Metric | Description | Formula | Stages | Business Models |
---|---|---|---|---|
Revenue / Net Sales | Revenue is the value of all sales of goods and services recognized by a company in a period. | Revenue = Σ Goods / Services sales | MVP, Scaling, Established | All |
Note: Revenue is often considered the “Top Line” of scaling and established businesses. | ||||
Profit Margin / Net Profit Margin | Represents what percentage of sales has turned into profits. Simply put, the percentage figure indicates how many cents of profit the business has generated for each dollar of sales. | Profit margin = Net Profit (Income) ⁄ Revenue x 100 | MVP, Scaling, Established | All |
Note: Profit margins are used by investors and businesses themselves as indicators of a company's financial health. This is extremely important for established business as it reflects their success, but not so important on early stages. | ||||
Monthly Recurring Revenue (MRR) | The amount of money paid monthly for subscriptions for your product or service. | MRR = Σ Recurring Revenue | MVP, Scaling, Established | Subscription-based, IoT |
Note: Having recurring revenue is important for investors as this type of revenue easier to predict and grow. Another important metric is MRR vs Total Revenue that displays how stable your revenue stream is. | ||||
Revenue Growth | Revenue growth shows how fast your revenue is growing in comparison to previous periods of time. | Revenue Growth = (Current period revenue - Prior Period Revenue) / Prior Period Revenu | Scaling | Marketplace, Ad-based, Aggregator |
Note: Usually, measured every month (MoM, QoQ, YoY), see the graphs above. | ||||
MRR Growth | Measures how your monthly recurring revenue (MRR) grows over time. For a more accurate picture, you can break down your MRR into New MRR, Expansion MRR, and Churned MRR. This way, you can see what exactly drives your MRR growth. Learn more about it in this SaaS metrics guide | MRR Growth = Current period MRR - Prior Period MRR) / Prior Period MRR | Scaling | Subscription-based, IoT |
Note: Similar to Revenue Growth, but for MRR. See the graphs above for an example. | ||||
Average Revenue per User (ARPU) | The revenue generated per user/account. It simply involves taking the total revenue in a given time period by the number of users in that period. | ARPU = Total Revenue / # of Users | Scaling, Established | All |
Note: Startup pay more attention to ARPU at later stages when trying to introduce new monetization strategies (e.g., upsell their existing customers). This metric is also useful when you experiment with different types of customers to find out the portrait of your ideal customer and narrow down your target audience. | ||||
Total contract value (TCV) | The measure of the value a customer has committed to you in contracts or orders. It does not match the revenue you get in the end though. | The formula varies for every segment | All | Marketplace, Aggregator |
Note: It’s important to understand that you can measure Contracts Value if you don’t have your product ready yet. It helps to validate your business idea at the early stages. Measured vs. Revenue to see how much of contract value converts into actual revenue in the end. | ||||
Gross Merchandise Value (GMV) | Refers to the total volume in dollars of sales over a given time period on an e-commerce sites such as eBay. GMV is calculated before accrued expenses are deducted. The accrued expenses include costs associated with advertising/marketing, delivery costs, discounts, and returns. | GMV = Sales Price of Goods x Number of Goods Sold | Scaling, Established | Marketplace |
Note: Measured vs. Revenue to learn how your Merchandise Value influences your actual Revenue. | ||||
Unit Cost | A total expenditure incurred by a company to produce, store, and sell one unit of a particular product or service. | Unit Cost = Variable Costs + Fixed Costs / Total Units Produced | Scaling, Established | Marketplace, IoT |
Note: Measured over time. The more units you produce, the cheaper they should be. Otherwise your business model may be hardly scalable. | ||||
Burn Rate + Runway | Burn Rate is the actual amount of cash your account has decreased by in one month. RunWay is the # months before you run out of money. | Burn Rate = Cash balance (prior month) – Cash balance (current month) Average Burn Rate = (Σ Monthly Burn Rates) / # of month Runway = Total cash held / Average burn rate | MVP, Scaling | All |
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