Key Performance Indicators (KPIs) can make the difference between catching the eye of an investor or going unnoticed. KPIs are the units of measurement that a startup, seed-stage or even bigger, can use to show success and projected growth. Brad Ebenhoeh, who serves as managing partner at startup-focused accounting firm Accountfully, based in South Carolina, sees KPIs as the best way to summarize the financial and operational data of a company “into easy to read, easy to analyze metrics for businesses as well as investors, prospective investors, as well as existing board members and existing investors.”
KPIs for startups look different than those for a regular enterprise — expenses of an early-stage startup are very minimal, and they have no revenue, operating profit, or total overhead. Ebenhoeh breaks down some of the KPIs founders should keep in mind during those early stages when impressing investors is top priority.
Know your monthly burn
What are your total expenses per month? You’ve got payroll, posting fees, advertising, promotional, office, rent, etc. If you have $100K and you’re spending $10K a month in burn, you have 10 months of runway. Knowing those numbers helps you quantify the funds you need. For example, if you raise $250K and your monthly burn is $25K, that gives you 10 months of operation. Investors will also want to know how long their money is going to last — and then what you have planned for your next step to keep moving forward.
Understand your revenue growth rate
Don’t raise money to be cool, says Ebenhoeh. Make sure that you have a business plan that keeps you in pace with projections. This is where investors will see you as a more experienced entrepreneur and take you seriously. In turn, they will invest in your idea and your company. Once you raise money, that’s when the work starts.
Once you have money — let’s say $500K to spend on new employees, new office, new development or whatever it is, you need to have a good idea of how you’re going to manage that money.
Customer acquisition costs
How much in advertising dollars are you going to spend to bring that customer on board? Whether it’s through Google, Facebook, or target marketing, it’s important to know the lifetime value of the customer you’ve brought in. How long do you expect an average customer to stay with your product — two years, five years, six months? This will affect how much you should spend to bring them in.
In a subscription-based company, you’re getting monthly fees for the service you’re providing. If it’s for 24 months or 36 months, that can help you monetize and understand where you’re going to be in two or three years from a revenue standpoint. If you’re able to kind of understand and put those numbers together, then you can easily project revenue.
The longer the lifetime value, the better, and the shorter the less acquisition cost per customer, the better.
Project your growth
Once you know your customer acquisition costs, you can understand and piece together how long you’re going to last from a cash perspective. Depending upon how much it costs to get new customers, you can then project your business moving forward and decide whether you’ll need more funding. Eventually you’re going to get to a point where your revenues are going to exceed your expenses.
Stick to a timeline
Make sure you stick to the timelines and guidelines previously discussed with investors. If it’s 12 months, that cash needs to last 12 months. Otherwise investors are going to ask where all the cash went. Hire an accountant or invite a financial advisor to join the startup’s board of directors to help you make the correct decisions and report month-over-month to make sure that you’re hitting those specific metrics from KPIs.