How to set and track finance KPIs that actually matters
As an early venture, how good are you at transforming investments in marketing and tech into revenue?
How can you truly understand your customers to be able to build better products for them?
And how do you explain your business to investors — both the journey this far and where it’s heading?
Key Performance Indicators or KPIs can answer all these questions by measuring how your company is doing overall. But first, you must know the metrics important to your business, how to keep track of them, and how they influence your profit margin. This will allow you to make informed, data-driven decisions every time and of course appeal to your stakeholders with confidence.
Using my insights from working hand-in-hand with multiple companies to drive their growth potential — I’ve gathered the finance metrics below. They are a good starting point to start the journey for your startup’s key metrics.
Basic metrics that can assess your company’s financial health
Remember it’s never too early to start tracking and projecting KPIs – which will help you to understand how financially healthy your company is from the start. In short: track your cash; know your runway; plan for your fundraising. The metrics below will help you get started.
- Runway – how many months do you have before you run out of cash
- Burn rate – how much money you’re spending per month
- Revenue – income from sales, do not confuse this with contract values or bookings
- MRR/ARR – recurring revenue & the key here is the word recurring, monthly or yearly
- GMV – gross merchandise value, total sales going through a marketplace (not the same as revenue)
- Monthly churn – how many customers you lost
- CLTV or LTV – long term value of a customer, how much a customer makes you net profit while they are your customer
- CAC – the cost of acquiring new users
- CAC payback – how quickly can you get back the money you used to get a new customer
- Gross margin – revenue minus cost of goods sold
- Month-on-month growth – your monthly growth rate
Here’s a great resource to dive deeper into different metrics: https://a16z.com/2015/08/21/16-metrics/
Identifying the right KPIs for your business
What do you need to know about your business? You want to look for your growth drivers and track metrics as those help you identify your company’s opportunities and pain points – and of course track your month-on-month growth.
The most important thing to keep in mind is that you can’t change or influence what you don’t know, no matter which area of the business we’re talking about – be it finance, marketing, or DEI. So decide which key metrics you want to track and be open to modifying them to fit your need, which is likely to evolve.
Keep your eyes on the progress
Key metrics are only as good as if and how you track them – without which yet again it’s impossible to know how the business is progressing and what needs changing. So set clear goals and don’t forget to also think long-term, like when you’d need to raise your next funding round. Then use the KPIs to keep tabs on how your business progresses – all while trusting the data and adapting the way you work to better reach your goals next time around.
About the author:
Josefiina Kotilainen is CFO at Maki.vc, a seed-stage VC firm partnering with brand-driven & deep tech companies obsessed with challenging category norms. Prior to joining Maki, she was CFO at Europe’s largest startup event Slush.