7 Metrics Startup Founders Should Track From Day One

Whether you're an early-stage startup founder or deep into a Series C, it's crucial to understand the importance of tracking your financial metrics regularly. While you're working on building your startup, there are at least seven financial metrics every founder should monitor to ensure the company is on track to achieving its top­-level and immediate goals.

Revenue

Revenue is the most critical metric for any type of company and is especially important for startups. Some entrepreneurs make the mistake of starting a business and focusing on everything besides actual revenues and sales – thinking that will come later. They hire staff, build out entire websites, and do extensive marketing without ever testing if their product or service is something people will actually pay for.

The goal of tracking revenue is to help founders determine how far they are from earning revenue, which should be achieved as soon as possible. Revenue earned indicates that a business is valued by the public and that consumers are willing to pay money for a product or service. Founders that make the mistake of ignoring this metric may go through all the hurdles of launching a startup only to find that it is not a profitable business idea.

Revenue Growth Rate

Once earning money, don't just measure total sales; measure the rate at which those sales are fluctuating. Founders can calculate their revenue growth rate by comparing the current month, quarter, or year's revenue to the previous one, and calculating it as a percentage. It’s critical to maintain a close eye on which aspects of the business are generating the most growth and which are not, then make adjustments accordingly.

As a startup, when you see one particular product or service growing much faster than others, invest in that area – and avoid focusing on what isn’t selling. It’s important to put momentum behind products and services that have traction by getting frequent customer feedback. To keep a close pulse on revenue growth, track it on a monthly basis.

Burn Rate

It’s a tale as old as time – founders squandering tens of millions of investor dollars because they neglected to be mindful of their spending. The burn rate tracks your monthly spending and tells you what you need to produce in revenues to break even and eventually become profitable. Essentially it’s a measurement of how fast a company spends its available supply of cash.

When burn rate increases, some founders think they can just raise more money, so they make the mistake of focusing on fundraising rather than raising revenues. That's a temptation to avoid. Knowing your burn rate helps you project your runway – it’s a key metric for measuring the health of your business. To maintain a full view of one’s business, founders should calculate this metric every six to twelve months.

Cash Runway

A startup dies without capital. In other words, runway is the number of months that a business can operate at a loss before running out of money, causing the business to fold.

Planning short-term cash flow is crucial for startups because cash is typically limited. For founders who have taken on investors, those investors will want to know if the business has sufficient cash to stay in operation until it becomes profitable and has a sustainable base of customers.

In 2012, wealth management expert Chad Willardson learned the importance of cash runway the hard way after investing in a fintech startup that later filed for bankruptcy.

“I got a harsh lesson in what burn rate and cash runway really mean. We had an investor call and found out that expenses were four times what the budgeted monthly expenses were projected to be. I learned a great lesson from observing these mistakes,” says Willardson.

When it comes to cash runway, Willardson warns founders that those who don't keep a close eye on this metric will not succeed. “Calculate your cash runway on a monthly basis. It tells you how long your company's cash reserves will last and helps you plan for the near future.”

Customer Lifetime Revenue

According to Willardson, many founders often confuse customer lifetime revenue (CLV) with other variants. “CLV is a metric that’s still taking shape in what it entails. Oftentimes I see the founders that I advise refer to post-acquisition value (PAV) interchangeably with CLV,” says Willardson. The difference between CLV and PAV is that CLV measures whether you're ‘upside down,’ and PAV measures how much you will spend on customer acquisition cost (CAC).”

Tracking CLV tells founders the average amount of revenue that a customer will spend with a company over their lifetime. It's an estimate of how much money you can expect to make from each new customer. As such, it's important to note that CLV, in the beginning, will be more of an estimate than an actual value because there’s no way to know for sure how long a customer will stay or how much they will spend during their relationship with a company.

However, as time goes on and you have more data points on your customers, CLV becomes more accurate because it's based on historical data instead of just one measurement at the beginning of the customer journey.

Churn Rate

Startups that fail to tighten the financial screws risk losing customers and funding. Churn rate is the percentage of customers who discontinue using your services over a given period. This metric can be assessed daily, weekly, monthly, or annually, depending on your business type.

As long as the number is decreasing and it's not too high, the churn rate can be a good indicator of how well a company is doing. However, if it's increasing fast and there are no obvious reasons why, such as changes in the market, then something needs to be done immediately to fix your business model or attract more clients. Unfortunately, this could indicate that you don't have a product that your customers value any longer.

However, churn rates can also depend on what you offer. For example, renewal rates differ depending on whether the business is selling digital products versus physical products. Alternatively, if you provide premium services like consulting or coaching, customers may not renew their contracts once they have reached their goals through working with you – but this doesn't mean they won't return later.

Customer Acquisition Cost

Customer acquisition cost (CAC) is the amount of money it takes to acquire a new customer. This includes advertising costs, sales and marketing expenses, and all other costs associated with customer acquisition. While it's important to understand your overall CAC as a whole, you should also keep track of individual components of this metric so that you can analyze where the most money is being spent and make changes accordingly.

Let’s say you've been spending $5 on Facebook ads per lead but haven't seen any improvement in conversion rates from those ads over time. It’s likely time for fresh ideas about how to organically attract more customers through social media instead. On the other hand, if your total marketing spend has stayed relatively flat while your total number of leads is increasing, then continuing with the current strategy makes sense.

Tracking these financial metrics shouldn't end once a company is up and running. It's important to monitor financial metrics on a regular basis so you can make proactive decisions for your startup instead of reacting to the ebbs and flows. Every metric you track allows you to make better sense of your profitability, identify areas for growth, and ultimately keep your business on track for success.