10 Startup Metrics Every Business Owner Must Know
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.
Example:
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.
Example:
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
Example:
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.
Example:
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.
Example:
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.
Example:
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.
Example:
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!
TL;DR:
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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By the way, if you are interested, you may access - How Marketing is important for a Startup Business?
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