MicroVentures Logo MicroVentures Logo MicroVentures Logo

What are Vanity Metrics – and Why Investors Should Stay Away

vanity metricsWhen a startup founder is pitching to investors, typically, that founder is advised to include highly detailed charts, financial numbers, and milestones. With more information, investors can gain a better idea of where a startup is in its journey, if a startup is meeting its goals, and whether a startup has found product-market fit. However, some of those metrics may be vanity metrics – and investors should understand when vanity metrics are appropriate and when a startup should focus on actionable metrics instead.

Vanity metrics are numbers – such as impressions, social media likes, followers, open rates, views, traffic, time on site, bounce rate, and more – that identify growth and patterns. What vanity metrics do not provide, however, is information about how those numbers correlate to revenue, customer acquisition, marketing ROI, or traction.

When are vanity metrics important?

Things like user count, web visitors, downloads, and other “traffic”-related metrics are important for identifying early interest and activity. For example, if a startup struggles to increase these numbers, it may be an indication that there isn’t a product-market fit. Further, these metrics aid in measuring non-transactional marketing goals (such as brand awareness and sentiment) as well as optimizing campaigns and troubleshooting marketing problems.

When are vanity metrics a problem?

When a startup focuses only on something like impressions or user count, it’s missing the full story. Growing users is a great thing, but only if those users continue to use the product – and impressions, or getting your message in front of additional people, is important unless those people do not convert into qualified leads. Vanity metrics become a problem because it is difficult to directly correlate those metrics to a startup’s bottom line. Ultimately, a startup founder should want to measure things that can be tested, improved, and simplified in order to continue to grow the business and build sales or revenue.

What metrics should be tracked?

Ultimately, there isn’t any one set of metrics that should be tracked across the board at every startup ­– and which metrics being tracked may need to change over time. A high number of followers, downloads, or web visitors may be impressive, but a startup will eventually want to make sure those users are active, that users are being converted into leads or into paying customers, and that there isn’t a high amount of churn (the percentage of customers who stop subscribing to a service annually). The most useful metrics are the ones that are correlated to sales and revenue, that are not easily manipulated by irrelevant activity, and that are actionable. This can make it easier for a startup to identify pain points, potential product improvements, and opportunities to attract new customers.

Here are a few ideas of useful, actionable metrics for several startup industries:

  • Ecommerce – may include things such as number of repeat customers, how often customers complete a purchase, and number of customers involved in any loyalty programs
  • Software and Apps – may include engagement metrics, such as daily, weekly, or monthly active users (DAU, WAU, MAU) and churn rate
  • Nonprofits or philanthropic organizations – may focus on donations and planned giving, including indications of giving or fundraising event RSVPs
  • Service providers – will want to measure behavior over time, not just number of users, as well as identify conversion points in your customer acquisition pipeline and ways to strengthen them
  • Marketing – go beyond impressions to things such as click-through rates and purchase metrics tracked across streams and by user

These are just a few examples, but there are a multitude of ways to track startup performance and growth. Vanity metrics have their place, but deeper dives can do more to explain customers’ actions and provide useful insights for startups. Plus, for investors, these actionable metrics may do more to define a startup’s potential.

Not a MicroVentures investor? Sign up today.