Startup Metrics
Master the numbers that matter. Learn to track, analyze, and act on the metrics that drive startup success.
Why Metrics Matter
"If you can't measure it, you can't improve it." This Peter Drucker quote captures why metrics are foundational to startup success. Data-driven decisions consistently outperform gut instinct—but only when you're tracking the right things.
Startups face infinite choices with finite resources. Metrics provide clarity about what's working, what isn't, and where to focus. They align teams, enable experimentation, and give investors confidence in your business acumen.
What Good Metrics Enable
Better Decisions
Replace guesswork with evidence-based choices
Team Alignment
Everyone understands what success looks like
Early Warning
Spot problems before they become crises
Investor Confidence
Show you understand your business deeply
Rapid Learning
Iterate faster with clear feedback loops
Resource Optimization
Double down on what works, cut what doesn't
The Metric Maturity Journey
Pre-seed: Focus on 3-5 core metrics. Seed: Build basic dashboards. Series A: Comprehensive metrics infrastructure. Scale: Predictive analytics and forecasting.
The Metric Hierarchy
Not all metrics are created equal. Understanding the hierarchy helps you focus on what actually drives outcomes rather than vanity metrics that feel good but don't inform action.
Leading vs. Lagging Indicators
Leading Indicators
Predict future outcomes. Actionable and changeable. Focus here for growth.
- → Signups this week
- → Feature adoption rate
- → Sales pipeline value
- → NPS score
- → Trial-to-paid conversion rate
Lagging Indicators
Measure past results. Important for tracking but harder to influence directly.
- → Monthly revenue
- → Quarterly churn
- → Annual growth rate
- → Lifetime value
- → Customer acquisition cost
Vanity vs. Actionable Metrics
| Vanity Metric | Why It's Misleading | Actionable Alternative |
|---|---|---|
| Total registered users | Includes inactive/churned users | Monthly active users (MAU) |
| Page views | Doesn't indicate engagement | Time on site, pages per session |
| Total revenue | Ignores costs and sustainability | Net revenue, profit margin |
| Social media followers | Doesn't correlate with conversions | Engagement rate, referral traffic |
| App downloads | Many users never activate | Day 7 retention, activated users |
| Email list size | Includes unengaged subscribers | Open rate, click-through rate |
The Actionable Metric Test
Before tracking any metric, ask yourself these questions:
North Star Metrics
Your North Star Metric (NSM) is the single metric that best captures the core value your product delivers to customers. It aligns your entire company and provides a clear measure of long-term success.
North Star Metric Characteristics
Value-Focused
Measures the value customers get from your product
Leading Indicator
Predicts future revenue and growth
Company-Wide
Every team can influence it
Simple
Easy to understand and communicate
North Star Examples by Company Type
Finding Your North Star: The Framework
- 1What is the core value your product delivers?
- 2What action shows customers are receiving that value?
- 3How can you measure that action?
- 4Does growing this metric grow revenue sustainably?
- 5Can all teams in your company influence this metric?
Revenue Metrics
Revenue metrics tell you how much money you're making and how it's growing. For subscription businesses, recurring revenue metrics are particularly critical as they indicate the predictability and sustainability of your business.
MRR (Monthly Recurring Revenue)
Sum of all monthly subscription revenueThe foundation of SaaS metrics. Normalize annual contracts to monthly for accurate MRR.
ARR (Annual Recurring Revenue)
MRR × 12Annual view of recurring revenue. More commonly used for enterprise SaaS.
Net Revenue Retention (NRR)
(Starting MRR + Expansion - Churn - Contraction) / Starting MRRShows if existing customers are growing or shrinking. Best-in-class is >120%.
Gross Revenue Retention (GRR)
(Starting MRR - Churn - Contraction) / Starting MRRRevenue retained without considering expansion. Maximum is 100%.
ARPU (Average Revenue Per User)
Total Revenue / Number of UsersHelpful for consumer businesses and freemium models.
ARPA (Average Revenue Per Account)
MRR / Number of AccountsUsed in B2B where one account may have multiple users.
MRR Movement: Understanding the Components
End MRR = Start MRR + New + Expansion - Contraction - ChurnedUnit Economics
Unit economics determine whether your business can be profitable at scale. The relationship between Customer Acquisition Cost (CAC) and Lifetime Value (LTV) is the most important calculation in startup finance.
