If you want your startup to grow, you need data at your fingertips that can help you make strategic, informed decisions. Decisions that evolve your growth strategy, lead to customer acquisition, and drive revenue growth.

This makes it crucial that you track and measure startup key performance indicators, or KPIs.

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What are startup KPIs?

Startup KPIs are values that show how a startup is progressing toward its goals and objectives. They’re used to measure progress and identify areas of your startup that need improvement.

Note that KPIs are different from startup metrics.

Metrics are data points that show the results of a particular activity. KPIs look at designated metrics in relation to how they’re helping you reach objectives.

A metric might be downloads of a specific template from your blog. A KPI might be customer trials started from the blog. That metric is important to know, but it’s not related to the growth goals you have set for new customer sign-ups.

The importance of tracking and measuring startup KPIs

Tracking and measuring KPIs is crucial for startups because it allows them to keep track of their progress and gain a better understanding of whether their current efforts are producing the results they want.

If you don’t track KPIs, all the decisions you make will be based on gut instinct or personal preference, rather than data. KPIs enable you to make strategic, data-driven decisions to grow your startup and move it in the right direction.

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Which startup KPIs should you track?

Now that you understand the importance of KPIs, you’re probably wondering which ones you should focus on and base your decisions around.

At Hubstaff, we’re completely transparent about our revenue and KPIs. We showcase these through the Baremetrics Open Startup project.

We track a lot of different KPIs, and these are spread out over categories such as marketing, sales, and customer support.

Listing them all in this blog post would be of no benefit to you, since the KPIs we track are related to our specific business goals and objectives, which more than likely differ from yours.

However, if I had to point out the most important KPIs every startup should track, these would include:

  • Customer acquisition cost (CAC)
  • Average revenue per user (ARPU)
  • Customer lifetime value (LTV)
  • Monthly active users (MAU)
  • Customer churn rate (CCR)
  • Monthly recurring revenue (MRR)
  • Revenue growth rate
  • Revenue churn rate (RCR)

The point of this guide is to discuss these KPIs in more detail so that you understand why they’re important, as well as learn how to calculate them.

1) Customer acquisition cost (CAC)

Perhaps the most important KPI for every startup, customer acquisition cost (CAC), denotes how much it costs you to acquire a new customer.

It’s calculated by adding up all the money you spent on acquiring new customers over a particular period and then dividing that sum with the total number of new customers you acquired.

Customer acquisition cost formula

There are two main ways to look at customer acquisition cost:

  • Blended CAC – Accounts for customer acquisition across all your marketing channels and includes those customers who were acquired at no cost (e.g., through word of mouth).
  • Paid CAC – Takes into account only those users that were acquired with paid channels, such as Google Ads or Facebook advertising.

While blended CAC shows you a general overview of expenses associated with acquiring customers for your startup, paid CAC gives you a better understanding of how much it costs to acquire customers through each specific channel you’re using.

It’s crucial to look at and consider blended CAC and paid CAC separately so that you have a better understanding of how much it costs you to acquire customers across all your channels.

You can then use this information to optimize and evolve your marketing strategy.

2) Average revenue per user (ARPU)

Average revenue per user (ARPU) is a KPI that shows how much revenue you’re generating from each of your active customers. It’s calculated by dividing your MRR by the total number of active users you have in a particular month.

Average revenue per user (ARPU) formula

Your ARPU will dictate your growth strategy in many ways.

For example, startups that have a low ARPU won’t be able to afford spending as much on acquiring customers or more expensive forms of customer support (e.g., phone support) compared to startups with a high ARPU.

ARPU can help you gain a better understanding of your target buyer personas, improve your pricing, and develop an upsell strategy.

Hubstaff Baremetrics ARPU

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It’s also highly useful for calculating a number of other important KPIs, including customer lifetime value and monthly recurring revenue.

We’ve been steadily increasing our ARPU at Hubstaff, and it currently stands at a healthy $59.86.

ARPU can help you gain a better understanding of your target buyer personas, improve your pricing, and develop an upsell strategy.

3) Customer lifetime value (LTV)

Customer lifetime value (LTV) is a KPI that shows the total amount of money a customer will spend on your products or services during their lifetime.

There are a number of different methods you can use to calculate customer lifetime value.

This is further complicated by the fact that you can decide to focus on historic LTV (based on actual purchases) or predictive LTV (based on what you predict customers will spend).

Historic LTV represents the sum of all profits generated from customers’ previous purchases. It’s based on customer data over a specific period.

Predictive LTV, on the other hand, is a projection of the revenue a customer will generate over the course of their lifetime. It’s based on transaction history and behavioral patterns.

For SaaS businesses, the easiest way to calculate LTV involves multiplying the average revenue per user (ARPU) with the average margin per user (AMPU) and then dividing that number with your revenue churn rate.

Customer lifetime value (LTV) formula

Knowing your LTV is crucial for understanding how much you can spend to acquire a customer.

If you don’t measure your LTV, there’s no way for you to know if you’re spending too much to bring in customers, and losing money in the long run.

