In 2015, LayerVault, which created version-control software for developers, shut down.

 Despite
appearing, externally at least, to be a healthy startup, the company struggled to find product-
market fit and had to close as a result.

When LayerVault failed, Kelly Sutton, co-founder of the startup, took stock of what went wrong
and what the company might have done differently. One issue that stood out was that they didn’t
define and track startup metrics.

“I think one of our biggest mistakes was not checking the key performance indicators
(KPIs) regularly enough,” Sutton said. “They would have greatly helped us identify problem points
in our business.”

Startup CEOs and founders (whether or not the startup was successful) can offer useful advice to
help you identify your company’s key startup metrics. We pulled from our own experience and the
experience of other startup executives to build this list of 16 KPIs you should be tracking to help
your business succeed.  

1. Activation Rate

Activation rate tracks the percentage of users completing a specific milestone in your onboarding
process. For example, for a data dashboard company, a milestone event might be when a user
connects their dashboard to a screen or Slack. Low activation rates could mean your onboarding
process is confusing or needs to be optimized.

Onboarding should be a smooth process, because customers who are frustrated right away may
be less likely to stick around. Seamless onboarding is especially important for startups that offer
free trials. If a user struggles during setup, they are less likely to become a paying subscriber
down the road.

Activation rate also helps you determine if you’re bringing in quality leads. A consistently low or
declining activation rate may indicate that you are attracting low-quality leads who are not seeing
value from your product. If this seems to be the case, you may need to adjust your sales
processes to ensure you are appealing to an appropriate audience for your product.

Average activation rates vary widely, depending on what you set as your milestone. Consider
looking at case studies, such as those offered by product analytics companies like Mixpanel, or at
industry benchmarks to get an idea of what a “good” activation rate looks like for your milestones.

How to calculate activation rate

[ Total users who complete the set milestone / Total users who signed up or activated the
service ] X 100 = Activation rate (%)

You can use a tool like Google Analytics or Mixpanel to track the numbers of users hitting your
designated milestone.

2. Active Users

Active users are the people who interact with your product, website, or application in a given time
frame. Businesses typically track the number of daily active users (DAU) and monthly active
users (MAU).
This startup metric tells you how many people are engaging with your product regularly, so you
can gauge product  stickiness. According to David Kofoed Wind, co-founder and CEO of Eduflow,
every startup should track active users. In fact, it’s one of Eduflow’s two core KPIs.

“It’s common to see startups skewing numbers to demonstrate growth that isn’t that real,” says
Josh Pigford, founder and CEO of Baremetrics. “For example, a chart may show 500,000 new
users, but really 450,000 of those users never came back to use the app.”

If you look at only the total numbers of users rather than at active users, you won’t be able to tell
how many people use your product regularly. A person who signs up and then never comes back
would be counted the same as someone who logged in every day. In Pigford’s example, you
might make business decisions assuming you have 500,000 users, but in reality, you have only
50,000 who engage on a regular basis.

Your company has to define what “active” means, based on your product and the actions you
expect or want users to take. For example, you might count a user as active if they open your app
or log in to the product platform.

How to calculate active users

First, define what an “active user” is for your product. Then, calculate DAU by adding up the
number of unique active users in a single day.

MAU is the same as DAU, but for a different timeframe. To find MAU, add up the number of
unique active users in a single month.

3. Average Sales Cycle Length

Average sales cycle length measures the length of time from initiating a sales contact to closing
the deal. If you see dramatic changes in this metric, it might indicate a problem with your sales
processes—especially if you notice your sales cycle getting longer.

This metric varies widely between different types of companies and products. Ecommerce or
retail business, for example, will likely have a much shorter sales cycle than a SaaS business.
Check competitor and industry benchmarks to see averages for companies similar to yours.

Your sales cycle length should remain relatively steady, but keep in mind that the metric may
change. As your startup grows, and your sales team expands and improves, for example, your
sales cycle may shorten.

