Diligently tracking early growth shows investors that your business model works. Your startup pitch will speak for itself when you show numbers that prove your product is a solid investment. It all starts with choosing the right tracking mechanisms to capture valuable metrics and building them into your product. This is a decision you have to make early in your development process. Knowing which metrics matter and how to track them could make all the difference for answering questions during investor pitches.
This may all seem obvious, but there are dozens of metrics that you could track that will be a distraction from what really matters. Other vanity metrics may be tempting to follow because they always show growth, but won't matter to investors and partners.
Here are six metrics that you should track and follow:
Investors will be looking for margins and scalability. Recurring revenue is generated from the sale of the software or product itself and not just a one time purchase or contract. Having a strong annual recurring revenue (ARR) per customer will also be an indicator that you've built in mechanisms to upsell and grow your current customer base.
Revenue Growth Rate
One of the first metrics to be cited by top investors is month-over-month percentage increase in revenue. It’s one of the most common and important startup metrics. The Revenue Growth Rate provides a solid indicator of how quickly your startup is growing. Using CMGR (Compounded Monthly Growth Rate) also helps you benchmark growth rates with other companies.
[CMGR = (Latest Month/ First Month)^(1/# of Months) -1]
How many people are using your product? Knowing how many active users you have seems simple, but "active users" is a phrased kicked around startup industry with a wide variety of definitions. Before you throw around big numbers, explain to investors what your definition is. It's also best to know the ratio of Daily Active Users (DAU) to Monthly Active Users (MAU).
Customer Lifetime Value
Lifetime value helps project the long-term revenue value of a customer relationship and how much net value you generate per customer after customer acquisition costs (CAC). CLV is the value of the future net profit from a customer over the duration of the relationship.
[Customer Value] x [Average lifespan of a customer] = Customer lifetime value
Burn Rate is the negative cash flow of a company. It shows how quickly a startup is spending money. This is a key metric for investors since it demonstrates how much cash the company needs to keep operating and growing. It often determines timeline and budget for an investor.
[ ($) total amount spent month B - ($) Total amount spent month A ] / ($) Total amount spent month A X 100 = (%) Gross Burn Rate
Customer Churn Rate
Customer Churn is the percentage of customers lost during a given period of time. For many mobile apps or subscription-based products this is customers canceling their subscription. For e-commerce, it's customers who aren't making repeat purchases. Talking about churn also means talking about Retention. Being able to hold onto current customers is key to growing and scaling your company.