Founder's guide to important startup metrics

For any founder, sustaining a startup in the long run is more often than not the most difficult part. While- as per a 2019 report- over 5 million startups are established every year, an IBM Institute study shows that nearly 90% of these Indian startups have been known to fail within the first five years of their journey. One of the biggest reasons for this might be that the teams behind these startups hadn’t been monitoring the KPIs- or the key performance indicators- often enough. 

There are several startup metrics that can help founders realise how well their startup is doing, as well as root out any problem points that might exist. To decide on which particular startup metrics to track for your business, first you need to identify your business model.

Figure Out Your Business Model

Your business model will ultimately dictate which startup metrics you will need. For instance, your startup might follow one of the following models:

  • The Marketplace Model: This kind of startup will allow the transaction of products or services between the buyers and the sellers, and claim a certain percentage of the value transferred. Startups metrics that can be used include CMGR or Compounded Monthly Growth Rate, GMV or Gross Merchandise Volume, and CAC or Customer Acquisition Cost.

  • The eCommerce Model: This model can be DTC (direct-to-consumer) or B2B (business-to-business) and is about getting manufactured or sourced products to customers. Relevant startup metrics include CMGR, CAC, and GPM or Gross Profit Margin. 

  • The SaaS Model: Clearly, the SaaS or software-as-a-service model delivers software to consumers on a subscription/recurring basis. Startup metrics you can use include CAC, MRR or Monthly Recurring Revenue, and Revenue Churn Rate.  

  • The Subscription Model: While the usual consumers of a SaaS model are other companies, for a subscription model, the clients are individuals. So while SaaS models will make use of the Revenue Churn Rate startup metric, the subscription model would better choose to go with the Customer Churn Rate. Other relevant startup metrics include MRR, CAC, and CMGR.   

  • The Advertising Model: This kind of startup provides consumers with a free service and runs advertisements on the platform; the model generates most of its revenue from selling advertisements. Useful startup metrics would be GPM, CAC, CMGR, and more. 

Key Startup Metrics for Product Success

After you have figured out your business model, you can decide which relevant startup metrics you want to keep track of. To make your task a bit easier, in the section below we have summed up ten key startup metrics, and how to deduce them. 

1. Daily Active Users (DAU) and Monthly Active Users (MAU)

These startup metrics can tell you how many people are interacting with your product on a daily and a monthly basis. Every startup- regardless of the business model- should track both DAU and MAU as it is a key factor that can help you gauge the progress your business is making. 

Your startup has to define what ‘active’ means to you according to your business model, however. For instance, your particular product might be one where a user who simply opens your app or logs on to your website would be counted as an active one.

2. Gross Profit Margin (GPM)

GPM calculates the difference between revenue and the total cost of goods sold (COGS). GPM for separate goods can help you figure out the higher-margin products that you may want to promote more, show if your COGS is higher than usual, and point out fluctuating expenses and sales. 

3. Compounded Monthly Growth Rate (CMGR)

CMGR is calculated by monitoring the month-over-month growth over a given time period- usually anywhere between 6 months and 2 years. This startup metric can help you determine the average growth in several aspects- from the growth in number of users to the growth in revenue over a given timeframe. 

4. Burn Rate

This startup metric shows the rate at which your startup is ‘burn’ing through the cash reserves. Instead of assuming a constant burn rate, if you track the burn rate periodically, you can calculate your cash runway, watch out for sudden increases in expenses, and determine whether to cut costs or invest more in a particular aspect. 

5. Customer Acquisition Cost

This startup metric calculates the amount your startup has to spend to gain a new client. Along with the marketing and sales costs, the salaries and overhead for the team involved in bringing in new customers are also counted in. Most startups break down CAC by channels; this way, you can figure out which activities have lower CAC but bring in more profits. 

6. Bookings

The total annualised value of all new contracts signed with your startup over a certain period of time is what is considered in this startup metric. A booking is registered when a client agrees to spend money on your startup. This particular startup metric reflects future revenue, as despite the contract being signed, it has not been executed. 

7. Customer Churn Rate

This startup metric keeps track of the rate at which a startup loses clients. This one can prove especially useful to subscription models and B2B startups, as they are focused directly on the volume of customers. To figure out whether your product is satisfying customers or leaving something to be desired, as well as investigate why you might be losing clients, customer churn rate is a metric you must use.

8. Revenue Churn Rate

As opposed to the customer churn rate, this startup metric tracks the rate at which your company loses revenue- whether due to lost consumers or any potential downgrades in subscriptions or any other reason. Customer churn rate and revenue churn rate may or may not produce similar results.

9. Annual/Monthly Recurring Revenue (ARR and MRR)

Both ARR and MRR are useful to SaaS enterprise startups/ any startups with subscription revenue models. SaaS startups have substantial upfront expenses (from employee wages to data storage costs to office rent), so these startup metrics would give an accurate account of the associated risks and the financial health to future VCs. Further, startups with subscription models generate income on a monthly or annual basis, and again, investors can use ARR or MRR to find out what kind of revenue the startup will be generating.   

10. Gross Merchandise Value (GMV)

GMV is the total income generated from all sales over a specified timeframe. This startup metric also shows overall growth. Marketplace and e-commerce business models in particular will find this metric hugely useful. 

As you identify your business model and choose key startup metrics, there is one more thing you should keep in mind while utilising them - evaluate and change your key metrics regularly so you can ensure you are prioritising all the important ones and keeping up with your business’ current state. 

Good luck on your new venture!