How to calculate average sales cycle length

Total time between first contact and sale for all sales / No. sales = Average sales cycle length

To find your average sales cycle length, first work out the time spent on each sale. Then,
calculate the average by adding up the total time spent on all sales and dividing it by the number
of sales.

4. Burn Rate
Burn rate indicates how quickly your startup is spending money. It helps you calculate your cash
runway and determine whether to cut costs or invest more in your business, such as in hiring or
marketing and development.

Check your burn rate regularly to watch for fluctuations that might indicate unexpected
expenses. Fred Wilson, partner at Union Square Ventures, said, “Assuming a constant burn rate
can be very dangerous. Always know if your burn rate is going up or down and include that fact in
your analysis.”

How to calculate burn rate

Total cash at start of month - Total cash at end of month = Burn Rate

Tracking burn is useful for monitoring spend and watching for sudden increases that might
indicate unexpected expenses.

5. Cash Runway

Cash runway takes burn rate a step further and tells you how long your money will last. Startup
metrics like cash runway help you see if you need to step up or adjust your fundraising efforts. It
can also help you decide whether to be more aggressive with sales, cut expenses, or enact other
measures to extend your runway.

Typically, businesses will calculate runway in terms of how many months their current cash
balance will last.

Keep in mind that this is only a snapshot. 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. If
you want a more accurate and reliable estimation, you should model your expected spend and
revenue.

How to calculate cash runway

Cash balance / Monthly burn rate = Cash Runway

Monitor your sales pipeline alongside your current cash runway to get a more complete idea of
your company’s current cash-flow. The pipeline will give you an idea of upcoming deals and
potential revenue growth that would extend your runway.

6. Customer Acquisition Cost

Customer acquisition cost (CAC) is the amount you spend to gain one new customer. It includes
marketing and sales expenses as well as salaries and overhead for teams involved with attracting
new customers. CAC can help you see if your marketing and sales costs are too high or if you
can invest more in those efforts.

CAC is most useful when broken down by channel. This will show you what specific marketing
and sales activities have the lowest CAC and therefore are the most profitable. Knowing the most
profitable channels can help you make a business case when prioritizing marketing and sales
resources.
How to calculate CAC

Total sales & marketing expenses / New customer acquired = Customer Acquisition Cost

To calculate CAC by channel, use the same formula, but look at expenses and customers
acquired through each specific channel rather than at total spend or new customers.

7. Customer Churn Rate

Customer churn rate is the percentage of customers lost during a given period. Josh Pigford
commented that low churn indicates that current customers are happy and believe your product is
solving a business problem. He also noted that offering added value to existing customers is less
expensive than acquiring new customers.

For SaaS or mobile apps, a churned customer is one who cancels their subscription. Typically,
churn rate includes only paying customers, not free trial or freemium-level clients. For
ecommerce, churn rate looks at customers who fail to make a repeat purchase within an average
time frame for the business (such as 90 or 120 days).

Churn can highlight ongoing business concerns, such as poor customer fit, product functionality
issues, or problems with your pricing models. If left unresolved, these can be disastrous for a
startup. It is an especially important metric for SaaS businesses because they rely on monthly
recurring revenue (MRR) to set budgets and make hiring decisions. High churn impacts the
company’s ability to plan effectively and grow.

The inverse of churn rate is customer retention rate, or the percentage of customers who stay
with you over a set period. Retention rate shows the same basic trends as churn rate, but with a
focus on the customers you’ve kept rather than the ones you lost.

How to calculate customer churn rate

[ Total customers churned this time period / Total customers at the start of this time
period ] X 100 = Customer Churn Rate (%)

Businesses often calculate churn monthly, but you could also calculate churn rate by cohort—a
group of customers who sign up or activate the product at the same time.

[ Total customers churned from cohort / Total customers initially in cohort ] X 100 = Customer

Churn Rate (%)

Customer churn rate tracks only the numbers of customers churned. To look at revenue churn,
see revenue churn rate, below.

