Traction is another word for momentum. In other words, how fast is a company growing? How well are they achieving their goals as a business?
As an investor, you’re likely on the lookout for traction in your prospective investments. For companies that have already built and launched their products, there are a few indicators of momentum that you can look to, including:
Sales Pipeline Size
A company’s sales pipeline refers to prospective clients or customers they’ve engaged with, with the ultimate goal of making them a paying customer. Hubspot Research found that there’s a positive relationship between the number of opportunities in a company’s monthly pipeline and revenue achievement. For companies that sell services to other businesses, a healthy sales pipeline can be a sign of interest and future customers.
Number of Active Customers or Users
The number of active customers/users is a key measurement of traction, even if a company has yet to determine their revenue model or charge for their product. In fact, the number of users or customers may help a company’s team determine their business model as well as when they’ll be able to begin generating revenue.
The number of customers/users a company has is a good metric for growth, however it’s also important to note what happens after the company acquires a customer. Customer retention rate is especially helpful for understanding if a company’s product or service keeps their customers engaged.
In the second part of this blog, we’ll take a look at 3 metrics you can use to gauge traction for companies that have yet to launch their product. Be sure to stay tuned for updates!
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