Schedule a free 30-minute call to explore your needs and find personalized solutions
Book a call
Burn Rate represents the rate at which your startup spends cash each month. It’s divided into two types:
Tracking your Burn Rate is critical to understanding your cash flow and projecting the duration of your cash reserves, a measure commonly referred to as Cash Runway. For example, if your startup has $200,000 in cash and a Net Burn of $20,000 per month, your runway is 10 months. Knowing this allows you to plan strategically—either by extending your runway through expense reductions or by preparing for fundraising well in advance. Startups in their early stages often face higher burn rates as they invest in growth, making careful tracking essential.
Customer Acquisition Cost (CAC) measures how much it costs to acquire a single customer. To calculate it, divide your total marketing and sales expenses by the number of new customers acquired during a specific period.
For instance, if you spent $50,000 on marketing in a month and gained 500 new customers, your CAC is $100. This metric helps you evaluate whether your acquisition strategies are cost-effective. Comparing CAC to Lifetime Value (LTV) is particularly insightful: if your CAC is higher than LTV, you’re spending more to acquire customers than they generate in revenue—a red flag for sustainability.
Lifetime Value estimates the total revenue a customer generates throughout their relationship with your business. For example, if your average customer spends $50 per month and stays with your business for 24 months, their LTV is $1,200.
LTV is a key metric for assessing the long-term profitability of your customer base. Startups can increase LTV by improving customer retention through loyalty programs, personalized offers, or exceptional customer service. For instance, a SaaS company might implement an annual subscription discount to lock in customers for a longer period, increasing their overall LTV.
Book a free consultation today to stay on track.
Revenue per User (RPU), also known as Average Revenue Per User (ARPU), reflects the average revenue generated by each customer or user over a specific period. It’s calculated by dividing total revenue by the number of active users.
For example, a streaming service earning $500,000 per month from 10,000 users has an RPU of $50. Segmenting RPU by customer type—such as free vs premium users—can uncover opportunities to boost revenue. A freemium platform might focus on converting free users to premium plans, increasing their RPU.
Tracking Actual vs. Budget helps startups understand where financial performance deviates from expectations. For example, a startup might allocate $10,000 monthly to marketing but find that its actual spending is $15,000. Analyzing this discrepancy could reveal inefficiencies, such as overspending on underperforming campaigns.
This metric not only identifies problem areas but also informs future budget adjustments. For instance, if sales consistently exceed projections, you might allocate more resources to scale operations and meet growing demand.
Cash Runway measures how long your business can sustain operations with its current cash reserves and expense levels. If your runway is short—say, less than six months—it’s a signal to take immediate action.
For example, a startup with $120,000 in cash and monthly expenses of $30,000 has a four-month runway. To extend it, they might reduce discretionary spending, renegotiate supplier contracts, or accelerate revenue-generating activities. Cash Runway is also critical when planning fundraising efforts, ensuring you’re not seeking capital under pressure.
Gross Margin represents the percentage of revenue remaining after accounting for the direct costs of producing goods or services. For example, if a company generates $1 million in revenue and has $400,000 in cost of goods sold (COGS), its Gross Margin is 60%.
A high Gross Margin indicates efficient operations and provides more flexibility to cover fixed expenses or invest in growth. Startups can improve Gross Margin by reducing production costs, negotiating better supplier terms, or increasing prices without sacrificing sales volume.
EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) measures operational profitability. It excludes external factors like financing costs, offering a clearer view of your core business performance.
For example, a startup with $500,000 in revenue, $300,000 in operating expenses, and $50,000 in depreciation has an EBITDA of $150,000. Investors often use this metric to compare companies within the same industry, as it standardizes profitability assessments. Improving EBITDA can be achieved by streamlining operations, automating processes, or reducing overhead.
Tracking these essential metrics provides the insights your startup needs to grow strategically and sustainably. Metrics like CAC, LTV, and Cash Runway help you balance growth with financial health, while Gross Margin and EBITDA ensure efficient operation.
Focusing on what matters most to your business allows you to make informed decisions, appeal to investors, and set your startup on a path to success.
Need help monitoring and analyzing your financial metrics?
Schedule a free consultation with Lazo to simplify your financial management and scale your startup effectively.