8. Customer Lifetime Value

Customer lifetime value (LTV) is an estimate of the revenue any given customer will bring in over
time. Compare it to CAC to see if you’re getting a return on your initial marketing and sales
investment.

This metric may be more useful for mid- or late-stage startups than for early-stage. Once you
have more long-term customers, you can more accurately predict the LTV for new customers,
and your average LTV won’t be as skewed by high numbers of customers who churn quickly after
signing on.

How to calculate LTV

The formula for LTV is slightly different, depending on the type of business you run. For SaaS
businesses, the formula is:

Average monthly revenue per customer X Average customer lifetime = Average customer lifetime

value

For ecommerce businesses, you would look at order value rather than monthly revenue:

Average order value X Repeat sales X Average retention time = Average Lifetime Value

These formulas are for basic estimates of LTV. Check out this resource to learn more about how
to accurately model and calculate LTV, including information on looking at LTV for specific
customer segments instead of as a total average.

9. DAU to MAU Ratio

The ratio of DAU to MAU looks at the proportion of monthly active users who engage with your
product in a single day. It measures the stickiness of your product—that is, how often people
engage with it.

For example, say on an average day you have 100 unique active users, and in a month you have
500 unique active users. Your DAU-to-MAU ratio would be 1:5, meaning that one out of five
monthly active users come back to your product on a daily basis.

DAU-to-MAU ratio is a snapshot of user engagement, and it gives you more insight than just
tracking overall numbers of users. Looking at the ratio rather than concentrating solely on
numbers of either DAU or MAU, you get a better idea of how often people are engaging with your
product. It shows how many of your regular users are coming back every day versus once a
month or less often.

How to calculate DAU-to-MAU ratio

Average DAU / MAU = DAU to MAU ratio

To find your ratio of DAU to MAU, take the average DAU for a month, and divide it by the MAU
for that month.

10. First Response Time

First response time measures how long it takes customer support staff to follow up after a
customer submits a ticket.

Fast response times are vital for keeping customers happy and making a positive first impression
on new clients. Not only that, but it’s also what customers expect. Zendesk found that a majority
of survey respondents expected a company to follow up less than an hour after contacting the
business, especially if phone or chat was used.

A quick response is especially crucial for young startups trying to build a customer base from
scratch. The faster you follow up to solve a customer problem, the less likely they are to get
frustrated and seek out alternative products.

The same principle holds true for sales. Having a short lead response time is vital for keeping a
potential customer interested in your company and preventing them from seeking out
competitors.

How to calculate First response time

Total initial response time for all tickets / No. tickets = Average First Response Time

To find the total response time for all support tickets, add up the number of minutes, hours, or
days between the initial outreach from each customer and the time your support rep followed up.

11. Gross Profit Margin

Gross profit margin (GPM) looks at the difference between revenue and cost of goods sold
(COGS). If you look at GPM for individual products, it can help you identify high-margin items you
might want to promote in your marketing efforts. It can also show you if your COGS are too high.

GPM should remain fairly steady over time. If not, it might mean either expenses or sales (or
both) are fluctuating more than they should. There are some exceptions to this, such as in
seasonal businesses.

How to calculate gross profit margin

[Total revenue - Cost of goods sold] / Total revenue X 100 = Gross Profit Margin (%)

Calculate GPM weekly, monthly, or yearly, or by a combination, based on your average sales
cycle length.

12. Lead Velocity Rate

Lead velocity rate is the month-over-month (MOM) growth of qualified leads in the sales pipeline.
It can indicate future growth by giving you an idea of upcoming deals.

Compare lead velocity rate to the number of deals closed to get an idea of the percentage of
qualified leads that become customers. The comparison will give you a better idea of how growth
in the sales pipeline might translate to new revenue.

The speed at which your sales pipeline is growing also helps you gauge the success of marketing
and sales efforts. Track changes in the rate over time, and watch for spikes or dips that correlate
with new campaigns.
How to calculate lead velocity rate

[[No. qualified leads this month - No. qualified leads last month] / No. qualified leads last
month] X 100 = Lead Velocity Rate (%)

If you are an early-stage startup, keep in mind that your lead velocity rate may grow dramatically
at first because you are starting with a lower number of qualified leads. As your company grows,
the rate will likely slow or become more steady, even as your numbers of leads rise.

