13 Startup Metrics to Keep a Pulse on Your Business
So many startups are focused on revenue to calculate growth, but the truth is that long-term success relies on so much more.
As a result, too many startups burn money until they collapse.
To fully understand where your startup stands, you need to pay attention to the right metrics so that you can continually improve them and grow not just your revenue, but your profits, too.
Here are the 13 startup metrics you should track to measure the health of your business and ensure growth over the long haul!
Revenue Metrics for Startups
MRR, or Monthly Recurring Revenue, is the lifeblood of a SaaS startup. While the other startup metrics in this list are important, MRR is arguably the most important of all.
This metric represents your predictable revenue each month earned from customers. Because SaaS products work on a subscription basis, you can expect each customer to pay the same amount they did last month unless they cancel, upgrade, or downgrade their account.
MRR doesn’t take into account new revenue expected to come from new customers. All you need to do to calculate it is multiply the number of monthly customers you have by the average monthly revenue per customer:
Average monthly revenue per customer * total number of customers
When calculating your MRR—or looking into a tool that does it for you, like Stripe—make sure you understand how the MRR is taken into account.
For example, some platforms may not consider coupon codes and discounts, while others do.
So why is MRR so crucial for SaaS startups to track? On top of predicting your revenue and financial forecasting, MRR helps you read the pulse of your startup to see how well—or how poorly—you are doing.
2. Burn rate
Your burn rate is your monthly negative free cash flow.
Your gross burn rate, which is the total amount of cash spent on a monthly basis to keep your startup running, doesn’t take revenue into account.
On the flip side, your net burn rate does. Here’s how to calculate it:
Total monthly revenue – gross burn rate
If your net burn rate is a positive number, it means your company’s expenses are greater than the revenue you’re bringing in. If the burn is a negative number, it means your revenue is outpacing your expenses, which is a great sign.
Since running out of cash is one of the top reasons startups fail, understanding burn rate can help you proactively cut costs, use your cash more efficiently, and increase sales before it’s too late.
Customer churn is a startup’s worst enemy. It calculates how many customers you lose in a set period of time.
And because customers are constantly bombarded with the best new tools and apps, retaining customers long-term isn’t an easy task.
Your churn rate is expressed as a percentage, and you can calculate it using this formula:
(# of churned customers / total # of customers at the beginning of the time period) * 100
A startup can only grow if its customer base grows, which isn’t possible if your churn rate is higher than your customer acquisition rate. If you don’t track your churn rate, you won’t be alerted when this happens.
On the other hand, tracking customer churn can help your startup take the necessary measures to increase retention rate, like improving customer service or creating a better onboarding process for new customers.
4. Cash runway
If your burn rate is positive, your startup will eventually run out of cash.
Your cash runway calculates the number of months you have until that happens.
To calculate your runway, you can use this straightforward formula:
Cash in Hand / Projected Burn Rate
If you notice you have a short runway, it means your startup is overspending for the amount of revenue it’s generating. It can also deter investors from funding your startup, since they most likely hope their cash goes a long way.
Engagement Metrics for Startups
1. Activation rate
Activation happens when a new customer performs a predetermined key action within your software within a set period of time. This key action should deliver value for customers.
For example, if your product is an invoicing software, this action could be creating and sending their first invoice. Or, if you have a website popup software, it could be launching the very first popup on a website.
Not all customers will perform this action within the time limit you set.
Activation rate calculates how fast new customers are achieving value within your software. You can calculate it like this:
# of Users That Performed a Key Action) / All Users
This metric helps you measure the success your customers are experiencing at the start of their journey. The more successful your customers are early on, the more likely it is that they will keep paying for your product and increase your LTV (lifetime value, covered later below).
2. Active users (daily and monthly)
Not all paying customers are active users.
The number of active daily users (DAU) calculates how many customers use your product on a daily basis, whereas monthly active users (MAU) calculates customers who do so at least once a month.
There is no formula for calculating active users, since it’s pretty straightforward.
Why should you care whether or not your customers are using your product? Just like activation rate, your active users metric measures whether or not your paying customers are getting value from your product.
If you have a high daily active user count, it means you are doing something right and providing an experience your customers enjoy.
On the other hand, a low number for both these metrics could indicate you are about to experience churn.
3. Time to value
How long does it take for a new paying customer to achieve perceived value from your software?
This is your time to value (TTV)—in this case, the perceived value is from the customer’s point of view, not yours. It depends on your customer’s expectations.
The faster customers can achieve value, the less likely they are to churn, so you should always aim to reduce this metric! You can do so by:
- Creating easy-to-use onboarding guides
- Providing customer success managers
- Continually improving your product’s usability
Calculating TTV depends on what ‘value’ means for your customers. What is the ‘aha’ moment most of your customers experience when they use your product?
Maybe it’s the simplicity of scheduling their first email sequence in an email marketing software. Or maybe it’s the first time you see your financial plan visually without having to work through endless spreadsheets.
Ideally, the aha moment should be something that can be measured and tracked. Here’s a visual example from Appcues.