CAC (Customer Acquisition Cost)
CAC = Total Sales & Marketing Cost / New Customers AcquiredInclude: Ad spend, sales salaries, marketing team costs, tools, content creation, events
LTV (Lifetime Value)
LTV = ARPA × Gross Margin × Customer LifetimeCustomer Lifetime = 1 / Monthly Churn Rate
The LTV:CAC Ratio
LTV:CAC Ratio = LTV / CACCAC Payback Period
Payback = CAC / (ARPA × Gross Margin)Magic Number
Magic # = Net New ARR / S&M Spend (prev quarter)Engagement & Retention
Engagement metrics tell you how users interact with your product. Retention metrics show whether they stick around. Together, they're the strongest predictors of long-term success—engaged users who retain become your best customers and advocates.
DAU / MAU Ratio
Stickiness = DAU / MAU × 100%Measures how often monthly users engage daily. Higher = more habitual usage.
Session Metrics
Retention Metrics
User Retention
Users active in period N / Users who started in period 0Day 7 retention: 40% means 40% of new users return after a week
Revenue Retention (NRR)
(Starting MRR + Expansion - Contraction - Churn) / Starting MRR120% NRR means existing customers grow revenue 20% annually
Logo Retention
(Starting Customers - Churned Customers) / Starting Customers95% logo retention = 5% of customers cancel monthly
Customer Churn
Customers Lost / Starting Customers2% monthly churn = 24% annual churn (compounded)
Retention Benchmarks by Time Period
| Period | Consumer App | SaaS | E-commerce |
|---|---|---|---|
| Day 1 | 25-40% | 80-90% | 10-20% |
| Day 7 | 15-25% | 70-85% | 5-10% |
| Day 30 | 8-15% | 60-80% | 3-8% |
| Day 90 | 5-10% | 50-70% | 2-5% |
Cohort Analysis
Cohort analysis groups users by when they joined (or another shared characteristic) and tracks their behavior over time. It's the most powerful way to understand whether your product is improving and identify what drives long-term success.
Sample Retention Cohort Table
| Cohort | Month 0 | Month 1 | Month 2 | Month 3 | Month 4 | Month 5 |
|---|---|---|---|---|---|---|
| Jan 2024 | 100% | 65% | 52% | 45% | 41% | 38% |
| Feb 2024 | 100% | 68% | 55% | 48% | 43% | - |
| Mar 2024 | 100% | 71% | 58% | 50% | - | - |
| Apr 2024 | 100% | 73% | 60% | - | - | - |
| May 2024 | 100% | 75% | - | - | - | - |
✓ Improving retention: Each newer cohort retains better than previous ones
Types of Cohort Analysis
What Cohorts Reveal
Revenue Cohort Analysis
Track cumulative revenue per cohort to understand true customer value over time:
SaaS Metrics Deep Dive
SaaS businesses have developed a sophisticated set of metrics that investors and operators use to evaluate health and growth potential. Master these and you'll speak the same language as VCs and seasoned SaaS operators.
Quick Ratio
(New MRR + Expansion MRR) / (Churned MRR + Contraction MRR)Measures growth efficiency. Shows how much revenue you add for every dollar lost.
Rule of 40
Growth Rate (%) + Profit Margin (%)Balanced scorecard for growth vs. profitability. Flexibility to trade between them.
Burn Multiple
Net Burn / Net New ARRHow much cash you burn to generate each dollar of new ARR. Lower is better.
Expansion Revenue %
Expansion MRR / Total New MRRPercentage of growth from existing customers vs. new logos.
Logo Churn vs. Revenue Churn
Compare customer count churn to MRR churnIf revenue churn > logo churn, you're losing bigger customers.
Activation Rate
Users completing key action / Total signupsPercentage of signups that reach the "aha moment."
SaaS Metric Benchmarks by Stage
| Metric | Pre-Seed | Seed | Series A | Series B+ |
|---|---|---|---|---|
| ARR | <$100K | $100K-$1M | $1-3M | $5M+ |
| MoM Growth | 20%+ | 15-20% | 10-15% | 5-10% |
| Net Retention | N/A | >100% | >110% | >120% |
| Gross Margin | >50% | >60% | >70% | >75% |
| CAC Payback | N/A | <18mo | <15mo | <12mo |
Marketplace Metrics
Two-sided marketplaces have unique metrics that capture the dynamics of matching supply with demand. These businesses must balance growth on both sides while maintaining healthy unit economics.
GMV (Gross Merchandise Value)
Total value of transactions through the platformThe top-line measure of marketplace size. Not your revenue—your take rate determines actual revenue.
