In business lingo, KPIs, or key performance indicators, are like scores that show how well your startup is performing.
Tracking KPIs – and choosing the right ones – is essential to your success as an entrepreneur.
In this article, we’ll cover:
- A quick review of the fundamentals of KPIs.
- The why, how – and which – of tracking KPIs in your startup, covering everything from choosing standard KPIs to industry-specific ones.
We’ll share 9 KPIs for startups, complete with formulas, examples, and how to track each one.
And here’s a table of contents if you want to jump around:
What are KPIs?
Key performance indicators are metrics used to measure how well your business is performing. Each KPI should be attached to a specific and achievable goal for your business.
So how do KPIs and goals fit together? Your goals are outcomes that you would like to achieve in your business, while KPIs help you track your progress on each goal.
While the number of goals you set can vary, many startups begin with 3 core goals. From there, you should have 1 to 4 KPIs per goal.
For example, if your company has a goal of growing its revenue by 30% this year, you’ll want to choose KPIs that can help you track your progress. Depending on your business, these may include 1 to 4 of the following:
- What rate your revenue is growing at each month.
- Whether you have the cash to fund your growth.
- What percentage of customers you’re retaining (or not).
- How much your average customer spends.
It’s important to note that your industry will have an impact on the KPIs you choose. Take a SaaS startup and an ecommerce startup, for example. These two companies have different business models and customer behaviors, meaning they inherently face different challenges and opportunities.
We’ll take a deep dive into four of our most recommended KPIs later in this article. Plus, we’ll talk about KPIs specific to the ecommerce and SaaS industries, and how to choose the best KPIs for your business.
Why should I track KPIs in my business?
By tracking KPIs on a regular basis, you can monitor progress, make strategic decisions, and maintain accountability in your business.
1. Monitor progress: KPIs give you a clear picture of how well your business is performing against its objectives. By tracking KPIs, you can better monitor progress over time and identify areas of improvement.
2. Make strategic decisions: KPIs enable you to make data-based decisions in your startup. By tracking KPIs, you can identify which strategies and initiatives are working, and which ones need to be adjusted or ditched altogether.
3. Maintain accountability: KPIs can also help to hold your team accountable for their job performance with a common language and framework. By setting and tracking KPIs, you can create a culture of accountability and motivate your team to work toward achieving your startup’s goals.
Tracking KPIs moves the needle forward. Because the bottom line is: what gets measured, gets improved. Sounds like the key to running a successful startup, huh?
However, “measuring” requires consistent tracking on your part. You should regularly check up on the KPIs you’re tracking to zero in on your business’s core objectives and make sure your methods are performing well – not just how you anticipated or hoped.
How to track KPIs using technology
There are several software options available to help you track KPIs.
Jirav generates custom financial reports, financial forecasts based on historical data, and tons of visualizations for you. With data like that at your fingertips, you can better understand your business’s performance. Without having to do the heavy lifting yourself.
How many KPIs should I track?
For the entrepreneurs that we serve, we recommend tracking 8 KPIs, with 10 being the maximum. This is what we consider the sweet spot of data – not too little to give a clear picture, but not too much to distract from your business’s goals.
When we say “KPIs,” we’re referring to key metrics in general.
Check out this video for answers to 2 FAQs we get most often from entrepreneurs:
- What KPIs should startups track?
- How should I evaluate startup performance?
Which KPIs should I track?
The most effective KPIs for your startup are relevant to your industry and unique business goals. For example, certain key metrics for SaaS companies should be different from those of ecommerce startups.
More on SaaS KPIs vs. ecommerce KPIs and picking the right KPIs for your industry in this section below!
Two companies in the same industry may even choose radically different KPIs based on their unique needs. When deciding if a KPI is right for your startup, ask yourself these 4 questions:
- Is this relevant to my business?
- Does it define a clear and attainable target?
- Is it actionable, and will this actually help me achieve my goal?
- How can I easily measure progress?
If your answers are “yes,” that’s a good indication that these are key metrics to track in your business.
