is quite diversified with a multitude of segments under it. On a large spectrum of fintech, the key categories include lending, digital payments, financial inclusion etc. The benchmark for each segment differs, and so do the Key Performance Indicators (KPIs). This article captures some of the common KPIs for FinTech startups.
Average Revenue Per User (ARPU)
For the startup to grow in revenue over time, each user should be contributing more in monetary value. The average revenue per user or ARPU measures the amount of money that a company gets from an individual customer. While there is no rule, the ARPU is generally calculated on a monthly basis, i.e., the average revenue being generated per customer in a month.
The method to calculate ARPU involves two variables- the total revenue (in the preferred unit of time) and the total number of customers. If we consider a monthly period, then the formula is:
ARPU = Total revenue generated in a month / Total number of customers
ARPU is a useful metric to track for FinTech startups because it gives an idea of how much customers contribute to the company and helps identify the “whales” or the highest paying customers.
Your whales will generally account for a large portion of revenue, and it only makes sense to give them their due attention. You may be able to upsell and cross-sell with ease and boost your sales further.
Average Time Per User
It is crucial for FinTech startups to track engagement metrics and see if users are actually interacting with their platforms, whether web-based or mobile-based. One KPI to track for this is the average time per user.
This measures the time from the start of the session, when the individual comes on to the website or application, to the time he/she exits the session or remains inactive for a predetermined period. Depending on the type of content you have on your platforms, the average duration will vary.
Having a lesser than normal average time per user could lead you to brainstorm upon various issues. Do your pages load fast enough? Are your pages optimized to the devices? Is your platform user friendly? Are you conveying your value proposition instantly? Answers to these questions are important given the cutthroat competition.
Customer Retention Rate
Onboarding new customers is a tough task in itself, and dealing with customers dropping off just makes it worse. Retaining customers over some time is truly beneficial and indicative of strong offerings and loyalty.
The customer retention rate can be calculated in the following way:
Retention Rate = (Customers at the end of a period – New customers added / Customers at the start of the period) x 100
This metric is essential for FinTech startups because it shows how well they have fulfilled their existing customers’ needs and whether their service quality was satisfactory. In fact, studies have shown the great impact of retaining customers. A 5% increase in the customer retention rate can boost revenue upto 95%!
Cost of Customer Acquisition (COCA)
We just spoke about retaining existing customers, but, of course, startups are continually looking to acquire a new set of customers. The cost that is involved, on average, in getting a new customer on board is termed as the cost of customer acquisition or COCA.
A lot has been written about the topic, and it is justified. After all, as David Skok said, it is a startup killer. Having a high cost of acquiring a new customer for a prolonged period can dry up a startup’s resources. Unless there is consistently rising revenue coming in from new customers, survival is close to impossible.
This KPI can be measured through the following formula:
COCA = Total marketing and sales expenses / Number of customers acquired
While all FinTech startups look to get more and more customers, unit economics must be tracked consistently because that is where profitability will arise.
Burn Rate
For early-stage startups, the burn rate is arguably the most important KPI to track. Since resources are scarce, burning through money quickly is a big problem that startups face. Spending and costs should not go unchecked.
The burn rate can be found through a simple formula:
Burn Rate = Total cash inflow in a period – Total cash outflow in a period
Generally, the burn rate is calculated for a month. This can be matched with the revenue coming in during the same month to see the cash flow direction. A positive burn rate will mean that you have spent more than what you earned, while a negative burn rate implies that earnings were more than the spending.
