Important key performance metrics and KPIs for startups

Focusing on key performance indicators (KPIs) helps founders and managers gain a better overview of areas of improvement, while companies are able to save money and optimise processes. We explain the most important key metrics and KPIs for startups and introduce easy ways to improve your performance on a wide range of processes.

Why do KPIs for startups matter?

Roughly 30% of newly established startups do not succeed by the conclusion of their second year, while around 50% face bankruptcy before the fifth year. This implies that managers need a structured approach with measurable outcomes.

KPIs for startups provide measurable benchmarks that allow founders and stakeholders to track progress and performance against specific goals. In the volatile landscape of startups, having clear KPIs enables informed decision-making and helps identify areas that require further attention or improvement.

Secondly, KPIs facilitate effective communication within the team, aligning everyone towards common objectives. Additionally, they play a vital role in attracting investors and securing funding, as they demonstrate a startup’s ability to set, monitor, and achieve meaningful milestones.

Important key metrics for startups

The following key metrics for startups cover multiple parts of your business. Make sure to track all of them in order to get a full overview about your financial performance.

Recurring revenue

Revenue-based KPIs for startups belong to the most important metrics, as they measure your financial performance. Recurring revenue is the portion of a company’s total revenue that is expected to be generated on an ongoing basis, typically through subscription-based services or memberships. Unlike one-time transactions, recurring revenue is predictable and reliable, as it is anticipated to be received at regular intervals over an extended period of time.

Recurring revenue is highly valued by businesses because it provides a more stable and predictable income stream. It helps companies plan for the future, allocate resources, and make strategic decisions. Additionally, this KPI for startups can enhance the overall valuation of a business, as it demonstrates a reliable source of income.

Revenue per employee

Revenue per employee is a key performance metric used to evaluate the productivity and efficiency of a company. It is calculated by dividing the total revenue generated by the company in a given period by the number of employees. This metric provides insight into how effectively a company utilises its workforce to generate revenue.

Monitoring revenue per employee can be particularly important for startups and small businesses, as they often have limited resources and need to maximise the output of their workforce. A higher revenue per employee indicates that a company is able to generate more income with fewer staff, suggesting a higher level of efficiency. Conversely, a lower revenue per employee may indicate that a company is not using its workforce as effectively.

Revenue per user

Revenue per user (RPU) measures the average amount of revenue generated from each individual customer or user. It is calculated by dividing the total revenue generated by the company over a specific period by the total number of active users or customers during that same period.

RPU provides valuable insights into the monetization effectiveness of a company’s customer base. A higher RPU indicates that a company is generating more revenue from each user, which can be a positive sign of strong customer value and effective pricing strategies. Conversely, a lower RPU may suggest that a company needs to explore ways to increase revenue from its existing customer base.

For businesses, especially those in subscription-based models, understanding and optimising RPU is critical for sustainable growth and profitability. It helps in making informed decisions about pricing strategies, product offerings, and customer segmentation.

Expenses: CAC, burn rate and runaway

Keeping expenses low is important for startups, as the revenue model is often not fully established yet. To better monitor your expenses and make long-term plans, it is worthwhile looking at KPIs for startups such as your customer acquisition costs, your monthly burn rate as well as your runway.

• Customer acquisition costs (CAC): These costs refer to the expenses a company incurs in order to acquire a new customer, such as marketing and sales costs. Calculating and managing CAC is important for businesses to ensure that they are spending their resources effectively to grow their customer base and ultimately generate profits. It is crucial to assess CAC per channel like paid search, referrals, and email marketing. By analyzing the costs per channel, you pinpoint the most cost-efficient acquisition channels and/or markets and are able to allocate your budget accordingly.
• Monthly burn rate: The monthly burn rate is the amount of money a company spends each month in order to cover its expenses. This includes costs like salaries, rent, utilities, and other operational expenses.
• Runway: Runway refers to the length of time a company can continue operating at its current burn rate before it runs out of funds. For example, if a company has $100,000 in the bank and a monthly burn rate of $10,000, then it has a runway of 10 months ($100,000 ÷ $10,000 = 10).

Keeping track of spendings becomes more difficult the bigger your company becomes. If different departments or individual employees subscribe to a wide range of online services and tools, keeping track of all expenses is almost impossible without the proper infrastructure. Virtual debit cards for subscriptions are a game changer that allow your employees to make individual purchasing decisions while you remain in charge of the budget and get a full expense overview in real-time.

Cash flow

Monitoring and managing cash flow is among the key metrics for startups which ensures that there is enough liquidity to cover immediate expenses, repay debts, and take advantage of opportunities for growth.

A positive cash flow occurs when a business is bringing in more money than it is spending, which is generally a sign of financial health and sustainability. A negative cash flow, on the other hand, happens when a business is spending more money than it is generating. This can lead to financial difficulties and potentially jeopardise the company’s operations.

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Customer retention/Churn rate

Customer retention and churn rate are particularly important KPIs for startups in the service industry. Customer retention shows the ability of a company to retain its existing customers over a specific period of time. It is a measure of customer loyalty and satisfaction. High customer retention indicates that a business is successful in keeping its customers engaged and satisfied with its products or services.

Churn rate, on the other hand, is the percentage of customers who stop using a product or service within a given period. A high churn rate can be a cause for concern, as it may indicate that customers are not finding enough value in the offering, leading them to discontinue their use.

Customer lifetime value (CLV)

Customer lifetime value (CLV) is calculated by dividing the average revenue per customer by the churn rate. This metric quantifies the total revenue derived from a customer during their entire engagement with your business. It’s pivotal for grasping the long-term value of your customer base and discovering ways to enhance customer retention and revenue.

Return on Investment (ROI)

Return on Investment (ROI) helps businesses and assess the efficiency and profitability of different investments. A positive ROI indicates that an investment has been profitable, while a negative ROI means the investment resulted in a loss.

ROI is often used by investors, but can essentially be used for all kinds of projects that the business undertakes, such as marketing campaigns or the introduction of new products.

Improving key metrics for startups with amnis

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