Startup Metrics & KPIs | Top 10 Metrics Used by VCs
Hi, I'm Eric! Today we'll discuss 10 key metrics and KPIs for measuring startup performance and health. These are the items that both founders and venture capitalists (VCs) focus on to understand a startup's state. As a founder, you should understand all of these metrics and be prepared to explain each one. Let's dive in!
1. GMV (Gross Merchandise Volume)
What is GMV? GMV is a metric primarily used in marketplace businesses that indicates how much consumers spent. For example, Alibaba sells over $1 trillion worth of goods annually, but its actual revenue is under $100 billion — because it only takes a commission on transactions.
Why does it matter? GMV is essential for understanding the scale of a marketplace. Simply comparing revenue makes it difficult to properly assess marketplace size.
"GMV is a key metric showing how much merchandise is actually being traded on a marketplace."
2. Bookings vs Revenue
What are Bookings? Bookings represent the total value of services sold, but include services not yet delivered. For example, if a SaaS company sells a 3-year service contract, it's recorded as 36 months of Bookings. However, Revenue is only recorded when the service is actually delivered.
Why does it matter? Understanding the difference between Bookings and Revenue helps better assess cash flow and growth potential. Businesses that collect payment upfront and deliver services later can have favorable cash flows.
"Clearly understanding the difference between Bookings and Revenue is essential for analyzing a startup's financial health."
3. Recurring Revenue
What is Recurring Revenue? Revenue from customers who have committed to regular, ongoing purchases. The prime example is the subscription model.
Why does it matter? Recurring revenue improves business predictability and stability.
"Businesses with high recurring revenue are more profitable and more predictable."
Key metrics:
- MRR (Monthly Recurring Revenue): Monthly recurring revenue
- ARR (Annual Recurring Revenue): Annual recurring revenue (MRR x 12)
4. Growth
How to measure growth Growth is measured differently depending on business goals. Typically, you track the rate of increase in users, revenue, or Bookings.
- MoM Growth (Month-over-Month): Monthly growth rate
- YoY Growth (Year-over-Year): Annual growth rate
- CMGR (Compounded Monthly Growth Rate): Compound monthly growth rate
The importance of CMGR CMGR smooths out monthly growth rate volatility and shows long-term growth trends more clearly.
"CMGR is a powerful metric that shows, on average, how fast a business has been growing over a given period."
5. Gross Profit
What is Gross Profit? Revenue minus the direct cost of goods sold (COGS). It indicates profitability at the product level.
Why does it matter? Gross Profit is important for confirming whether a product actually generates profit for the company.
"If Gross Profit is negative, you'll need a high LTV-to-CAC ratio per customer."
6. LTV-to-CAC Ratio
What is LTV? LTV is the total lifetime gross profit a customer generates in their relationship with the company.
What is CAC? CAC is the marketing cost spent to acquire a single customer.
Why does it matter? The LTV-to-CAC ratio is a core metric for evaluating business growth potential and profitability.
"An LTV-to-CAC ratio above 3 is considered a good business model."
7. Customer Retention
Retention Cohort Table Customer retention is measured through cohort analysis — tracking the purchasing patterns of a group of customers who first bought at a specific time.
Expansion Revenue If customer retention exceeds 100%, it means customers are generating more revenue through additional purchases.
"The higher the customer retention, the stronger the long-term stability of the business."
8. Active Customers/Users
Defining "Active" Active customers are those performing specific behaviors defined by the business (e.g., purchasing, logging in, using the site).
Why does it matter? Active customer count is essential for understanding the business's actual user base.
"Inflating active customer numbers can distort your modeling, so maintain accurate data."
9. Customer Acquisition Cost (CAC)
Blended CAC vs Paid CAC
- Blended CAC: Average CAC across paid and organic channels
- Paid CAC: CAC from paid advertising channels only
Why does it matter? Separating Paid CAC provides better understanding of paid channel efficiency.
"If paid channels are efficient, you can accelerate business growth much faster."
10. Burn Rate & Runway
What is Burn Rate? The amount of cash consumed each month.
What is Runway? Based on current cash and projected Burn Rate, the time remaining before funds run out.
Why does it matter? Accurately calculating Runway enables advance planning for fundraising timing.
"Fundraising takes time, so always monitor your Runway carefully."
Closing
The 10 startup metrics and KPIs covered in this video are essential for measuring business performance and communicating effectively with investors. Check the links below for related spreadsheets and additional resources.
"A startup's success depends on understanding and leveraging data."