Take Rate
Revenue / GMV × 100%The percentage of each transaction you keep. Varies widely by marketplace type.
Liquidity
Successful transactions / Total listings or searchesThe likelihood that supply finds demand (and vice versa). The heartbeat of a marketplace.
Supply/Demand Ratio
Active suppliers / Active buyers (or vice versa)Balance between sides. Too much supply = unsold inventory. Too much demand = poor experience.
Repeat Purchase Rate
Buyers with 2+ purchases / Total buyersIndicates marketplace stickiness and quality. Critical for long-term health.
Time to First Transaction
Average time from signup to first purchase/saleMeasures activation speed. Shorter = better onboarding.
Marketplace Take Rate Benchmarks
Financial Metrics
Financial metrics track the overall health of your business. They tell you how efficiently you're using capital and how long you can operate before needing additional funding.
Burn Rate
Total monthly operating expensesTotal expenses - Total revenueNet burn is what matters for runway. If revenue grows faster than expenses, net burn decreases even as gross burn increases.
Runway
Runway = Cash Balance / Net Monthly BurnGross Margin
(Revenue - COGS) / Revenue × 100%Revenue remaining after direct costs. Critical for SaaS (aim 70%+) and marketplace (varies).
Operating Margin
(Revenue - All Operating Expenses) / Revenue × 100%Profitability after all operating costs. Most startups are negative here while growing.
Cash Conversion Cycle
Days Inventory + Days Receivables - Days PayablesHow long cash is tied up in operations. Lower = more efficient working capital.
Revenue per Employee
Annual Revenue / Full-time EmployeesEfficiency metric. Top SaaS companies: $200K-$500K+/employee.
Funding Efficiency Metrics
Revenue / Total Capital RaisedHigher = more efficient use of funding
Current Runway at break-even rateWhen will you stop burning cash?
Can you reach profitability with current funds?Paul Graham's key question
Building Your Dashboard
A well-designed dashboard turns data into action. Start simple with spreadsheets, then graduate to dedicated tools as your needs grow. The best dashboard is one your team actually uses.
Dashboard Building Principles
Start with questions
What decisions does this dashboard help you make?
Limit the metrics
Max 5-7 KPIs per view. More causes cognitive overload.
Show trends
Point-in-time numbers are useless without context.
Enable drill-down
Top-level summary with ability to explore details.
Update automatically
Manual updates lead to stale dashboards.
Make it accessible
If people can't find it, they won't use it.
Recommended Dashboard Stack by Stage
Essential Dashboard Views
Common Mistakes
Even sophisticated teams make metric mistakes. These errors can lead to poor decisions, missed opportunities, and misleading investor conversations. Learn from these common pitfalls.
❌ Tracking Too Many Metrics
Problem: Data overload prevents focus. Teams get paralyzed trying to improve everything.
Solution: Pick 3-5 North Star metrics. Everything else is supporting data.
❌ Ignoring Cohort Effects
Problem: Aggregate metrics hide important trends. Overall retention might look stable while recent cohorts are declining.
Solution: Always analyze metrics by cohort. Compare apples to apples.
❌ Optimizing for Short-Term Metrics
Problem: Boosting signups at the expense of quality. High growth with terrible retention.
Solution: Balance leading indicators with downstream metrics. Track the full funnel.
❌ Misattributing Causation
Problem: "We launched feature X and revenue went up" ignores other factors.
Solution: Use proper A/B testing. Control for variables. Be skeptical of correlations.
❌ Inconsistent Definitions
Problem: Finance says MRR is $100K. Product says $95K. Neither can explain the difference.
Solution: Document metric definitions. Single source of truth. Regular reconciliation.
❌ Celebrating Vanity Metrics
Problem: Press releases about "10M downloads" when only 50K are active.
Solution: Focus on metrics that drive sustainable business outcomes.
❌ Not Segmenting Data
Problem: Overall churn is 5%—but enterprise is 2% and SMB is 12%.
Solution: Segment by customer type, channel, geography, cohort, and plan tier.
❌ Measuring Once, Not Trending
Problem: CAC is $200. Is that good? Is it improving or getting worse?
Solution: Always show metrics as trends over time with context.
The Metrics Checklist for Investor Meetings
Ready to Master Your Metrics?
The best founders obsess over the right metrics. Start tracking what matters, ignore what doesn't, and let data guide your decisions.