But no matter your business goals, we’ve found that there are 4 standard KPIs that many entrepreneurs will find relevant:
- Cash burn rate
- Customer acquisition cost (CAC)
- Lifetime value of a customer (LTV)
Now let’s break down each of these!
Cash Burn Rate
Cash burn rate tracks how much cash your startup “burns” or spends within a specific time period. In other words, it tells you how quickly your biz is using up its available cash, and helps you manage cash flow.
For unprofitable businesses, cash burn rate helps you determine how quickly you are spending your cash reserves.
There are two types of cash burn rate: net and gross.
Net cash burn rate
Net cash burn rate helps you track how quickly you are burning through your cash reserves and income.
To calculate your net cash burn rate, subtract your startup’s total cash outflows (expenses, investments, and debt repayments) from its total cash inflows (revenue, financing, and capital injections) over a specified period.
Example: Your startup spends $10,000 each month on salaries, rent, investments, cloud storage, and equipment. The same month, you made $2,000 in revenue. In this scenario, your cash burn is $8,000.
Gross cash burn rate
All companies should track gross cash burn rate, and it’s especially important for pre-revenue companies. This is simply how much money you are spending each month on operational expenses.
Calculating your runway
Your runway is the amount of time you have left before you run out of cash, based on how much you’re spending each month. Runway is typically calculated by dividing your total cash reserves by your monthly net cash burn rate.
We recommend having enough cash on hand to cover 6 to 12 months’ worth of expenses.
That means that per month, you would want to spend no more than one-sixth to one-twelfth of your remaining cash on hand. For example, if you have $1,200,000 cash to fund your business, you’d want to aim for a net cash burn rate of $100,000 to $200,000 per month.
If your net cash burn rate isn’t going to cover 6 to 12 months’ worth of runway, you may need to raise more money or cut expenses to be financially stable. But if your net cash burn rate is going to last more than 6 to 12 months, you may have extra money for growth opportunities.
All in all, cash burn rate is a critical KPI for startups, early-stage companies, and any company that is not generating a profit quite yet.
Revenue is an important metric to track in your startup, because it shows your startup’s total earnings over a specified period.
Or, in other words, it shows you whether:
- People want what you’re selling.
- Your prices are working.
- Your startup is profitable and worth backing for investors.
While tracking your revenue can help you make informed decisions about your startup’s future, it also indicates your profitability and cash flow.
There are several ways to track revenue. You should choose which one(s) is best for your startup, depending on your business goals.
A couple of examples are:
Gross revenue is your startup’s total earnings before any deductions.
To calculate gross revenue, you just need to add up all of the revenue generated from your startup’s sales over a specific period of time.
Example: If your startup sells $50,000 worth of services in a month, and earns $10,000 in service fees, your gross revenue for the month would be $60,000.
Gross revenue can help you measure how well your startup is doing overall, and you can use it to calculate other important metrics like profit.
Watching gross revenue over time can also help you see if your sales and marketing strategies are efficient, effective, and sustainable. Plus, you can use gross revenue to see how well you’re doing compared to other startups in the same industry.
Monthly recurring revenue (MRR)
Your startup’s monthly earnings from regular revenue sources, like monthly subscription fees, maintenance contracts, and subscriptions make up your monthly recurring revenue (MRR).
MRR is especially important for startups that offer subscription-based products or services because it provides a predictable and stable revenue stream that can be used for financial planning and forecasting.
To calculate MRR, add up your total generated revenue from recurring revenue streams in a given month.
Example: If a company generated $10,000 in monthly subscription revenue, $5,000 in monthly maintenance contracts, and $2,000 in annual service fees that month, the MRR would be $17,000.
Revenue growth rate
Your revenue growth rate is the percentage increase in revenue over a specific period of time.
We recommend that you measure your revenue growth once every 1 to 3 months. And here’s how to calculate it: (Revenue in current period – Revenue in previous period) ÷ Revenue in previous period x 100%.
Example: Suppose your startup had the following revenue data for the last two months:
- Month 1: $100,000
- Month 2: $110,000
So, we can calculate the revenue growth rate as follows:
Revenue growth rate from Month 1 to Month 2: [$110,000 (Month 2)- $100,000 (Month 1)] ÷ $100,000 (Month 1) x 100% = 10% revenue growth rate
Revenue growth rate is a key indicator of your startup’s performance. A business that is growing its revenue at a high rate is generally doing well and is likely to attract more customers as well as investors.