Marketing and Sales Metrics for Startups
1. Conversion rate
The two main types of conversions most startups should track are:
- Website visitor to lead
- Lead to paying customer
To calculate the former, you need to perform the following:
(Number of leads / Number of website visitors) * 100
And for the latter:
(Number of paying customers / number of leads) * 100
These metrics calculate how effective you are at acquiring new leads and then converting them into customers. A high lead conversion rate with a low customer conversion rate can mean your top of funnel acquisition strategy is highly effective, but your lead journey is missing something.
On the other hand, a low lead conversion rate could mean something is wrong with your top of funnel strategy. This could be due to:
- Poor usability
- Ineffective copy
- Clunky flow
- Failure to optimize opt-in forms
Conversion rate is crucial to keep track of, since low conversion rates mean a higher customer acquisition cost (covered below).
If you can increase the rate at which visitors become leads and leads become customers, you can make the most of your traffic, paid or organic, and thus reduce your CAC significantly.
A lead is a person who has shown interest in your product—this could be defined as joining your email list, booking a free demo, or filled out a contact form on your website.
The number of leads your startup generates on a monthly basis, along with your conversion rate, will determine its ability to grow over time.
But not all leads are created equal!
Marketing qualified leads (MQL) are highly-qualified leads that have performed a key action which makes them ready to move down the next stage of your sales funnel. This could be engaging with a certain percentage of emails, performing a key action in their free trial, or downloading a specific free resource.
In the next stage, leads are passed on to your sales team and considered sales qualified leads (SQL). This means they are considered a potential customer. These leads are ready for the final buying stage.
Knowing the difference matters!
You can lose potential sales if you make a buying offer to leads that just aren’t ready yet. So keeping track of both types of leads will help you better manage them and guide them throughout the appropriate stages of the sales funnel when they are ready.
3. Website traffic
Your website can be one of your most valuable marketing tools—but only if you’re getting traffic to it!
For example, if you have a high website visitor-to-lead conversion rate, it won’t translate into as much growth if you only get a few hundred visitors each month.
You should keep track of your traffic from month to month, since this will indicate whether or not your traffic-centric marketing efforts, such as SEO, email marketing, advertising, and others are working.
4. Net promoter score
The most qualified leads are those that come from your existing customers—plus, they cost next to nothing.
That’s why you should keep track of your net promoter score.
Net promoter score is an index ranging from 100 to -100 that calculates how likely your customers are to recommend your product to a friend.
Calculating NPS will require a bit of effort on your part—you’ll need to survey your existing customers on how likely they are, on a range from one to ten, to recommend you to a friend.
Next, categorize your responses like this:
- Promoters: 9 or 10
- Passives: 7 or 8
- Detractors: 0 to 6
Detractors are more likely to tell their friends to steer away from your product, whereas promoters are likely to sing your praises.
Now, subtract the total percentage of detractors from the total percentage of promoters—you can ignore passive customers for this equation.
So if you surveyed a total of 100 customers, 12 are detractors, and 34 are promoters, 12% of your customers are detractors whereas 34% are net promoters.
Now subtract 12 from 34—you get 22.
This gives you an NPS score of 22.
Wondering how your NPS stack up against other startups in your industry? Here are some benchmarks from Retently.
Gaining new customers is great, but if the cost is too high, your startup could be digging itself into a hole.
That’s why tracking customer acquisition cost is crucial to long-term growth and success.
Customer acquisition cost is exactly what it sounds like—how much is your startup spending in sales and marketing to acquire a single customer?
Your CAC can indicate the effectiveness of your current sales and marketing strategies. You can calculate it using the following formula:
Sum of Sales and Marketing expenses / # of new customers acquired
Let’s take a look at the following chart to calculate an example:
|Channel||Spend||# of customers||CAC|
Each channel shown above has its own CAC, while the average CAC is $91.
However, notice that CAC for Facebook ads is much higher than the other channels. This means you could optimize your strategy to lower it down, or cut it out altogether.
Managing your customer acquisition cost is a tricky balancing act. If you spend too much to acquire a single customer, you won’t be able to sustain your growth and your burn rate will go up.
But not spending enough can mean your startup will experience limited growth.
Keep in mind that there is no ‘perfect’ CAC—it all depends on your average lifetime customer value, which we’ll cover below.
Lifetime value is the last metric missing to calculate whether or not your startup can acquire customers cost-efficiently!
This metric represents how much the average customer will spend before churning:
Average monthly revenue per customer * Average duration before churn (in months)
So if your average monthly revenue per customer is $45, and the average customer stays subscribed for 14 months, your LTV is $630.
If your LTV is lower than your CAC (a.k.a. LTV:CAC ratio), you’re spending too much to acquire new customers and it’s not going to be sustainable long term. In other words, you’re losing money with each customer you acquire.
This means you’ll need to keep your customers around for longer by improving your product or customer service as well as your activation rate and TTV.
Grow Efficiently by Tracking the Right Startup Metrics
There are plenty of other metrics you could be tracking, but concentrating on the right ones will help you focus on the most valuable actions you can take to steer your startup in the right direction.
Finmark can help you track and analyze these metrics and build a solid financial plan—start your 30 day free trial to see how simple it can be!
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