6 Metrics Every Startup Founder Should Track

Published April 5, 2022

One thing that is important, as a startup founder, is to track your financial metrics each month to measure the health of your business.

At Visible, we help you curate and send investor updates. We recommend you send these monthly. With our mission being to improve a founder’s chance of success, monthly updates are a huge part of staying on that path to success. Monthly investor updates help you keep your investors in the loop. They help to keep investors engaged and provide you a time to reflect on what work was done over the course of the month.  Monthly updates are a great tool for accountability and gaining perspective on whether your startup is growing or not

We strongly recommend you send monthly updates. Especially once you have raised venture capital

Part of these updates should be an inclusion of charts/metrics that help you measure the health of your business. Your investors will enjoy getting updates and seeing your core metrics grow over time. You should also allow metrics to help you to understand what to prioritize within your startup.

Your investors will care about seeing these because it shows how fast you are spending their money, but will also give you insights into a few different things. It will give you insight as to when you might need to raise money again. It will give you insight as to how much time you have to run the business while keeping your current expenses constant. It might signal you to hire more to get over key humps in the business, like developing your product or spending more resources on sales. It might show you need to be more efficient when allocating your marketing dollars. It might be the case that you should ignore these metrics altogether and just focus on what’s in front of you each day. Every startup is unique and we understand it’s not a one size fits all approach.

Related Resource: What Should be in an Investor Data Room?

The financial metrics we recommend tracking are:

  • Cash on hand
  • Burn Rate
  • Run rate
  • Revenue
  • Revenue Growth
  • Engagement metrics (churn, user growth, retention, this one varies)

Cash on Hand

Cash on hand is the amount of cash you had at the end of the month last month. This can be found on your Balance Sheet.

 

How to track in Visible:

  • Connect accounting integration (Quickbooks, Xero, etc.)
  • Create chart with Total Bank Accounts as Metric
  • Chart Period → Custom period:
    • Custom period: Last 6 months & Previous Period

Monthly Cash Burn

Monthly burn rate is defined as the cash on hand at the end of this month minus the cash on hand at the end of the previous month. This will give you the difference of cash between the two amounts. Allowing you to know how much cash exited your account!

How to track in Visible:

  • Add an insight to chart
    • Previous period change
    • Chart on Separate Y-Axis

Months of Runway

Run Rate is a bit more complicated. Run rate calculates the amount of months you have left to run the company given your current cash on hand and monthly burn. This number depends on your burn rate staying constant. More than likely your burn rate will not remain constant (it will increase. Run rate is calculated by taking Cash on hand/(Monthly Burn Rate). This will yield you the number of months you have left to operate your business with expenses staying constant.

How to track in Visible:

Export Monthly Balance Sheets from accounting software into google sheets

  • Manually calculate Monthly Burn (ex. Feb Cash – Jan Cash)
  • Calculate Months of Runway
    • Cash on hand/ Monthly Burn Rate
  • Integrate sheet into Visible
    • Add Months of runway to Total Bank Accounts Chart
    • Save Chart

Revenue

Revenue is the amount of cash that you received in payments from your customers (over the course of the past month). 

How to track in Visible:

  • Pull Revenue from your accounting integration
  • Revenue is the top line of your income statement
  • Create a chart 
    • Measure previous 6 months

Revenue Growth

Revenue growth is a true barometer for success for your startup. It shows how much your revenue has increased over the prior period. If you have revenue growth, it should signal to you that you are on the right track and continue to execute at a high level.

How to track in Visible:

  • Add an insight to chart
    • Previous period change %
    • Chart on Separate Y-Axis

Engagement Metrics

An engagement metric is something that is unique to your individual business. The manner of it would relate to the type of business your run (marketplace app, Saas product, or physical product). It should directly relate to your revenue growth. Things like churn/retention could be your engagement metric. For Airbnb, it could be the number of nights booked. For Uber, it could be # of rides completed per week. Having healthy engagement metrics should drive your revenue and allow you to feel good that you are building something people love.

Tracking is Visible will vary based on your metric. Early on, just track it manually! Cash on hand, burn rate, and runway are very much metrics for your own sanity. These relate to the lifeblood of the business and how long you can be certain your company will be in existence. We recommend maintaining a conservative level of spend for the first few months after raising a seed round. It is much easier to increase spend than it is to decrease. By starting conservatively, you will have good context as to how much you can increase your burn rate to find the sweet spot for growth and trimming your runway.

Revenue, revenue growth, and engagement metrics are really ways for you to measure how well you have done in the latest period. It is really important to decide as a team what your North star metric is and work towards that goal together. These sort of standard metrics will help align your team and work to accomplish your goals together. The goal with Visible as a product is to help you as a founder measure these metrics and update your investors. That way you can measure these core financial metrics (Cash on hand, Burn Rate, Runway) right off the bat when starting your trial with Visible. Setting you up for success after raising a Seed round. you will be set up for success to measure the proper metrics and keep your investors filled in. This way you can spend the majority of your time building a great product that people love. 

In conclusion, measuring the core financials of your startup (or business) is really good practice. It will help you maintain accountability and measure growth. We recommend you track the core 6 metrics each month of Cash on hand, Burn Rate, Run rate, Revenue, Revenue Growth, and market-specific Engagement metrics. These will help you to get the most out of your fundraising dollars and to maximize growth!

 

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