By understanding how much each of your customers is worth, you’ll be able to make strategic decisions that will allow you to reduce customer acquisition cost, improve retention, and increase the average revenue generated per customer.

Knowing your LTV is crucial for understanding how much you can spend to acquire a customer.

4) Monthly active users (MAU)

Monthly active users (MAU) denotes the total number of users that are actively using your product every month.

It serves as a quick overview of your user growth as well as gives you a better idea of your startup’s ability to attract new users and retain existing ones.

For example, a sudden increase in monthly active users can be a result of a:

  • Marketing campaign – Getting your startup featured on relevant industry websites or launching a large advertising campaign can lead to a sudden influx of new users.
  • Reactivation campaign – Your MAU can also increase substantially after implementing a reactivation email marketing or push notification campaign which reaches your former users and gets them back to using your product.
  • Product update – Releasing a product update that adds new features or fixes previous issues can also result in a MAU increase.

We’ve used a combination of these at Hubstaff to keep our MAU growing month-over-month for years.

Hubstaff Baremetrics active subscriptions

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A sudden decrease in MAU can be due to a number of different factors, including technical issues, lack of reactivation campaigns, or a price increase.

By tracking the total number of monthly active users your startup has, you’ll be able to react to both positive and negative changes in the size of your customer base, doubling down on efforts that increase MAU and dealing with issues that result in MAU decreases.

5) Customer churn rate (CCR)

Customer churn rate (CCR) is a KPI that shows how fast your startup is losing customers.

It’s calculated by dividing the total number of customers that stop doing business with you over a specific period of time by the total number of customers you had during that same period.

Customer churn rate (CCR) formula

Measuring CCR is crucial for understanding the health of your startup and identifying changes that improve or worsen your startup’s ability to retain customers.

While losing customers is inevitable, keeping an eye on your churn rate will ensure that it doesn’t get out of hand.

Apart from calculating your overall churn rate, you can also look at the churn rate of different user cohorts. This will help you determine which changes might be impacting user retention (e.g., new features, changes in pricing, etc.)

Another way to look at churn rate is in terms of different customer segments (e.g., individual vs. enterprise users).

This will prevent you from making conclusions based on the churn rate of a particular segment, and then applying changes that affect your entire customer base based on those conclusions.

6) Monthly recurring revenue (MRR)

Monthly recurring revenue (MRR), as its name implies, is the amount of revenue your startup is generating on a monthly basis.

It’s calculated by multiplying the average revenue generated per user (ARPU) with the total number of active users your startup has in a given month (MAU).

Monthly recurring revenue (MRR) formula

There are different types of MRR you might want to keep track of, including:

  • New MRR – Monthly recurring revenue earned from new customers.
  • Expansion MRR – Additional monthly recurring revenue generated by your existing customers (e.g., through reactivations or plan upgrades).
  • Churn MRR – The amount of monthly recurring revenue you’ve lost due to customer churn.

MRR is the most important out of all financial metrics for startups.

It shows you how much money is coming in every month, helping you keep track of your startup’s financial health and allowing you to understand what kind of budget you can allocate to marketing and other expenses.

Hubstaff Baremetrics MRR

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We keep a close eye on MRR at Hubstaff and reference it often, especially when we do quarterly roadmap planning.

MRR is the most important out of all financial metrics for startups.

7) Revenue growth rate

Revenue growth rate is a KPI that shows how successful your startup is at growing revenue over a particular period (e.g., a month, quarter, or year).

It’s pretty simple: You subtract the revenue generated during the current period from the revenue generated during the previous period.

The result is then divided by the revenue generated during the current period and multiplied by 100.

Revenue growth rate formula

Revenue growth rate is an indicator of your startup’s sustainability and profitability.

It helps you understand how fast your startup is growing and is highly useful for securing funding, developing operational and staffing plans, as well as determining the best way to allocate resources.

Apart from serving as a highly useful financial KPI, revenue growth rate can also be used as a comparative metric to help you understand how your startup compares to others in your industry.

8) Revenue churn rate (RCR)

Revenue churn rate (RCR) is the rate at which you’re losing revenue due to downgrades and cancellations.

It’s calculated by subtracting your MRR at the end of the month from the MRR at the beginning of the month after accounting for upgrades.

This number is divided by the MRR at the beginning of the month and multiplied by 100 to get your RCR.

Revenue churn rate (RCR) formula

While you can look at the overall revenue churn rate of your startup, it’s often useful to segment it based on the reason for revenue churn (e.g., due to cancellations, downgrades, or competitive losses).

Your revenue churn rate is an indication of product-market fit and one of the biggest obstacles to your startup’s growth. This makes it crucial that you keep a close eye on your RCR and work on reducing it as much as possible.

Start tracking your startup KPIs

Setting and tracking KPIs is crucial for understanding how your startup is performing, as well as identifying areas for improvement.

Tracking these KPIs will give you a good insight into your startup’s health and allow you to make data-driven decisions that will help you grow your startup.