The Fintech Financial Metrics You Need to Monitor
The fintech industry is an ever-evolving one. There are new trends coming out every day. And as a fintech entrepreneur, you need to cater to every single one of them. While you will find a lot of scattered information on this topic, we have put together the most comprehensive guide to fintech financial metrics. These are the metrics that you need to be monitoring frequently.
Since fintech businesses are still relatively new, there are not a lot of case studies or historical data to guide you. This makes it all the more important to track your metrics religiously. The good news is that fintech startups have a lot more leeway when it comes to financial management. You can be a bit more experimental and try out different fintech financial models.
But with this freedom also comes greater responsibility. You need to be extra careful about the financial decisions you make. One wrong move and your whole fintech business could come crashing down. That is why we have put together this guide of fintech financial metrics for you.
So without further ado, let’s get started.
This is the first and most important metric that you need to track. After all, what is a fintech business without customers? You need to track the number of leads that you are getting on a daily basis. And more importantly, you need to track how many of those leads are converting into paying customers.
There are a number of ways to generate leads. You can use online ads, social media marketing, or even word-of-mouth marketing. It doesn’t really matter how you generate them. What matters is that you have a steady stream of leads coming in.
We will also talk about the conversion rate going forward. But right now, you have to fully grasp the concept of how the number of leads is one of the defining fintech financial metrics. Also, how you can improve it for your fintech business.
Why Do Leads Matter for Fintech Businesses?
As for all the other digital businesses, leads are considered a viable currency, fintech businesses are no different. In fact, fintech businesses have a much more focus on leads than other businesses. The reason is that fintech products and services are generally not considered essential.
This means that people are not really looking for them. They will only consider your fintech business when they have a specific problem that needs to be solved. That is why it is so important to generate leads for your fintech business.
And the best way to generate leads is by using inbound marketing techniques. These are the techniques that will bring the customers to you instead of you going out there and finding them.
How to Generate More Leads for Your Fintech Business?
Now that we know how important leads are, let’s take a look at some of the ways you can generate more leads for your fintech business.
One of the most effective methods is by using content marketing. This involves creating high-quality blog posts, infographics, videos, or even eBooks that are relevant to your target audience. You can then promote this content on social media or through search engine optimization.
Another method is by using paid advertising. This is a more direct way of generating leads. You can use Google AdWords or Facebook Ads to reach out to people who are looking for products or services like yours.
And lastly, you can also use email marketing. This involves sending out newsletters or promotional emails to people who have subscribed to your mailing list.
These are just some of the ways you can generate more leads for your fintech business. But remember, the most important thing is to track your leads so that you know what’s working and what’s not.
Now, let’s talk about another one of the very important relevant fintech financial metrics – conversions.
Whether you are a brand-new fintech business or you have been in the industry for years. Whether your fintech business plan was perfect from the start or you made a lot of changes along the way. One thing is for sure, conversions are important.
Conversions are what determine the success of your fintech business. After all, what is the point of generating leads if they are not going to convert into paying customers?
There are a number of factors that affect conversion rates. And as a fintech entrepreneur, you need to be aware of all of them. You also need to track your conversion rate on a regular basis. That way, you can identify any such KPIs early on and take corrective action.
Factors Affecting Your Fintech Conversions
There are a number of factors that affect your fintech conversions. And as we mentioned earlier, you need to be aware of all of them.
Pricing is one of the most important factors affecting your conversion rate. If your prices are too high, you will have a hard time converting leads into customers. On the other hand, if your prices are too low, people might not take your fintech business seriously.
ii) Product/Service Quality
Another important factor that affects conversions is the quality of your product or service. If you are offering a subpar product or service, people are not going to convert. No matter how good your marketing is.
iii) User Experience
The user experience is also an important factor affecting conversions. If people have a bad experience using your fintech product or service, they are not going to convert. Nor will they recommend your fintech business to others.
iv) Customer Service
Last but not least, customer service is also an important factor affecting conversions. If your customer service is not up to par, people are not going to convert.
These are just some of the factors that affect your fintech conversion rate. As you can see, there are a lot of them. And as a fintech entrepreneur, you need to be know them. You also need to track your conversion rate on a regular basis so that you can identify any issues early on and take corrective action.
3. Customer Acquisition Cost (CAC)
Another important metric you need to track is your customer acquisition cost (CAC). Your CAC is the amount of money you spend on marketing and sales for each new customer. But at the same time, it can also be the cost that you incur when you acquire a new customer through other channels such as referrals.