13. Revenue Churn Rate

Revenue churn rate is the percentage of revenue lost in a set period due to downgrades or
cancellations. It shows the amount of income lost through churn, which can help you determine if
churn is coming from small or large accounts.

SaaS companies typically measure this KPI as monthly recurring revenue (MRR) churn because
much of SaaS customer churn is from canceled subscriptions.

“Having our monthly churn percentages hanging over our heads would have kept those problems
(and our customers' problems) more top of mind,” Sutton said in his discussion of LayerVault.

How to calculate MRR churn rate

Track gross MRR churn to see the amount of revenue lost through churn in a month:

[MRR churn for the month / MRR churn at beginning of the month] X 100 = Gross MRR Churn
Rate (%)

If you want to see how lost revenue is balanced by new revenue from expansions, net MRR
churn rate would be a better metric to track:

[[MRR churn for the month / Expansion MRR for the month] / MRR at the beginning of the
month]] X 100 = Net MRR Churn Rate (%)

A powerful driver for growth is if you can reach negative churn by bringing in more revenue
through expansion than you lose through churn.

Compare revenue churn rate with customer churn rate to see if you are mainly losing smaller or
starter accounts or if your churn is coming from larger, longer-term accounts. The latter could
indicate serious problems with your customer retention policies, whereas the former may indicate
an issue with product fit for new customers.

14. Revenue Growth Rate

Revenue growth rate measures the month-over-month percentage increase in revenue. It is an

indicator of how quickly your startup is growing. A high revenue growth rate can help you
measure increasing demand for your product.

Similar to revenue churn rate, SaaS companies typically measure this startup metric as MRR
growth rate.
Kofoed Wind lists revenue growth rate as one of the top startup metrics to track. It is still one of
Eduflow’s two core metrics, along with MAU.

How to calculate revenue growth rate

[[Revenue this month - Revenue last month] / Revenue last month]] X 100 = Revenue Growth

Rate (%)

Compare MOM and year-over-year (YOY) revenue growth rate to see the short- and long-term
growth trajectory of your business.

15. Sign-Ups

Sign-ups are mainly a SaaS startup metric—adding up how many people have subscribed to your
service. Compare sign-ups month over month to measure how demand for your product is
growing.

One common mistake with this metric is tracking only total sign-ups overall instead of looking at
monthly or daily sign-ups.

“The other mistake we made was to look at the cumulative number of sign-ups,” Kofoed Wind
said, “a nice graph that always goes up - but doesn’t really tell you if you are getting anywhere.”

By monitoring daily or monthly sign-ups, you can track the growth in sign-up rate over time.
Looking at total sign-ups, you will see higher numbers, but many people included in the count
may or may not still be using your product.

How to calculate sign-ups

Add up the total number of new subscribers or registrations during a set time frame. Consider
tracking free trial or freemium product sign-ups separately from paid subscriptions so you can see
how sign-ups directly relate to revenue. You might also track total monthly sign-ups alongside
your signup-to-subscriber conversion rate.

16. Viral Coefficient

Viral coefficient is the number of new customers or users generated by each existing customer.
This metric is beneficial if you have referral programs or incentives in place, because it will help
you gauge the success of those programs.

This metric is a powerful measure of customer happiness. If customers are recommending your
brand to their network, they’re clearly getting value out of your product.

The main goal with a positive viral coefficient is achieving explosive organic growth. You can
increase the odds of this kind of growth by including viral mechanisms into your product, such as
built-in prompts encouraging current users to share the product or invite others to use it.

It can be challenging to track viral coefficient outside of an established referral program. One
method would be to ask new customers if an existing customer referred them.
How to calculate viral coefficient

Total no. invitations sent X Invitation conversion rate (%) = Viral Coefficient

Invitations are shares, referrals, or other methods customers use to refer new people to your
company. The exact form of an invitation depends on your company and the referral programs or
incentives you have in place.

