There are some Key Performance Indicators (KPIs) that can help depict financial performance. Some commonly used financial KPIs include-
Customer Acquisition Cost (CAC):
Customer Acquisition Cost is a KPI that helps track the cost of acquiring a new customer.
Customer Acquisition Cost (CAC) = Total Cost spent on Acquisition/ Number of Customers Acquired
CAC indicates the money spent by your startup to acquire new customers through various sales channels. This could help you to optimize your costs. Through this information, you can choose to continue with the channels which help acquire more customers with fewer costs and discontinue those which are unprofitable.
Businesses need to keep CAC as low as possible to maximize profitability.
Customer Lifetime Value (CLV):
Customer Lifetime Value is one of the most crucial KPIs to be tracked when it comes to startups. This KPI provides the total amount of money a customer will spend on the products or services offered by your startup during their lifetime.
Customer Lifetime Value (CLV) = Average Revenue Per User * Average Margin Per User/ Revenue Churn Rate.
This is crucial to track as this provides insight into how much money you could spend towards customer acquisition and retention. Putting efforts to build long-term relationships with customers can help increase CLV and hence, maximize profitability over time.
Monthly Active Users (MAU):
This KPI provides you with the number of active monthly users. MAU helps businesses track the growth of their user base over time, look for any patterns or trends and make informed decisions regarding marketing strategies and product development.
Revenue Growth Rate:
This KPI indicates the rate at which your startup grows its revenues, typically over some time, say a month, quarter, or year.
Revenue Growth Rate = [(Current period revenue- Previous period revenue)/Previous period revenue]*100
This tells you about your startup’s profitability and also helps indicate the financial health of the company. This can help you to compare your startups with peers in your industry.
Gross Profit Margin:
To know whether you are appropriately pricing your goods and services.
Gross profit margin = (Revenue – Cost of Goods Sold) / Revenue.
This margin should be sufficient enough to take care of your fixed operating expenses and then leave you with a reasonable profit at the end of the period.
It also gives insights into the company’s ability to generate profits from its core business activities.
Net Profit Margin:
It measures the company’s profitability from operations by calculating revenue that remains after deducting all expenses.
Net Profit margin = Net Profit/ Total Revenue. This is a good benchmark to use for setting profitability goals.
Current Ratio:
This ratio quickly tells you how liquid your business is at a given point in time.
Current Ratio = Current Assets/ Current Liabilities.
A Current ratio of less than 1 means that you don’t have enough cash to pay your bills.
A more ideal figure is between 1 to 1.5
A high current ratio indicates that the company has good financial health and sufficient liquidity to cover short-term financial obligations but a very high current ratio might indicate that the company is not using its current assets efficiently