When it comes to Fintech businesses, the CAC can be very high. That is because some Fintech businesses tend to have a lot of customers who are high value.
But at the same time, there are some fintech businesses that have a very low CAC. And that is because they have a lot of customers who are low value.
The important thing is to track your CAC so that you can see how much it costs you to acquire new customers. And also, so that you can compare it with the lifetime value of your customer (LTV). We will come to the LTV in the coming sections. For now, let’s look at what factors affect CAC and how you can reduce it.
Factors Affecting Your CAC
There are a number of factors that affect your CAC.
i) Marketing Channels
One of the most important factors affecting your CAC is the marketing channels you use. If you use inefficient or expensive marketing channels, your CAC is going to be high. For example, if your fintech belongs to the B2B category and you use paid search as your primary marketing channel, your CAC is going to be very high.
ii) Sales Channels
Another important factor that affects your CAC is the sales channels you use. If you use inefficient or expensive sales channels, your CAC is going to be high. For example, if you sell your fintech product through a direct sales force, your CAC is going to be higher than if you were to sell it through an indirect channel such as an online store.
Pricing is also an important factor affecting your CAC. If you price your fintech product or service too high, you are going to have a hard time acquiring new customers. On the other hand, if you price it too low, you might not be able to cover your costs.
iv) Product/Service Quality
The quality of your product or service is also an important factor affecting your CAC. If you offer a subpar product or service, people are not going to want to buy it no matter how good your marketing and sales are.
How to Reduce Your CAC as a Fintech Business?
CAC is a good way to measure the efficiency of your marketing and sales efforts. If your CAC is too high, it means that your marketing and sales efforts are not efficient. And if your CAC is too low, it might mean that you are not reaching out to enough people.
i) Use More Efficient Marketing Channels
One way to reduce your CAC is to use more efficient marketing channels. If you use inefficient or expensive marketing channels, your CAC is going to be high. For different fintech businesses, efficiency in terms of marketing channels also varies. What might work for one fintech business model might not work for another.
And this is where Oak Business Consultant’s expert financial analysts come in. We will help you analyze your entire business from financial analysis to financial planning. Our experts have a deep understanding of all things financial. And they are also well-versed in the latest fintech trends.
Even if you are just starting out as a fintech entrepreneur and need a solid fintech pitch deck to present to investors, we can help you with that as well.
ii) Improve Your Sales Process
Another way to reduce your customer acquisition cost is to improve your sales process. If you can increase the conversion rate of your leads, you will need to spend less money on acquiring new customers. This also means that you will need to have a good understanding of your customer’s journey. And this is where our experts can help you as well.
iii) Automate Your Marketing
One way to reduce your CAC is by automating your marketing. There are a number of marketing tasks that can be automated. And this will free up your time so that you can focus on other tasks. For example, you can use marketing automation to send out email newsletters, social media updates, and even SMS messages.
For a more detailed understanding, have a look at this Marketing KPI case study.
iv) Use Referral Programs
Referral programs are a great way to reduce your customer acquisition cost. And this is because they are a form of word-of-mouth marketing. When you have satisfied customers, they are going to be more likely to refer your fintech business to their friends and family.
v) Focus on Retaining Your Customers
Another way to reduce your customer acquisition cost is by focusing on retaining your customers. It is much cheaper to keep an existing customer than it is to acquire a new one. And this is because you have already established a relationship with them.
4. Customer Lifetime Value (CLV)
CLV is a metric that measures the amount of revenue that a customer brings in over their lifetime. This is an important metric to track because it can give you an idea of how much you can spend on acquiring new customers.
There are a number of factors that affect your CLV.
i) Average Revenue per User (ARPU)
The average revenue per user (ARPU) is the amount of revenue that each customer brings in. This is an important factor affecting your CLV because it will determine how much money you make from each customer.
The churn rate is the percentage of customers who stop using your fintech product or service. This is an important factor affecting your CLV because it will determine how long each customer sticks around.
The referral rate is the percentage of customers who refer your fintech business to their friends and family. This is an important factor affecting your CLV because it will determine how many new customers you can acquire through word-of-mouth marketing or without any CAC.
iv) Upselling and Cross-Selling Rate
The upselling and cross-selling rate is the percentage of customers who buy additional products or services from you. If you actually provide valuable financial services to your customers and also arrange the additional upselling and cross-selling products well, you will definitely improve your CLV.