Your key startup metrics may change over time

While most of these metrics are useful for startups at any stage, you will likely need to prioritize
different startup metrics as your company grows.

Paul Joyce, founder and CEO Geckoboard, saw this happen firsthand.

“When we first started tracking metrics in earnest they were chiefly product related. As we grew
as a company, our understanding of how our product was adopted matured,” Joyce said. “This
helped us dial-in product-related metrics and add other metrics as needed [such as] customer
support and marketing metrics.”

Revisit your key metrics periodically to ensure you are still prioritizing the right ones for your
company’s current stage of growth.

Looking for a way to keep your startup metrics top-of-mind at any stage? Check out our example
dashboards, including this early-stage startup dashboard.

Originally published on 4 October 2016, updated on 16th December 2020

https://www.geckoboard.com/blog/the-a-z-guide-to-startup-metrics-16-kpis-to-help-your-business-
succeed/
Intro

You can’t improve what you don’t measure. Implementing metrics at your startup is a surefire way
to bring focus to your entire organization. As David Skok, General Partner at Matrix Partners,
puts it, “One of the greatest things about putting in place the right metrics is that showing them to
people will automatically change their behavior to try to improve the metrics. Furthermore, the
metrics make it clear what levers they can use to change performance.”

In addition to helping your team focus and grow. Metrics are often the first thing a potential
investor will ask to see during a fundraise. As your company moves further and further through
the venture fundraising lifecycle – from Seed to A to Growth rounds – the numbers gain
importance in the overall story for the fundraise.

How do you know what metrics to track for your startup? We’ve laid out a few basic metrics to get
you headed in the right direction.

 
Startup Sales Metrics

Metrics are vital to track in every aspect of a startup but especially important when it comes to
sales. Generally speaking sales metrics can be measured on an individual, team, or organization
basis.

By setting up a strong system to track your sales metrics you will be able to make better informed
go-to-market decisions.

Revenue Metrics

Revenue is the lifeblood of a for profit organization. Revenue can come in many shapes and
sizes. There are startups that track monthly recurring revenue, annual recurring revenue, service
revenue, and more.

There are generally two types of revenue for a SaaS company – the first is Subscription Revenue
(called MRR or ARR). This is product focused revenue that is recurring and predictable —
especially if you are able to sign customers to longer term agreements. Investors prefer this type
of revenue because it signals a high quality product with a path to long-term profitability.

The second type of revenue is Services Revenue which often comes in the form on one-off (read:
not predictable) consulting engagements or implementation fees. Because of the human-capital
intensive nature of providing these services, they are far less profitable and scalable than
Subscription Revenue.

Related Reading: What is a Startup’s Annual Run Rate? (Definition + Formula)

Annual Contract Value (ACV)

ACV is “the value of the contract over a 12-month period.” If you are seeing an uptrend in ACV
over time (which is generally the goal), then your company is likely doing one or many of the
following things:

 Shifting to customers with a larger budget – more seats, usage, etc.

 Employing a more effective sales strategy to convince customers to invest more heavily in
your product
 Building a product that continues to improve and provide increasing value
 Effectively upselling existing customers

Increasing your annual contract value will allow your company to increase customer acquisition
costs.
Pipeline Value

The pipeline value is exactly what it sounds like, the value of all active deals in your sales
pipeline. For example, if you have 10 deals that are actively be sold but at different stages you
can calculate the value of all deals with their likelihood of closing.

For those 10 deals, let’s say they are all worth $100 and:

 3 are new deals with a 30% chance to close

 3 deals have sat a call and are interested in buying with a 50% chance to close
 4 deals have received a contract and are ready to sign with a 90% chance to close
That would be (3 new deals x $100 x 30%) + (3 calls sat deals x $100 x 50%) + (4 contract deals
x $100 x 90%) = $600 in pipeline value. You can also break this number down by different
stages. For example, the pipeline value of your new deals from the example above would be $90.

