As a founder building a product you need to communicate in a clear and concise way the wins and the achievements of your journey to all interested parties. You need to share selectively to all participants with skin in the game, your stories. The most clear and concise way to do so is through your numbers (KPI’s) so you better know them well. Not only your own KPI but also your market and your competition numbers that show why you are executing better that everyone else. A few numbers that are important in telling your story and why, are as follows:
- Average Order Value (AOV)
It’s an e-commerce KPI that measures the average total of every order placed with a Merchant over a defined period of time. And since technology enables the unprecedented growth of e-commerce across the globe, you should all know your AOV= Revenue / # of Orders, on a monthly, quarterly and annual basis.
- Annual Recurring Revenue (ARR)
Annual recurring revenue (ARR) refers to revenue, normalized on an annual basis that a startup expects to receive from its customers for providing them with a product or a service. Essentially, annual recurring revenue is a metric of predictable and recurring revenue generated by customers within a timeperiod of one year. Annual recurring revenue (ARR) is an essential SaaS metric that shows how much recurring revenue you can expect, based on annual subscriptions. So in all simplicity ARR= MRRx12. Or in a more complex calculation ARR= Total $ of annual Subscriptions + Total $ of Product extensions/ Upgrades / Total $ lost due to Cancelations (Churn)
- Fundraising Ask (Ask)
Ask refers to the cash amount of funding ($) the startup states it is seeking for an upcoming funding round. Where in principle the Ask = Post-Money Valuation – Pre-Money Valuation of the startup.
- Burn Rate (Burn)
Burn rate is a KPI of how quickly a startup is burning through cash. This is a particularly important for startups and venture-backed businesses that might be operating at a loss intentionally for a period of time, investing more in the product and the customer base than earning back into the company from sales activities, aka your Burn Rate = (Starting Cash Balance- Ending Cash Balance) / # of Months
- Customer Acquisition Cost (CAC)
CAC is the KPI that calculates the cost of convincing a new customer to buy the product or the service, you are selling, where CAC= Cost of Sales + Cost of Marketing / # of New Customers
- Growth rate (Grow)
We measure startup growth as the ratio of the cumulative quantity at the end of a given period divided by the same quantity at the beginning of the period. Very early-stage startups may want to focus on weekly growth rates and as they mature they focus their growth rate on a monthly basis. Where the Growth rate = New Rate + Resurrected Rate + Expansion rate – Contraction rate – Churn rate
Want to learn more on how-to-do, drop us an email and we will be happy to share our knowledge and insights with you!
For Hippocampus.io,
Christos Lytras – Managing Partner
