10 best metrics for a startup
When starting a company, set up a few metrics to make sure the company is running smoothly. This will measure success and also help the company take the necessary steps when conditions are precarious.
From among many choices, these are best to begin with:
1. Customer Acquisition Cost
This will determine your pricing structure. For Customer Acquisition Cost, the cost of marketing and sales and divided by the number of customers gained over a certain period. Acquisition cost is initially higher; however, it should eventually decrease as your product or service gains traction in the market.
Source: product plan
2. Retention Rate
While new customers matter, it is equally important to keep the customers you get. Use these customers to drive down advertising costs and other acquisition costs. To determine the Retention Rate, take the number of customers at end of period minus new ones divided by the number of customers at the beginning of that period.
Source: New Breed Revenue Blog
3. Customer Lifetime Revenue
As with Customer Acquisition Cost, this metric should decline over time as customer tenure increases. Customer Lifetime Revenue is the amount of revenue per month multiplied by the number of months you expect them to stay with you. This should be higher than the Customer Acquisition Cost.
Source: Only Saas Founders
4. Viral Coefficient
This metric takes a new meaning with the advent of social media; however, this has been true throughout history, but in a different way. Before social media, it was by word of mouth on how businesses got the word out on their products.
Source: cobloom
5. Return on Advertising
This is important once the viral coefficient starts to slow and the need for advertising kicks in. Return on advertising could be used to determine which advertising method works best for a startup and take appropriate action to change up the method. Take the amount of sales and divide it by the amount of money spent on advertising.
Source: the good
6. Referral
There is a difference between getting these referrals and the ones that start off as the viral coefficient, even though both can be similar. These referrals could be through different sources. A company finding out the new customer came as a referral to your business will help you bring down the CAC measurement because the revenue portion increases while the Cost will remain constant.
Source: visme
7. Monthly Recurring Revenue
This will help a startup determine how much revenue they are receiving per month, no matter how new the customer is as long as they are an active customer of the company. This is very important for a company to track since an increase of monthly revenue will show that the company is growing and that they will get traction, if they are new, or they will continue to grow.
8. Burn Rate
This is probably the most well-known metric for a startup. All financial networks talk about this, all investors or possible creditors will ask a startup what this rate is to determine whether the startup is a good investment or if they are a credit risk. This shows how fast a startup is spending the money they have received, either by investment or by customers purchasing their product or services. You take the cash on hand at the beginning of the time frame and subtract the cash at the end of that same period; this will be the burn rate. This metric helps with the next metric because it will determine whether you can expand or if you need to contract.
Source: geckoboard
9. Cash Runway
This is probably the most important metric for a startup – definitely in the top 2. This metric could be used to tell a company how long it will be viable without needing to fundraise or cut expenses. The higher the cash runway number, the better fiscal shape the company is in. If the number is low enough, the company might need to raise more money, cut expenses, or revamp its sales strategy. The formula to calculate the Cash Runway is your cash balance divided by your monthly burn rate. There is an idea that one should track your sales pipeline alongside the cash runway to have a better picture of your company’s cash flow.1 A sales pipeline refers to the journey that every lead must take before becoming a customer. Business development managers must be able to work in a step-by-step process that guides prospects and sales representatives through the buying process in a subtle and organized manner.2
Source: gopigment blog
10. Lead Velocity Rate
This is a sales tool that will allow you to see how the sales pipeline is growing by giving you a month-over-month growth rate of quality leads in the sales pipeline. Using this formula, along with the number of deals that have closed, will give you an idea of how many qualified leads become customers. To calculate the Lead Velocity Rate: Take this month’s qualified leads, subtract last month’s qualified leads from it, divide this number by last month’s qualified leads then multiply by 100.
Source: Hubspot blog
There are many different metrics that can be valuable to a startup. These 10; however, are an important place to start.
1 10 Key Startup Metrics to Track Growth, Laura Inigeuz, November 24, 2020 updated January 23, 2023, hirebook, https://www.hirebook.com/blog/key-growth-metrics-for-a-startup-company
2 Ultimate Guide to Building a Sales Pipeline, Emanuel Valdes, September 14, 2022 updated December 29, 2022, B2B Sales Guide, https://www.cience.com/blog/sales-pipeline