Understanding your pipeline value gives you a good understanding of the health of your current
pipeline and can help with future forecasts.
Activity Sales Metrics

Activity sales metrics can be used to track individual reps and teams efforts on a daily or weekly
basis. A few examples of activity sales metrics would be number of phone calls made, emails
sent, demos sat, etc.

Tracking these numbers can be helpful for a few reasons. The first is so you can understand
where an individual or team may be lacking if they are struggling to hit quota or numbers. They
can also be used to create and build a predictable cadence with your potential customers. This
data can be used to understand where and when your customers are buying to improve the
likelihood of closing a potential customer.

 
Startup Marketing Metrics
Setting up and tracking marketing metrics can be an intimidating endeavor. There are countless
metrics to track. From individual campaigns to website traffic metrics there is a lot to cover.
However, properly picking and tracking your startup’s marketing metrics will set up your go-to-
market team for success down the road.

Without getting too bogged down by the countless metrics, we’ve shared a few of our favorites
below:

Customer Acquisition Costs

As we have written in the past, “Customer acquisition cost is the sum total of the amount that it
takes your business to acquire a customer, including time from your sales representatives and
marketing and advertising expenses.

The customer acquisition cost definition: the total cost it takes to bring a customer from first
contact to sale.”

When you sit down and think about it, a lot goes into acquiring a new customer. You may be
running multiple paid campaigns online, have a dedicated marketing team, and are contributing to
in-person events. Let’s say that all of your cost dedicated to acquiring customers was $10,000 for
the month and you brought on 50 new customers. That would be a customer acquisition cost of
$200.

In order to be a successful business that means that your CAC needs to be less than the revenue
that your customers will bring in the door. CAC can tell you a lot about the sustainability of your
business and marketing efforts.

Related Reading: Breaking Down the Nuances of Annual Contract Value (ACV)

Customer Lifetime Value

In order to understand how sustainable your customer acquisitions costs are you need to
understand the lifetime value of your customers. Customer lifetime value is the amount that the
customer will spend with the business throughout their relationship with the business.

Calculating lifetime value can change greatly depending on your business. For example, a SaaS
company may have a customer paying a monthly subscription fee for years (their total lifetime
value) where a real estate company may only make one transaction with a customer.
Constantly tracking your LTV is a great way to keep your CAC in check and make sure you are
the path to a profitable and sustainable business.

LTV:CAC Ratio

The LTV:CAC takes the 2 metrics mentioned above and keeps it to a digestible and easily
understandable metric. You simply take your customer lifetime value and divide it by your
customer acquisition costs. Ideally you want this number to be greater than 3.

In general, a good lifetime value (LTV) to customer acquisition cost (CAC) is 3:1. If a customer is
being brought in for $100, their lifetime value should be at least $300. Otherwise, you will be
spending too much drawing in your customers; it will become important to fine tune, streamline,
and optimize your marketing and your advertising. If your ratio is 1:1 this would mean that you are
not making any money on new customers and will eventually run out of cash and go out of
business.

Related Reading: Unit Economics for Startups: Why It Matters and How To Calculate It
Website Traffic
No matter the business, essentially every business has a website today. Getting leads to your
website is a great way to increase marketing and sales metrics across the board. Having a deep
understanding your website traffic is a great way to tweak and improve content, website copy,
button copy, paid campaigns, and more.

You will want to understand where your website traffic is coming from. This is generally referred
to as the source. This can generally be bucketed into organic, paid, social, referral, and direct
traffic. Knowing where your traffic is coming from will help inform your decisions for where to
spend your time and budget. Example of a startup website traffic breakdown below:

Next you will want to understand what pages and content is converting well. For example, if you
have a page on your website that converts to your call to action at a higher rate you will want to
implement the ideas behind this page across the website. You should always be testing buttons
and content copy to improve the likelihood of website users taking a specific call to action.

