knowing the right metrics to track is intimidating
i should know
i was a data scientist at Airbnb before founding my startup
here are the 9 metrics you need to know about a startup:
runway:
a startup dies without capital
your runway is how many months you have left alive
it becomes harder to raise capital from vcs if you have under 12 months of runway
runway = cash in the bank / monthly burn
recurring revenue:
recurring revenue makes future cashflows more predictable and means a startup only needs to sell to each customer once
it's a key metric for fundraising and can be shown as MRR (monthly) or ARR (annually)
MRR = sum of subscription rev in a month
burn multiple:
startups should spend more than they make early on but efficiency matters a lot
burn multiple shows how much cash a startup burns in order to generate each incremental dollar of ARR
burn multiple = monthly burn / net new ARR
(h/t @davidsacks)
compound growth rate:
cgr is a historical record of growth over a given time period
it shows sustained growth rather than just comparing one week or month to another
cgr = (last period rev / first period rev)^(1 / # of periods) - 1
product-market fit score:
ask your users how disappointed they'd be if they couldn't use your product
if 40% or more say "very" you're likely reaching PMF
i prefer this over nps because it focuses on the user, not hypothetical actions ("would you refer...?")
churn rate:
startups can't afford to have a leaky bucket
churn is the % of users or subscribers that left during a given period
it can be looked at per a day, week, month, or year for different types of businesses
churn rate = (starting users - ending users) / starting users
active users:
a startup should have an incredibly simple way of defining what "active" means (ex: opened the app)
different types of startups may want to measure this daily (DAU), weekly (WAU), or monthly (MAU)
active users = will differ based on the business
lifetime value / customer acquisition cost:
this tells you how scalable a startup currently is
- ltv = what it ears per user
- cac = how much it spends to have them sign up
if ltv / cac > 1, a startup makes more per user than it initially spends to acquire them
run rate:
don't confuse this with recurring revenue
run rate is the annualized sum of ALL revenue (even one-offs)
this is useful when thinking about the overall size of your business
run rate = total monthly revenue * 12
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tldr, always know these metrics about your startup:
- runway
- recurring revenue
- burn multiple
- compound growth rate
- product-market fit score
- churn rate
- active users
- ltv / cac
- run rate