Key performance indicators (or KPIs) are values that show how a business is progressing toward its goals and objectives. They’re used to measure progress and identify areas that are doing well, and those that need improvement. Tracking and measuring KPIs is crucial for startups. This is because it allows them to keep track of their progress in order to gain a better understanding of whether their current efforts are producing the results they want.
If you don’t track KPIs, all the decisions you make will be based on gut instinct or personal preference, rather than data. KPIs enable you to make strategic, data-driven decisions to grow your startup and move it in the right direction. The focus should not be on the KPIs themselves, but the meaning behind them and knowing what impacts each one.
So, without further ado, here are 10 KPIs that all startups should know:
1. Customer acquisition cost (CAC)
Arguably the most important KPI startups, CAC is how much it costs you to acquire a new customer. You can calculate it by adding up all the money you spent on acquiring new customers over a particular period and then dividing that sum with the total number of new customers you acquired. Both your blended CAC (acquisition across all your marketing channels) and your paid CAC (users that were acquired primarily with paid channels) should be taken into account.
2. Monthly recurring revenue (MRR)
As its name implies, is the amount of revenue your startup is generating monthly. It’s calculated by multiplying the average revenue generated per user (ARPU) with the total number of active users your startup has in each month.
3. Monthly active users (MAU)
MAU is the total number of users that are actively using your product every month. It serves as a quick overview of your user growth. It also gives you a better idea of your startups ability to attract new users and retain existing ones. By tracking MAU you can react quickly to positive and negative changes in your customer base
4. Average revenue per user (ARPU)
ARPU shows you how much revenue you’re generating from each of your active customers. It’s calculated by dividing your MMR by the total number of active users you have in a particular month.
Knowing your ARPU can help to dictate your growth strategy. It can help you gain a better understanding of your target buyer personas, improve your pricing, and develop an upsell strategy. It’s also highly useful for calculating a number of other important KPIs, including customer lifetime value and monthly recurring revenue.
5. Customer churn rate (CCR)
CCR can help you understand how fast your startup is losing customers. It’s calculated by dividing the total number of customers that stop doing business with you over a specific period of time by the total number of customers you had during that same period. It is crucial for understanding the health of your startup. It can also help identify changes that improve or worsen your startup’s ability to retain customers.
6. Revenue churn rate (RCR)
RCR is the rate at which you’re losing revenue due to downgrades and cancellations. It’s calculated by subtracting your MRR at the end of the month from the MRR at the beginning of the month after accounting for upgrades. This number is divided by the MRR at the beginning of the month and multiplied by 100 to get your RCR.
7. Revenue growth rate
Revenue growth rate shows how successful your startup is at growing revenue over a particular period (e.g., a month, quarter, or year). To calculate it, you simply subtract the revenue generated during the current period from the revenue generated during the previous period. You then divide the result by the revenue generated during the current period and multiply it by 100.
8. Customer lifetime value (LTV)
Customer lifetime LTV is the total amount of money a customer will spend on your products or services during their lifetime. If you don’t measure your LTV, there’s no way for you to know if you’re spending too much to bring in customers. Or if you are losing money in the long run. You can decide to focus on historic LTV (based on actual purchases) or predictive LTV (based on what you predict customers will spend).
9. CAC recovery time
This KPI measures how long it takes for a customer to generate enough net revenue to cover the CAC. The time to recover CAC has a direct impact on cash flow and, consequentially, runway.
10. Cash Runway
Runway is the measure of the amount of time until the company runs out of cash, expressed in terms of months. Runway is computed by dividing remaining cash by monthly burn. Be aware that cash runway will change as your cash balance and burn rate shift. It also does not account for upcoming revenue currently in the sales pipeline.
In conclusion
While most of these metrics are useful for startups at any stage. We would suggest you prioritise different startup metrics as your company grows. Use a combination that will give you a comprehensive view of your business performance. That way you can tune them according to your unique needs.
You could start by focusing primarily on the KPIs that reflect user needs, user happiness, and engagement. Then move onto aligning the user, product, and business goals. You can then work on accentuating the KPIs that impact long-term growth in revenue and avoid vanity metrics.
If constructed correctly, KPIs give management and potential investors a cold, analytical snapshot of the state of the company. If you need any advice on your startup or setting up your KPIs, contact our expert team now.