12 KPIs You Must Know Before Pitching Your Startup

2/5/2017 12KPIsyoumustknowbeforepitchingyourstartup|TechCrunch
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12 KPIs you must know before pitching your startup

Posted 17 hours ago by Phil Nadel
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https://techcrunch.com/2017/02/04/12kpisyoumustknowbeforepitchingyourstartup/ 1/11
News Startups Mobile Gadgets Enterprise Social Europe Trending Tesla Google Facebook
It is critically important for the founders of a

Phil Nadel company to intimately understand the companys
CRUNCH NETWORK CONTRIBUTOR
key performance indicators (KPIs). Founders cannot
Phil Nadel is the co-founder and managing

hope to grow a company in any meaningful way
director of Barbara Corcoran Venture Partners. without an almost obsessive focus on its KPIs.
More posts by this contributor:

- 11 reasons we didnt invest in yourcompany Why? Because KPIs, if constructed correctly, give
management and potential investors a cold,
How to join the network
analytical snapshot of the state of the company,
untainted by emotion or rhetoric. This focus must
not be limited to the KPIs themselves, for they are merely measurements of outcomes. We look for
founders to have an understanding of what levers can be pulled and what tweaks can be made to
improve the business, which will then be reected in its KPIs.
The focus should not be on the KPIs themselves, but the meaning behind them and knowing what
impacts each one.
Lets review some of the KPIs that are important for founders to thoroughly understand and for
which they should
News have a strategy,
Startups Mobile or set of strategies,
Gadgets Enterprise for optimizing.
Social EuropePlease note that some KPIs Trending Tesla Google Facebook
are not relevant to some types of businesses. Finally, I am not going to go into very much detail on
each metric and how to calculate it as (a) that is beyond the scope of this article, and (b) that
information is readily available from other sources.
Customer acquisition cost (CAC). CAC is the amount of money you need to spend on sales,
marketing and related expenses, on average, to acquire a new customer. This tells us about the
eciency of your marketing efforts, although its much more meaningful when combined with
some of the other metrics below, and when compared to competitors CAC.
Acquiring new customers is one thing, but retaining them is even more important. Your customer
retention rate indicates the percentage of paying customers who remain paying customers
during a given period of time. The converse to retention rate is churn (or attrition), the percentage
of customers you lose in a given period of time. When we see high retention rates over an
indicative time period, we know the company has a sticky product and that it is keeping its
customers happy. This is also an indicator of capital eciency.
Lifetime value (LTV) is the measurement of the net value of an average customer to your
business over the estimated life of the relationship with your company. Understanding this
number, especially in its relation to CAC, is critical to building a sustainable company.
We consider the ratio of CAC to LTV to be the golden metric. This is a true indicator of the
sustainability of a company. If a company can predictably and repeatedly turn x into 10x (note: 10x
is just an illustration and not meant to imply any sort of minimum or standard), then its
sustainable.
CAC recovery time (or months to recover

CAC). This KPI measures how long it takes The most successful founders tend to be
for a customer to generate enough net those who have an obsessive focus on
revenue News
to coverStartups
the CAC. Mobile
CAC recovery
Gadgets
their KPIsSocial
Enterprise
and the drive to constantly
Europe Trending Tesla Google Facebook
time has a direct impact on cash ow and,
consequentially, runway. experiment and optimize them.
Whereas CAC measures the variable expenses attributable to acquiring customers, overhead
measures the companys xed expenses incurred irrespective of the number of customers
acquired. Overhead relative to revenue is a reection of the capital eciency of a company (i.e. all
things being equal, a company that generates $1 million in revenue on $200,000 in overhead is
twice as ecient as one that generates $1 million in revenue on $400,000 in overhead).
Understanding your revenue and monthly expenses (xed and variable) enables you to calculate
the companys monthly burn. This is simply the net amount of cash ow for a month when net
cash ow is negative. If the company starts the month with $100,000 in cash and ends the month
with $90,000 in cash, its burn rate is $10,000. If a companys monthly net cash ow is positive, it is
not burning cash.
A keen focus on runway is critical to the survival of any startup. Runway is the measure of the
amount of time until the company runs out of cash, expressed in terms of months. Runway is
computed by dividing remaining cash by monthly burn. We prefer to view a conservative estimate
of runway that calculates the monthly burn utilizing current revenue and projected expenses (after
accounting for the increased expenses to be incurred post-investment). We require an absolute
minimum of 12 months of runway, but have a strong preference for 18 months or more. Short
runways cause entrepreneurs to by myopic and not to have the liberty to tweak and iterate when
necessary. It also forces them to almost immediately focus on the next fundraising round instead
of growing the company.
Expressed as a percentage, prot margin tells us how much your product sells for above the
actual cost of the product itself. Put another way, it reveals how much of theselling price is mark-
up. ThisNews Startups
invaluable metricMobile Gadgets
allows us Enterprise
to consider Social
the return Europe
on investment on the cost of the Trending Tesla Google Facebook
product and is signicant in understanding the scalability and sustainability of the company.
We consider conversion rate to be a very telling KPI in that it reveals a combination of the
companys ability to sell its products to its customers and customers desire for the product. It is
particularly instructive to track and review conversion rate over time and regularly run
experiments to improve it.
Certain businesses nd that revenue may not be the most informative indicator of their nancial
performance. This is especially true for marketplaces for which revenue (i.e. their take rate)
represents a small portion of overall transactions. Gross merchandise volume (GMV) can be a
useful KPI in these cases. GMV is the overall dollar value of sales of goods or services purchased
through a marketplace.
For companies that have apps, online games or social networking sites, monthly active users
(MAU) is an important KPI. MAU is the number of unique users who engage with the site or app in
a 30-day period. Understanding MAU is helpful in determining the revenue potential of a company
or how well it is currently monetizing.
When we speak to founders to learn more about their companies, we ask them for these KPIs,
along with their narrative and other information. It is a quick way for us to understand the current
state of the business and we have serious concerns about founders who do not know their KPIs.
We nd that the most successful founders tend to be those who have an obsessive focus on their
KPIs and the drive to constantly experiment and optimize them.
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2/5/2017 12KPIsyoumustknowbeforepitchingyourstartup|TechCrunch

Startups startup pitch

12 KPIs you must know before pitching your startup

It is critically important for the founders of a

Phil Nadel is the co-founder and managing

More posts by this contributor:

CAC recovery time (or months to recover

FEATURED IMAGE: OLIVER BURSTON/GETTY IMAGES

FromtheWeb SponsoredLinks byTaboola

IBM Verse: Less Clutter, more Clarity in your Inbox

Learn About Security in Open Source Machine Learning Projects [Video]

Learn Intricacies of Running a Startup with this IIM Course

Optimizing Performance through Hybrid Parallelism: A MiniFE* Example

The Daily Crunch

Enter your email SUBS C R I B E

SEE ALL NEWSLETTERS

Tech's Rough Day on Wall Street | Crunch Report

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