Are you trying to find the most effective KPI examples for your startup? KPI tracking is a critical but often overlooked management tool for growing your business.
Whether running a massive startup or just looking to get your first project off the ground, tracking your KPIs is one of the most important things you can do. They help measure your business’s success and progress against your defined objectives.
Let’s look at some of the best examples of KPIs for startups to track.
Why are KPIs Important?
The most obvious benefit of using KPIs is that they give you a way to track how your business is doing. They help you to see where you stand compared to your competitors and objectives and to identify room for improvement in your business processes and operations.
KPIs can also serve as benchmarks for measuring success over time by showing how you’re improving and telling you when you’ve reached milestones you should celebrate.
Common KPI Examples
Below are eight KPI examples that every startup should be tracking:
1. Burn Rate
Burn rate measures a startup’s monthly net cash consumption. Knowing your burn rate can help you manage cash flow and plan expenses better.
As a higher burn rate means higher cash consumption, a startup that keeps a low burn rate and its expenses under control will likely have more flexibility and less risk of running out of cash. A startup with a high burn rate and no revenue can quickly run out of money and fail.
This metric measures how long a startup can operate with its current cash level and goes hand in hand with burn rate. Knowing how much money you have left in the bank at any given time is essential for startups and their investors because it helps them understand how much time they have before their investment is at risk.
A shorter runway can increase the pressure to make a profit as soon as possible — which means that you need to ensure every dollar spent contributes directly to growth.
3. Customer Lifetime Value (CLTV)
Lifetime value is a KPI that reflects how much revenue you anticipate from an average customer during their lifetime. CLTV is vital, especially for SaaS startups with recurring revenue, because it helps them understand how much you can invest in acquiring and retaining customers.
4. Customer Churn
Customer churn refers to how many customers stop using your product or service or the rate at which they leave your business. A higher churn rate typically indicates unhappy customers and that you are leaving money on the table.
Various factors can cause churn: from pricing changes to poor product quality. Understanding why people leave is essential to addressing those issues and retaining them as loyal customers.
5. Customer Retention
As the inverse of churn, retention measures how many customers you keep over time. It can help you understand if your customers are happy with your products.
A high retention rate shows that your business model is working and that people are returning to buy more products or services from you. Slow growth might point to problems with the product or service your customers are receiving.
6. Customer Acquisition Cost (CAC)
Customer acquisition cost (CAC) represents the money you spend acquiring new customers. This metric shows your spending on marketing, advertising, sales, and other acquisition channels.
Typically, your CAC should be lower than your LTV (Lifetime Value), and your business may not be sustainable if it’s too high.
7. Monthly Recurring Revenue (MRR)
Monthly Recurring Revenue (MRR) might be a SaaS business’s most critical key performance indicator. It measures the monthly recurring revenue you are generating from your customers.
In simple terms, MRR is the monthly amount you make from your existing customers. When more people sign up for your services, MRR increases.
MRR is important because it measures how much money you can make on an ongoing basis (minus churn) and can help you plan the profit you make from each customer.
8. Gross Profit Margin
Gross profit margin measures what remains of each dollar of sales after paying for the cost of goods sold.
A high gross profit margin typically indicates a company has pricing power and its products are less price-sensitive. On the other hand, a low gross profit margin may suggest that a company’s products are more price-sensitive or have little pricing power.
Track the Right KPIs to Make Data-Driven Decisions
KPIs are essential for starting and growing a business, especially in SaaS. They help you see where you’re going, measure success, and navigate challenges and obstacles.
The 8 KPI examples presented here give you a brief overview of the key metrics you need to track and use to make data-driven decisions. The startup experts at Founder’s CPA can help you implement systems and processes to get started with KPIs and use them to grow your business. Contact Founder’s today!