Thursday, October 15, 2020

Performance Metrics for Start Ups

If you run a tech startup, we bet you understand the importance of data and a constant monitoring of your performance across finance and operations with the right metrics.

While working with start-ups, these are the few metrics we use to evaluate financial performance, efficiency in operations and other essentials which investors would love to see during the next investment round.

Here is a quick summary of a few such numbers that you must track as part of your Weekly and Monthly MIS.

Profitability Ratios 

Gross Margin

Net Sales - Cost of Goods Sold (COGS)

Operating Margin

Net Sales - COGS - All other expenses excluding interest and taxes = Earnings Before Interest & Taxes (EBIT)


Earnings Before Interest, Tax, Depreciation & Amortization (EBITDA)

Net Profit Margin

EBIT - Interest - Taxes = Profit After Tax (PAT) as a percentage of Revenue

Operating Cash Flow Margin

Net Income + Depreciation + Change in Working Capital

Return on Equity

Net Income / Shareholder's Equity

Return on Assets

Net Income / Total Assets

Working Capital Ratios 

Working Capital

Current Assets (incl. Stocks, Debtors, Bank) - Current Liabilities (incl. Payables)

Current Ratio

Current Assets / Current Liabilities

Cash Ratio

Cash & Cash Equivalents / Current Liabilities

Quick Ratio

(Current Assets - Inventory) / Current Liabilities

Efficiency Ratios 

Receivable Turnover Ratio

Net Sales / Avg. Debtors [where Avg. Debtors means (Opening Debtors + Closing Debtors)/2]

Asset Turnover Ratio

Net Sales / Total Assets

Fixed Assets Turnover Ratio

Net Sales / Total Fixed Assets

Inventory Ratios 


Raw Material + Work in Progress + Finished Goods

Inventory Turnover Ratio

Cost of Goods Sold / Avg. Inventory [where Avg. Inventory means (Opening Stock + Closing Stock)/2]

Days Inventory Outstanding

365 / Inventory Turnover Ratio

Cost of Goods Sold

Opening Inventory + Purchases + Direct Costs - Closing Inventory

Carrying Cost

Rent for Warehouse Space + Interest on Working Capital blocked on Unsold Inventory

Economic Order Quantity

√[(2 x Order Cost per Order x Annual Demand) / Annual Carrying Cost per unit]

Safety Stock

(Max Daily Usage x Max Lead Time in days) - (Avg. Daily Usage - Avg. Lead Time in days)

Reorder Level

Lead Time Demand + Safety Stock

Inventory Ageing

Value and Category of Items lying unsold based on length of time

Financial Leverage Ratios 

Debt to Equity Ratio

Total Debt / Total Assets

Equity Multiplier

Total Assets / Total Total Equity

Interest Earned Ratio

EBIT / Interest Expenses

Cash Coverage Ratio

EBITDA / Interest Expense

Altman Z-Score

Read here

E-Commerce Metrics 

Average Order Value (AOV)

Total Revenue from Orders / No. of Orders placed in a period

Avg. Revenue per User

Revenue / No. of Active Users per Month

Avg. Revenue per Visitor

Revenue / No. of Visitors

Revenue by Product Line

Revenues for each line of product or services

Sales Conversion Rate

Total No. of Sales / Total No. of Sessions on the Store

Cost per Visitor

Total Marketing Costs / Total Visitors

Contribution Margin per Order/Customer

(Revenue - Direct Variable Costs) / No. of Orders

Contribution Margin After Marketing (CMAM)

(Revenue - Direct Variable Costs - Marketing Expense) / No. of Orders

Refund & Return Rate

Sales Return & Refunds / Total Sales

Cost of Returns

Direct Costs incurred on Sales Returns

Monthly Unique Visitors (MUV)

Sum of all visitors from all channels on a website or app in a month

Customer Conversion Rate

No. of Signups per Month / MUV per Month

Shopping Cart Abandonment Rate

No. of People Leaving with Unpurchased Items in Cart / Total Users Adding to Cart

Checkout Abandonment Rate

No. of People Leaving During Checkout without Purchase

Customer Acquisition Cost (CAC)

Marketing Cost / No. of New Customers

Conversion Rate

Net Sales / Avg. DAU or MAU

Lifetime Value (LTV)

CMAM / Churn Rate

LTV / CAC Ratio

(CMAM / Churn Rate) / (Marketing Expense / No. of New Customers)

Payback Period


Customer Retention Rate

Renewing Customers / Total Old Customers

Repeat Customer Rate

Customers Making Multiple Purchases / Total Customers

Cost & Revenue per Campaign

Revenues and Costs attributable to a particular Marketing Campaign

Other Tech Startup Metrics 

Daily/Monthly Active Users

Avg. No. of Users per Day (DAU) or per Month (MAU)

Bounce Rate

No. of Visitors who went back inactive / No. of Visitors

Monthly Recurring Revenue (MRR)

Sum of all revenues that automatically renews on a monthly basis

Annualized Run Rate

MRR x 12

Annually Recurring Revenue

(Annual Subscription Price x No. of Subscribers x Renewal Rate) adjusted for growth

Revenue Multiples

No. of Orders x Avg. Price per Order x New Subscribers

Growth Multiples

Avg. Daily New Subscribers x Avg. Daily Revenues

Revenue per Employee

Net Revenue / Avg. No. of Employees

Churn Rate

No. of Lost Customers / Total Customers

Burn Rate

Avg. Amount of Cash lost per Month

Viral Coefficient

No. of Existing Customers x No. of Invitations sent per Customer x Conversion Rate / No. of Existing Customers


No. of Times your Ad is presented to someone


Total No. of followers or subscribers


Reach / Impressions

Click Through Rate (CTR)

No. of Subscribers clicking on the Content sent via Email or otherwise

Organic Acquisition Traffic

Customers Acquired per period without paying for advertisement