A high revenue growth rate can also be a sign of a startup’s competitive advantage. If your startup is growing its revenue faster than competitors, it may indicate that you have a better product, service, or business model.
Additionally, you may be able to take advantage of opportunities that your competitors cannot when you have a high revenue growth rate.
Customer Acquisition Cost (CAC)
You know how you spend money on sales and marketing to get new customers? Well, Customer Acquisition Cost (or CAC for short) is basically the way you can track how much money it costs to acquire one of those customers, on average.
Here is how to figure out your startup’s CAC: You take the total amount of money you spend on sales and marketing during a certain time period, say a month, and divide it by the number of new customers you brought in during that same time.
Example: Your startup spent $10,000 on sales and marketing last month, and you got 100 new customers during that same time. Your CAC would be:
$10,000 spend ÷ 100 new customers = $100 bucks CAC per customer.
Why does CAC matter?
Well, customer acquisition cost is an important KPI for any startup to track. Knowing your CAC helps you figure out how much money you’re spending to get new customers, and whether or not your sales and marketing costs are sustainable.
You can even evaluate your CAC costs for different channels (such as social media or email) to see which efforts are the most cost-effective.
By tracking your customer acquisition cost, you can find ways to improve your sales and marketing efforts and lower your costs, while still bringing in new customers.
Lifetime value of a customer (LTV)
The lifetime value of a customer, or LTV for short, is a metric that estimates the total revenue your startup will generate from a single customer during their entire relationship with your business.
Here’s how to calculate your startup’s LTV: Order value x Profit margin x Purchase frequency x Average lifetime of subscription.
Example: Your ecommerce store sells a physical product on a subscription basis. The average order value is $50 and you have an 80% profit margin per sale. Each customer renews their purchase once a month for an average of 2 years.
Your LTV would be calculated as follows: $50 (order value) x 0.80 (profit margin) x 12 (purchases per year) x 2 (years of subscription) = $960
LTV measures how much each customer will contribute to your business overall, based on trends. So, this KPI will help you project your earnings in the future, and help you set goals for customer acquisition!
You can leverage even deeper insights by using lifetime value and customer acquisition cost together, by comparing the average revenue per customer (LTV) with the cost of acquiring that customer (CAC).
This sheds light on how profitable your business is, and the effectiveness of your marketing and sales efforts.
Based on your current LTV, you may implement other KPIs to increase customer satisfaction, or improve your products/services to boost brand loyalty and referrals.
Bonus: The Rule of 40
We decided to throw in a bonus KPI that we recommend to some entrepreneurs, which is called the Rule of 40.
If you’re interested in pitching to investors, the Rule of 40 is one you’re going to want to track. If not, it’s still a great KPI to assess the health of your business.
The Rule of 40 tracks your yearly growth rates and profit margins to determine if you’re ready for investors.
Why? Well, the overall success of your business is determined by these measurements reaching or exceeding 40% when combined.
Similarly, investors can predict whether they foresee a return on their investment into your startup using this rule.
The Rule of 40 is calculated using this formula: growth percentage (year over year) + profit margin percentage ≥ 40%
Example: Startup 1 has a growth percentage of 35% and a profit margin of 10%. Startup 2 has 20% growth and a 30% profit margin. Both have exceeded the desired rate of 40%, but the first company could improve on profitability while the second should focus on growth.
How to choose KPIs for your industry
In addition to the standard KPIs above, we recommend choosing 4 to 6 KPIs that are specific to your industry. Follow these 6 steps to help you identify the industry-specific KPIs that will help you level up your business:
1. Figure out what you want to achieve: Start by deciding on your main business goals, like making more revenue, cutting costs, or keeping customers happy.
2. Identify the key things you need to do to achieve those goals: These are called critical success factors (CSFs), which can vary based on your industry. For example, if your goal is to increase your revenue, your CSFs might include increasing sales or keeping customers for longer.
