5 metrics every founder should know

As an investor, it’s essential to educate first-time founders on the financial and traction metrics that are most important for their startups. Here are some of the key metrics to focus on:

1. Monthly Recurring Revenue (MRR): MRR is the amount of revenue that a startup generates each month from its recurring revenue streams. This is a critical metric for startups with subscription-based business models, such as SaaS companies. It is essential to track MRR because it helps you forecast future revenue and determine the growth rate of your business. For example, a SaaS company might have an MRR of $100,000, indicating that they are generating $1.2 million in annual revenue.
2. Customer Acquisition Cost (CAC): CAC is the amount of money that a startup spends on acquiring a new customer. This metric is crucial because it helps you determine how much you can spend on marketing and sales to acquire a new customer profitably. For example, if a startup spends $1,000 on marketing and sales and acquires 10 new customers, the CAC would be $100.
3. Churn Rate: Churn rate is the percentage of customers who stop using a startup’s product or service within a given period. High churn rates can be an indicator that a startup’s product or service is not meeting customer needs. For example, a SaaS company with a churn rate of 5% would lose five out of 100 customers each month.
4. Gross Margins: Gross margins are the amount of revenue that a startup retains after deducting the cost of goods sold. This metric is critical because it helps you understand the profitability of your business and determine how much you can spend on marketing and sales. For example, a startup with a gross margin of 60% would retain $0.60 for every $1 of revenue generated.
5. Runway: Runway is the amount of time that a startup has before it runs out of cash. This metric is essential for early-stage startups that have not yet reached profitability. Runway helps startups understand how long they have to achieve their growth objectives and secure additional funding. For example, if a startup has $500,000 in the bank and a monthly burn rate of $50,000, the runway would be 10 months.

These metrics are just a few of the critical financial and traction metrics that startups should focus on. As a VC, it’s essential to educate first-time founders on these metrics and help them understand how to use them to make informed decisions about their business.