10 Metrics to Align Your Team to Shared Goals
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10 Metrics to Align Your Team to Shared Goals
Before becoming a founder, I built an analytics team at Uber and saw how tracking the right metrics aligns a team.
Startups are often as much — if not more — an art as a science, but even if data isn't always reliable or accessible in the early stages, metrics act as a shared north star for your team and give them clarity in the often-ambiguous situations they're typically in.
They also hold you and your team accountable, which builds trust.
I shared the 10 metrics that startups should orient themselves around below along with some context on each 👇
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10 Metrics to Align Your Team to Shared Goals
Runway
Your startup will die without capital. Your runway is how many months you have left alive, based on how much you're burning per month. The amount you're burning is your revenue minus your expenses. If this is < $0, then you're burning (losing) money.
Best practice is to always have at least 12 months of runway. Otherwise, raising from VCs will be much more challenging as they'll consider the investment considerably riskier.
Runway = Cash in the bank / Monthly burn
Recurring Revenue
Recurring revenue is any revenue that's set to renew month over month, or year over year, automatically.
Subscription-based business models are considerably more attractive to VCs and are also easier on your team due to requiring considerably less selling. Once you lock in a customer, they're yours until they opt-OUT rather than having to opt-IN every time they come back to spend money.
Typically it'll be displayed as MRR (monthly recurring revenue) or ARR (annual).
ARR = The sum of annualized subscription revenue
Burn Multiple
Early stage startups tend to focus on growth at all costs, but especially in a down market it's important to grow efficiently and preserve cash.
Your burn multiple is the best measure of how efficiently you're growing. It tells you how much cash a startup loses in order to generate each incremental dollar of ARR.
David Sacks from Craft Ventures has a great post where he outlines best practices. See the chart below for the most important benchmarks he outlined.
Burn Multiple = Monthly burn / Net new ARR
Product-Market Fit Score
Ask your users how disappointed they'd be if they couldn't use your product. If at least 40% says they'd be "very disappointed" then congrats, you're likely starting to see product-market fit.
Now, let's be fair — as Marc Andreessen says, if you're seeing PMF then you won't need a survey to tell you that. But this survey can help you reach an understanding of what the main benefit of your product is to early users, and that is invaluable.
This survey format has been gaining support ever since Sean Ellis first introduced it, and I'm a big advocate for it in place of NPS. PMF score focuses on the user — their needs, how they actually feel, etc — while NPS is entirely hypothetical ("would you refer...").
Compound Growth Rate
If you take your foot off the gas pedal in startups you'll find that the default speed is reverse, not neutral.
Y Combinator focuses almost entirely on growth, and Paul Graham has a famous essay that says the single defining characteristic of a startup is that it is a company designed to grow fast.
Your compound growth rate is a historical record of how fast your startup has grown over a given period of time. It shows sustained growth over a period of time rather than simply comparing one week to another.
Depending on your stage and type of business, it can be displayed weekly, monthly, annually, and in some cases when you're experiencing true hypergrowth even daily.
Compound Monthly Growth Rate = (Current month revenue / First month revenue) ^ (1 / # of months) - 1
Churn Rate
Startups can't afford to have a leaky bucket.
Churn rate is the % of users that leave during a given time period compared to the total number of users in the sample you're looking at. You can look at it per day, week, month, or year depending on what type of business you're running.
It's also a good idea to look at churn in "cohorts" — i.e. based on when they first became users. Investors will primarily be interested in seeing your churn rate at certain milestones (i.e. 1 day after signing up, 7 days, 30 days, 90 days, etc), and you'll want to compare how your churn rate at those milestones has improved over time.
If you see high or increasing churn, talk to your users to understand why they're churning and address it quickly before putting more of your limited time and resources behind trying to grow. There's little point in acquiring new users if they're just going to try the product and leave.
Churn Rate = (Starting users - Ending users) / Starting users
Active Users
A startup should have an incredibly simple way of dining what an "active" user is. It will differ dramatically in some cases.
For example, is an active user someone who logs into your app, or someone who performs some action within it? Twitter defines their active user metric as "mDAU" or "global monetizable daily active users"
Different types of businesses may prefer different time horizons to judge activity by based on expected user behavior.
For example, a consumer social app like TikTok wants people to spend time on the app every day, so DAU (daily active users) is the best metric. But a travel service like Airbnb knows most people don't travel all the time, so they may even look at AAU (annual active users).
For most startups though daily, weekly, or monthly will be the best choice.
TLDR it can get complicated and can be more art than science, but aim for a measurement that truthfully reflects your expectations and goals for your users, as well as what represents a user getting value from your product.
LTV : CAC Ratio
LTV = Lifetime Value (aka what your earn per user your acquire, over their lifetime)
CAC = Customer Acquisition Cost (aka how much you pay to acquire them)
The ratio between these metrics tells a powerful story about how scalable your startup currently is.
If your LTV / CAC is larger than 1, you're making more per user than you're paying to acquire them. You likely won't realize that entire LTV right away though, so the ratio needs to be larger for you to feel comfortable pouring money onto the fire to start scaling.
Run Rate
Don't confuse this with your recurring revenue (above). Your run rate is the annualized sum of ALL revenue (including non-subscription revenue).
This is a good way of thinking about the overall size of your business but is more useful for businesses that don't have recurring revenue than ones that do.
Run Rate = Total monthly revenue * 12
Conversion Rate
Conversion rates appear all over the place in startups and they are high leverage metrics. Identifying the right ones to focus on improving can have a dramatic effect on your business. Even a small improvement can have an outsized impact.
A conversion rate is the percentage of people who "convert" (i.e. sign up, pay, take the next step, etc) after being shown something (like a landing page, payment screen, or new feature).
Your most important conversion rate is typically payment conversion, but in the early days it may be sign ups or usage of certain features. How you define this depends on the type of business you're running and the stage you're at.
The key takeaway here is that a conversion rate is often a better longterm measure of how well something is working than a raw number of users who do it. Signup conversion will tell you more useful information than the raw number of signups.
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