3. Pick KPIs to measure how well you’re doing with each CSF: For instance, if you’re an ecommerce seller and your CSF is selling more products, your KPIs might be monthly revenue, conversion rate, or average order size.
4. Keep it simple: Like we said before, don’t pick too many KPIs. Just choose the most important metrics for tracking progress in your startup.
5. Review and adjust your KPIs regularly: Again, this will ensure that you’re staying on track to meet your business goals, while keeping up with changes in your industry.
6. Look at what others are doing: See what your competitors and other successful startups in your industry are doing to measure their performance, and consider using similar KPIs.
And remember! When deciding if a KPI is right for your startup, ask yourself the following questions:
- Is this relevant to my business?
- Does it define a clear and attainable target?
- Is it actionable, and will this actually help me achieve my goal?
- How can I easily measure progress?
Best KPIs by industry
If you’re not sure where to begin, there are a few KPIs that are beneficial to many companies in the SaaS and ecommerce industries.
Churn rate is the percentage of customers who cancel their subscription to a SaaS startup’s service, over a specific period of time. This cancellation is referred to as “churning.”
Here’s how to calculate churn rate: (Number of customers who churned during the time period ÷ Total number of customers at the beginning of the time period) x 100 = Churn rate.
High churn rates can be problematic for SaaS startups because they can indicate dissatisfaction with the product or service, leading to a loss of revenue and decreased growth.
Tracking churn rate can help SaaS entrepreneurs identify ways to improve their product or service and help improve customer retention strategies.
Average Revenue Per User (ARPU)
ARPU is the average amount of revenue generated per user or customer of a SaaS startup.
Here’s how to calculate ARPU: Monthly recurring revenue (MRR) ÷ Total number of customers = ARPU. (See “Which KPIs should I track?” above for more on MRR.)
This metric takes into account all sources of revenue, including subscription fees, upsells, and add-ons.
Tracking KPIs like ARPU can help SaaS entrepreneurs identify opportunities to increase “revenue per user” through pricing adjustments, feature upgrades, and more.
And here are a couple of KPIs specific to the ecommerce industry!
Conversion rate is the percentage of visitors to your ecommerce website who make a purchase.
Here’s how to calculate conversion rate: (Number of completed purchases ÷ Total number of website visitors) x 100 = Conversion rate
A higher conversion rate indicates that your website is effectively converting visitors into customers, while a lower rate may indicate issues with your website design, product offerings, or pricing strategy.
Tracking KPIs like conversion rate can help ecommerce entrepreneurs identify ways to optimize their website and marketing strategies.
Average Order Value (AOV)
Average order value is pretty straightforward! It’s the average amount of money customers spend on each order.
Here’s how to calculate AOV: Total revenue generated in a specific time period ÷ Number of orders placed within the same period = AOV
A higher AOV can indicate that customers are buying more items or higher-priced items. So, tracking KPIs like AOV can help ecommerce entrepreneurs identify opportunities to increase revenue, through cross-selling or upselling.
How often should I be tracking KPIs?
How often should you be keeping tabs on your KPIs? Well, it really depends on what you’re tracking and what your business goals are. But, as a general rule of thumb, it’s a good idea to check in on your KPIs at least once a month.
Checking in monthly gives you a chance to spot any trends or patterns that are emerging over time. You can also catch any issues or areas where you might be falling short, make changes and get back on track.
Of course, there are some KPIs that might need more frequent check-ins, especially if they’re tied to specific campaigns or projects. For example, if you’re running a marketing campaign, you might want to keep a closer eye on your KPIs, checking them daily or weekly.
We recommend finding a schedule that works for you and your business, and sticking to it. The more consistent you are with tracking KPIs, the more insights you’ll have into your startup and the better decisions you’ll be able to make.
Plus, tracking KPIs requires frequent financial reporting. You can use this data to report your balance sheet and income statement accurately, and have your finances in order come tax season. So, get tracking!
Need help keeping track of all your startup’s KPIs?
Our answer to tracking KPIs effectively is having a good tool on your side. That’s why we’re offering a free financial dashboard for tracking KPIs!