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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