Foundational metrics every business should care about

When you run a startup, you need to know the foundational metrics every business should care about. In a stage where every decision matters, focusing on the right priorities can lead to rapid growth and excited investors just as focusing on the wrong priority can lead to frustration and failure.

However, identifying those foundational metrics can be difficult. Too many guides list upwards of 20 potential key performance indicators that may or may not be relevant to startup businesses. So let’s keep it simple, focusing on the immediate impact with these five metrics relevant to every startup from the moment they begin their operations.

As its name suggests, customer acquisition cost (CAC) is the total budget you need to spend to acquire the average new customer. It’s a key growth metric because your customers are the revenue lifeblood of your startup. The lower it gets, the more sustainable your efforts to grow your customer base become.

Most startups have a relatively high CAC to begin, thanks to the amount of money they have to spend on brand awareness. The key to this metric is a positive trend, in which your CAC slowly begins to sink for each period in which you measure it.

How to measure your customer acquisition cost

How to measure your churn and retention rate

How to project your monthly recurring revenue

You can also use more complex calculations for a more accurate MRR forecast. In some cases, like customers with yearly contracts, you might need to expand this metric to yearly recurring revenue instead of the typical monthly period.

Keeping track of how your business spends money is just as important as understanding how you gain revenue. Your burn rate indicates how fast the business is spending money. It helps you determine how far your revenue and any other sources of cash can get you in running and growing your business.

Investors are particularly interested in burn rate because it can also tell them how wisely you will spend their investment. Burning through cash and revenue can be a red flag, whereas judicious spending of that same investment while still steadily growing the business is generally a positive sign. It also helps you uncover unimportant or unexpected expenses that your business might be able to do without.

How to measure your burn rate

How to predict your cash runway

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