KPIs (Key Performance Indicators) and metrics are critical to any startup’s success. By tracking the right KPIs and metrics, startups can make data-driven decisions to help them grow and scale.

There are a lot of different metrics that startups can track. But there are seven essential metrics that every startup should have in their financial model. Let’s take a look at them.

Importance of Metrics in Financial Models

One of the most detrimental business mistakes you can make as a startup is just doing everything on a whim without any data or analytics to back up your decisions. Data should drive every business decision you make. That’s where metrics come in.

Metrics give you hard data that you can use to track your progress and make informed decisions about your business. Without metrics, you’re just guessing.

Moreover, when you pitch to investors or partners, they want to see hard data to back up your claims. A good financial model will have all the essential metrics investors are looking for.

7 Metrics to Include in Your Financial Model

Let us preface this section by saying there’s no one-fits-all approach to financial modeling. However, some metrics are standard across all industries and business scales. Here are seven of them.

1. Cash Runway

The cash runway indicates the time (in months) a company has to operate before it runs out of cash. To calculate this, divide the total cash balance by the burn rate (the rate at which the company spends its cash).

For example, if a company has $1 million in the bank and it’s burning $250,000 per month, it has a cash runway of four months.

Cash Runway is an important metric to track because it shows how long a company can keep operating without needing to raise more money. It can tell you whether you need to:

• Get more funding
• Increase revenue
• Decrease expenses

By including it in your financial model, you can get a clear picture of your company’s financial health and make sound decisions about its future.

2. Customer Acquisition Cost

How much does it cost you to acquire a new customer? The metric is essential for startups in the digital age, where customer acquisition costs are often high.

You can calculate CAC by dividing the total cost of acquiring new customers by the number of new customers.

For example, if you spend $100,000 on marketing and acquire 1,000 new customers, your CAC would be $100.

If your CAC is higher, it may mean you’re spending more to acquire each new customer. It could signify that your marketing efforts are inefficient and need to be revamped.

3. Burn Rate

Every financial model should include a burn rate metric. The burn rate shows the speed at which a company uses its cash. You’ll need the burn rate to calculate other metrics, such as runway cash.

Let’s say you generate $50,000 in revenue in December. However, your expenses for the month totaled $60,000. In this case, your burn rate would be $10,000.

Such a burn rate is common in startups since they often reinvest any profits into the business. However, if your burn rate is too high, it could signify that your expenses are out of control, and you may not have enough cash to keep operating.

Therefore, it’s imperative to track the burn rate in your financial model. Your investors will also want to see this metric to gauge your company’s financial health.

4. MRR (Monthly Recurring Revenue)

Calculating the MRR is crucial for SaaS startups, especially in the early stages. MRR shows the recurring revenue generated each month from subscription-based services.

For instance, if your service’s subscription costs $30 a month and you have 500 customers, your MRR would be $15,000 ($30 x 500).

The MRR is a great metric to track because it indicates the growth of your business. It’s also a leading indicator of future revenue since it shows the recurring revenue you can expect each month.

Financial models are designed to make assumptions about the future. Knowing the MRR can help increase the accuracy of those assumptions.

5. Churn Rate

Besides keeping track of new customers, startups also need to monitor customer churn. The churn rate is the percentage of customers who cancel their subscriptions or stop using your service within a given period.

For example, if you have 1,000 customers and 100 cancel their subscriptions in January, your churn rate would be 10% (100/1,000).

Ideally, your churn rate should be as low as possible. A high churn rate could signify that your product is not meeting customer needs or that your prices are too high.

When you include churn rate in your financial model, you can use it to predict future revenue. For example, if your churn rate for the past four months has been 10%, you can expect a similar figure throughout the year and make growth assumptions accordingly.

By tracking the churn rate, you can take steps to reduce it. For example, you could offer discounts or free trials to customers at risk of canceling their subscriptions.

6. Customer Lifetime Value

The customer lifetime value (LTV) is the total revenue a customer will generate over the course of their relationship with your company.

You can calculate this metric by multiplying the average revenue per customer by the average customer lifespan.

For example, if the average customer spends $100 a year and the average customer lifespan is five years, the LTV would be $500. The higher the LTV, the more valuable each customer is to your business.

7. Gross Margin

Retail and e-commerce startups must track their gross margins to ensure they’re profitable. The gross margin is the difference between the revenue generated from a product and the cost of goods sold (COGS).

For example, if you sell a product for $100 and it costs you $50 to produce, your gross margin would be $50 (100-50).

You can use the gross margin to calculate other important metrics, such as the gross profit margin and the operating margin.

Customize Financial Models For Your Needs

As already mentioned, not every company needs to track the same metrics in its financial models. For instance, retail startups will need to focus on different metrics than SaaS startups.

Some companies may also need to track additional metrics that aren’t mentioned here. Keeping this in mind, it’s hard to say that pre-built financial model templates will work for startups.

Numberly has the solution to this problem. We create investor-friendly, easy-to-use, pitch-deck-ready financial models tailored to your needs and business type.

Our financial models contain everything from a smart summary dashboard to the financial statements you need to make an impact on the investors. Here’s a walk-through of our financial models to give you a better idea.

Schedule a call today to learn more.