Updated: Oct 13
10 Startup Metrics Every Business Owner Must Know:
1/ Active Users:
Active Users give you a valuable insight into the number of users engaging with your product or service.
It typically takes two forms:
• Daily Active Users (DAU)
• Monthly Active Users (MAU).
'Total users' doesn't tell you who's actually using the product.
If the company is pre-revenue, 'active users' provides a great proxy.
Facebook’s definition for MAU:
“A monthly active user as a registered Facebook user who logged in and visited Facebook... in the last 30 days as of the date of measurement.”
2/ Recurring Revenue:
This is applicable to startups with recurring (subscription) revenue models.
It can take two forms:
• Annual Recurring Revenue (ARR)
• Monthly Recurring Revenue (MRR)
This reflects your normalised recurring revenue on an annual or monthly basis.
Let's assume Company A has only one customer called Bob.
Company A signs Bob for a 3-year subscription costing $15,000 with a one-off $2,000 service fee.
Company A's ARR = $15,000 / 3 = $5,000
We exclude the one-off component and only include the recurring component.
3/ Customer Acquisition Cost (CAC):
CAC is the total cost incurred to make your customer initially purchase the product or service being sold.
CAC = Total Sales & Marketing Spend / Number of New Customers Added
Company A spends $4,000 on their marketing and sales campaign and in turn acquires 200 new customers.
Therefore, Company A's CAC is:
$4,000 / 200 = $20 per customer
4/ Burn Multiple:
Your burn multiple tells you how much your business is burning to achieve each unit of growth.
Burn multiple = cash burned / net ARR added.
Your burn multiple takes into account business functions across the entire company, not just sales and marketing.
Company A burns $2M in the quarter while adding $1M to its ARR = 2x burn multiple. This is reasonable for an early-stage startup.
Company B burns $5M in the quarter and also adds $1M of net ARR = 5x burn multiple. This is far too high and the company should cut costs.
Company B is burning cash like a late-stage company without showing the growth to back it up.
This is more relevant than other efficiency multiples such as LTV/CAC.
5/ Burn Rate:
Your burn rate tells you how quickly your startup is burning cash and how long you have left before your cash reserves are empty.
This can take two forms:
• Gross Burn Rate
• Net Burn Rate
Let's dive in a little further.
Gross burn rate measures total cash burned over a period of time.
Net burn rate measures cash in vs cash out over a period of time.
Both of these are usually calculated on a monthly basis.
In May, Company A burns $10,000 on salaries, $5,000 on rent and $2,000 on marketing. Company A makes $4,000 in revenue.
Gross burn rate = $10,000 + $5,000 + $2,000 = $17,000
Net burn rate = Monthly revenue - Gross burn rate
Net burn rate = $4,000 - $17,000 = $13,000
6/ Cash Runway:
Cash runway tells you how many months your company has before it runs out of cash.
Runway = Cash balance / Net burn rate
Let's assume Company A has $169,000 of cash and burning $13,000 each month.
Runway = $169,000 / $13,000 = 13 months
7/ Churn Rate:
Churn rate measures the percentage of your company’s existing customers that have opted to cancel their subscriptions.
Churn rate = (Beginning subscribers - Ending subscribers) / Beginning subscribers
8/ Retention Rate:
Churn and retention are inversely related.
Retention rate = 1 - Churn Rate
For example, if a company’s retention rate is 70%, then its churn is 30%.
Churn = 1 – 70% = 30%
9/ Gross Margin:
Gross margin tells you how much revenue is left over after deducting your cost of goods sold (COGS).
Gross margin = Gross profit / Revenue
This tells you if your business can generate profits despite your outgoings.
Company A generates $100,000 per year in revenue. However, it costs Company A $20,000 per year to source and ship their product.
Gross margin = ($100,000 - $20,000) / $100,000 = 80%
10/ Gross Merchandise Value (GMV):
GMV tells you the total amount you made from sales over a period of time.
This is important for marketplace and eCommerce businesses.
GMV = (Sale price of goods) x (Number of sales over a period of time)
Revenue is only a portion of GMV.
You sell a toy for $100 through Etsy.
Etsy takes a 10% commission.
GMV for Etsy = $100
Your revenue = (1-0.1) * 100 = $90
Etsy revenue = $10
Revenue ≠ GMV!
1/ Active Users
2/ Recurring Revenue
3/ Customer Acquisition Cost
4/ Burn Multiple
5/ Burn Rate
6/ Cash Runway
7/ Churn Rate
8/ Retention Rate
9/ Gross Margin
10/ Gross Merchandise Value (GMV)
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