Revenue is one of the most important fintech financial metrics because it is a measure of how successful your business is. And as a fintech entrepreneur, you need to be aware of your company’s revenue growth. This will help you make sound business decisions and optimize your operations.
There are a number of ways to monitor your company’s revenue growth. And one of the most effective ways is to use these revenue metrics.
Revenue metrics are a way to compare two or more financial ratios. By doing this, you can get a better understanding of how your business is performing.
There are a number of financial ratios that you can use to monitor your company’s revenue growth. Some of them include the debt-to-revenue ratio, the gross margin, and the operating margin.
i) Debt-to-Revenue or Debt-to-Income (DTI) Ratio
The debt-to-revenue or debt-to-income ratio is a financial metric that measures the percentage of your company’s revenue that goes towards paying off debts. This ratio is important because it can help you determine if your business is in a good financial position.
A high DTI ratio means that your business is spending a large portion of its revenue on debt payments. And this can put a strain on your cash flow.
Let’s look at an example.
Assume that your fintech company has a revenue of $100,000. And let’s say that you have $50,000 in outstanding debts. This means that your DTI ratio would be 50%.
Now, let’s say that you have a ratio of 80%. This means that your business is spending 80% of its revenue on debt payments.
At any time, if you think your fintech debts are going out of control, you can consider hiring our expert financial analysts.
ii) Gross Margin
The gross margin is a financial metric that measures the percentage of revenue that your business keeps after paying for the cost of goods sold (CoGS). In terms of a fintech business, of course, there are no “Goods” being sold. There are only services. Although you can package your finance-based services into products and then sell them, we would still not call them goods.
For example, Financli is a fintech company that provides financial services. It’s a platform that works on a monthly software subscription business model. And in their case, they don’t have any CoGS. But they have other costs, such as employee salaries, marketing expenses, software development, and maintenance etc.
A high gross margin means that your business is generating a lot of profit. And this is a good thing because it means that you have enough money to reinvest back into your business.
iii) Operating Margin
The operating margin is a financial metric that measures the percentage of revenue that your business keeps after paying for all of its operating expenses. These expenses include things like employee salaries, marketing expenses, and office rent.
This ratio is important because it shows how much profit your business is generating from its operations.
The best way to increase your productivity is to work on your operating margins. One way to reduce your operating expenses is to outsource some of your non-core activities. For example, you can outsource your marketing or social media tasks.
Another way to reduce your operating expenses is to use technology to automate some of your processes. For example, you can use accounting software to automate your bookkeeping and invoicing tasks.
6. Cash Flow
One way to improve your cash flow is to offer discounts to customers who pay their invoices early. This will encourage them to pay their invoices sooner, which will free up more cash for your business.
Another way to improve your cash flow is to increase your prices. This may seem counterintuitive, but if you increase your prices, you’ll actually sell fewer products. However, each sale will generate more revenue, which will improve your overall cash flow.
i) Operating Cash Flow
To further narrow down the cash flow metric, we’re going to look at the operating cash flow. This is the cash that your business generates from its day-to-day operations.
This metric is important because it shows you how much cash your business is generating on a regular basis.
ii) Burn Rate
The burn rate is the rate at which your business is spending its cash. This metric is important because it shows you how quickly your business is using up its cash reserves.
If your burn rate is too high, it could lead to financial difficulties for your business.
One way to reduce your burn rate is to cut back on expenses. For example, you can reduce your marketing budget or travel expenses.
Another way to reduce your burn rate is to increase your revenues. One way to do this is to offer new products or services that customers are willing to pay for.
iii) Cash Flow Forecasting
Cash flow forecasting is the process of predicting how much cash your business will have in the future. As a fintech entrepreneur, it’s important to have a good understanding of your company’s cash flow.
You can forecast your company’s cash flow by using a tool like Financli. This tool allows you to input your sales and expenses data so that you can see how much cash your business will have in the future.
Another way to forecast your company’s cash flow is to hire a professional financial analyst. A financial analyst can help you understand your company’s historical cash flow data and make predictions about the future.
The Bottom Line
As a fintech entrepreneur, there are financial metrics that you need to keep an eye on. By monitoring these metrics, you can make sure that your business is on track to achieve its financial goals. And if you think you might use some professional help to keep track of your finances, you can always reach out to us here. We would be more than happy to help you out!