Startup Compass: Charting Your Course with Vital KPIs
Thanks to OCSC Platinum Sponsor Withum for this valuable information about the technology industry:
6 Startup KPIs You Need to Measure
As funding for technology startups and emerging growth companies face continued pressures, there will be an increased investor due diligence and review of key operating and financial key performance indicators (KPIs).
The depth and complexity of startup KPIs can be as simple as a back-of-the-napkin calculation or as complex as a merger of multiple customer relationship management (CRM) systems and financial information. No matter the stage of growth, the ability to summarize multiple data points into meaningful metrics is critical to successful financial and operational growth.
Key Startup Metrics
While not comprehensive, the following are key startup metrics companies should use to track and monitor growth and proactively identify challenges. Each KPI provides insights that – whether good or bad – create opportunities for corrections and decision-making.
1. Annual Recurring Revenue (ARR)
ARR represents a startup subscription-based revenue on an annualized basis. ARR provides visibility into a startup’s sales and growth pipeline. ARR’s continued growth is evidently healthy and sustained growth compared to a decline, which can be a red flag.
ARR is calculated by:
- Monthly Reoccurring Revenue (MRR) X’s 12 months whereas
- MRR = Number of customers X’s average revenue per customer
- For example, if a startup has 50 customers paying an average of $1,000 per month
- 50 customers X $1,000 X’s 12 months = $600,000 ARR
2. Customer Churn Rate
Customer churn rate is the percentage of lost customers over a period. While customer churn is expected, an increasing churn rate is evident in customer retention challenges.
The customer churn rate is calculated by:
- (Number of customers lost during a period / Number of customers at the beginning of period) X’s 100
- For example, at the beginning of the month, a startup has 50 customers and lost four customers during the month, the churn rate is calculated by
- (4 customers lost in month / 50 customers at the beginning of the month) X’s 100 = 8%
3. Customer Acquisition Cost (CAC)
CAC measures how much a startup is spending to obtain new customers. In the early stages of growth, a higher CAC is expected. Still, as time progresses, an incremental decrease is a vital metric to...
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