 
 
Startup Customer Success Metrics

Once you have a customer in the door, the work is not done. Being able to retain and grow your
current customer base is the easiest way to grow your business. In order to do so, you need to
have the right metrics in place so you can optimize what is working well when it comes to your
customer success efforts.

Net Promoter Score

If you’re not familiar with NPS, it is used to gauge the loyalty of a firm’s relationships. It is used by
more than 2/3 of the Fortune 1000 and it can measure a company, employer or another entity.
You have likely received an NPS survey yourself. It’s a score of 1 to 10 usually with a question of
“How likely are you to recommend X to your friend or colleague?”

X could be your company, your customer support experience, an event, etc. If you answer 1 to 6
you are considered a detractor and at risk of customer churn, 7 & 8 are considered passives and
9 & 10 are considered promoters. To get your score take % Promoters – % Detractors. This
creates a scale ranging from -100 to 100. 0 to 49 is considered good, 50 to 70 is Excellent and
70+ is World Class.

To give you an idea for the 4 Major Airline Carriers in the US the scores are as follows:

American: 3
Delta: 36
Southwest: 62
United: 10

On the other hand of the spectrum Apple clocks in at 89.

Customer Churn

Customer churn is the % of customers (also called “logos”) that you lose over a given period of
time. Let’s say that you have 10 customers and lose 2 of them over the past month. That would
be a customer churn rate of 20%. Keeping your churn rate in check is an easy way to grow the
business.
Revenue Churn

On the flipside revenue churn is the % of revenue dollars that you lose over a given period of
time. Taking the example in the section above, let’s say that the 8 customers who did not churn
are paying $100 and the 2 customers that did churn are only paying $10. That would be a churn
rate of 2.4% ($20 in churned revenue divided by $820 in total revenue).

For world class companies they may actually have negative churn. This means that they are
expanding current customers at a greater rate than they are losing customers.
Customer Retention Rate

As the team at HubSpot put it, “Customer retention refers to the ability of a company to — you
guessed it — retain customers. Customer retention is impacted by how many new customers are
acquired, and how many existing customers churn — by canceling their subscription, not
returning to buy, or closing a contract.”

The formula to calculate your customer retention rate can be found in our Customer Retention
Cohort Analysis template here.

Startup Operations Metrics

At the end of the day, every metric impacts how your business operates. If the metrics above are
not falling into place, the chances of your business operating for the long run are slim. You need
to constantly have a deep understanding of where you company’s financials stand.

Burn Rate

As Investopedia defines it, “The burn rate is the pace at which a new company is running through
its startup capital ahead of it generating any positive cash flow. The burn rate is typically
calculated in terms of the amount of cash the company is spending per month.” Burn rate is an
essential metric for every early stage startup leader to have their eye on.

If your burn rate gets out of hand it is important to bring it in as soon as possible. Potential and
current investors will have their eye on your burn rate to make sure you can sustain your current
business practices for the future.
Months of Runway
Months of runway is exactly what it sounds like — the number of months your business can go on
until it is out of cash. This is particularly important for early stage companies that have yet to find
product market fit or are still in the early stages of developing their product. You can find your
months of runway by taking your cash in the bank and dividing it by your net burn rate.

Related Resource: How to Calculate Runway & Burn Rate

Revenue per Employee

While revenue per employee is not the most informative metric for internal purposes it can be a
great metric to benchmark against your peers. For example, if you are a seed software company
comparing yourself to a publicly traded software company many of your metrics will not be
comparable. However, revenue per employee allows you to break it down by the size of your
business and have a benchmark to share with internal employees.

Related Resource: EBITDA vs Revenue: Understanding the Difference

Total Addressable Market

Total addressable market (TAM) is the estimated size of the market that your business can
attack. As we wrote in our “Total Addressable Market Templated”, “TAM helps paint the picture of
how big the opportunity is and if the business deserves to be venture backed.”

While TAM is not something that is tracked regularly it is important to have an understanding of
your addressable marketing when you set out to fundraise.

Related Resource: A Guide to Building Successful OKRs for Startups