8 Key Performance Indicators for a Startup Company To Use
By Indeed Editorial Team
Published September 15, 2021
The Indeed Editorial Team comprises a diverse and talented team of writers, researchers and subject matter experts equipped with Indeed's data and insights to deliver useful tips to help guide your career journey.
Businesses use key performance indicators to measure their value and success. Startup companies may use them to find ways they can expand their sales and achieve sustained financial health. If you're part of a startup company, learning about key performance indicators may help you measure goals and advance your workplace's growth. In this article, we discuss what key performance indicators are and provide a list of eight key performance indicators for startups.
What are key performance indicators?
Key performance indicators are values that companies can use to measure their growth and determine areas of improvement within their operations. Startup companies may use key performance indicators to help them increase their brand awareness, boost their sales and help sustain their finances. Key performance indicators also allow companies to gauge their success and estimate their future financial health.
Why are key performance indicators for startups important?
Here are some reasons it's important for startup businesses to use key performance indicators:
Show growth: Using key performance indicators can give startup companies insight into their recent progress, which allows them to estimate future growth. They may look at their most recent cash flow statements and monthly burn value to determine the rate at which they may grow in the upcoming sales period.
Identify areas of improvement: Key performance indicators allow startup businesses to recognize areas of improvement within their business model. For example, if a company recognizes that it has a low runway, then company staff may conduct fundraisers to increase their workplace's runway and help it sustain growth for a longer period of time.
Give investors insight into sales potential: It's important for startup companies to gain investors to grow their business and expand their budget. Key performance indicators allow investors to identify a startup's financial forecast and determine if they want to invest in it or not.
8 KPIs for startups
Here are eight key performance indicators for startups:
1. Total addressable market
The total addressable market is a key performance indicator that measures a company's target audience and market size to determine the amount of customers they might attract. This can help startups determine their marketing needs, which may allow them to have a better idea of their budget. Startups can find their total addressable market by performing market research and communicating with their target demographic, typically through social media or advertisements.
2. Customer acquisition cost
A customer acquisition cost is the amount of finances that businesses must spend on manufacturing, marketing and distribution that may lead to them acquiring new customers. It's essential for startup businesses to be aware of their customer acquisition cost since it's likely that customers may be unfamiliar with their brand, so they may need to devote more time, effort and money to gain new customers. Having a low customer acquisition cost may help startup businesses sustain their growth for a longer period of time since they can spend less money and acquire a larger amount of customers.
3. Customer retention rate
A customer retention rate indicates the amount of customers that remain loyal to a company after a certain period of time. It's important for startups to have an idea of their customer retention rate so that they can estimate upcoming sales accurately and increase customer retention. For example, if a startup company finds it challenging to keep customers for long periods of time, it may change its marketing techniques or offer incentives to encourage customers to continue engaging with the company.
4. Lifetime value
Lifetime value measures the average amount of finances that a company may receive from a customer over the course of a company's lifespan. If startups achieve a high customer retention rate, then they may have a higher lifetime value from each customer. Determining the lifetime value helps startups estimate their growth and identify potential sales forecasts. For example, if a customer spends an average of $100 per year at a company, then company staff can estimate that the customer's lifetime value over the next 10 years is $1,000.
5. CAC recovery time
CAC recovery time is a key performance indicator that determines the time it can take for a company to receive a profit from their customer acquisition cost. This gives insight into the amount of net revenue that a company may receive, which also affects the organization's cash flow and financial growth. For example, if a toy store spends $150 on average to acquire a new customer, and it takes the new customer six months to spend $150 at the toy store, then the store's CAC recovery time is six months.
6. Monthly burn
The monthly burn is a key performance indicator that helps startups understand their debt and the amount of money they may lose in the beginning months of their launch. It's common for startups to have a negative cash flow in the early stages of their creation since they may have a higher customer acquisition rate to bring in new customers, or they may have a smaller profit if their sales are lower.
A monthly burn refers to the amount of money that a company has, which is negative cash flow. For example, if a clothing store generates $10,000 in one month, though they pay $15,000 for inventory and overhead expenses, then their monthly burn is $5,000.
Runway measures the time that a startup has before they run out of finances. Companies can measure their runway by evaluating their amount of assets and dividing it by their average monthly burn. For example, if an amusement park has $100,000 left for funding, and their average monthly burn is $10,000, then $100,000 / $10,000 = 10, so the amusement park's runway is 10 months before they run out of funding.
It's common for startup businesses to have a runway of 12-18 months since that's generally the amount of time it takes before startups gain a sufficient amount of steady customers and become profitable. Startups may increase their runway by boosting finances, usually by adding investors or increasing sales.
8. Profit margin
An important KPI is profit margin because it informs a company of how much money their product or service sells for based on how much the product costs to manufacture. It gives insight into a company's return on investment and helps a company evaluate its long-term sustainability and growth. If a startup has a high profit margin, they may have a higher revenue, which can lead to lower CAC recover time. For example, if a company spends $10 to manufacture a product and they sell that product for $80 to customers, then their profit margin is $70.
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