Top 5 startup metrics that are often overlooked

When sharing your startup’s figures, telling your potential investors a clear story is important. One that demonstrates a bright future in terms of return, with a positive journey along the way.

Founders can often overlook certain metrics but they give a great snapshot of your business and can tell VCs all they need to know. We dig into the value of overlooked metrics and why investors want to see them.

1. North Star Metric

A key measure of a startup’s long-term success. This performance metric is the best reflection of your company’s mission and how well you are serving your customers.

The North Star Metric helps organisations focus their work and activities towards the success of their product or offering. For example, a SaaS business will probably focus on monthly recurring revenue (MRR), or for a social media platform, they’ll prioritise daily active users (DAU).

There are two key benefits. Firstly, it helps align the efforts of all teams towards a common goal. Secondly, it encourages a focus on the core activities that will drive long-term growth, rather than short-term gains.

The North Star Metric demonstrates more than just a single number –– it reflects a clear, customer-focused mission. Investors want to see that your actions are helping you work towards your North Star, and consequently sustainable growth in the future.

2. Cash Burn Rate

According to CB Insights, 29% of startups fail because they run out of money. This makes your cash burn rate an important metric to keep on top of.

The burn rate is the negative cash flow of a company that has more expenses than revenue. A high burn rate is not necessarily a measure of danger, it is the lifeblood of successful startups.

By calculating the following two burn rate metrics you can get a clear picture of what you will need to spend to achieve your goals. Make an informed plan about how much you need to raise, with a 12-18 month runway.

Unit Economics –– the amount your company earns on every item you sell, whether it’s a physical product, app or service. Unit Economics = customer lifetime value - cost to acquire.

Cost of Growth –– monthly expenses such as marketing, admin, offices, technology, and the most important of them all, talent. Don’t underestimate salary requirements and the number of people you’ll need to grow.

Your burn rate shows investors that you’ve thought ahead about the future of your business and what it will take to get there. Talk about why the burn rate is what it is and how it might change as the company grows. Investors are looking for sustainable growth and a long-term return, so they want to see how you’ll spend the money.

For example, if you’re targeting consumers and aiming for an IPO, you will have to spend some serious cash to attract talent and raise brand awareness. However, if you are building a gaming app for a niche market and hope to get acquired, you won’t need as much capital.

3. Working capital

Working Capital offers a view of a company’s short-term financial health –– a typical period is around 12 months.

Working Capital = Current Assets (cash, inventory, receivables) - Current Liabilities (accounts payable)

A positive figure indicates that a company can fund its current operations and invest in its future growth. For example, if a company has £100,000 of current assets and £30,000 of current liabilities, it has £70,000 of working capital.

Strong working capital like this also shows investors that your startup has a financial buffer for risk, say unexpected cash expenses or an economic downturn. It demonstrates your startup’s liquidity, operational efficiency and growth prospects. Ultimately, it’s these factors that will impact your future valuation.

4. Customer Lifetime Value (LTV)

This measures how much revenue a company can expect to earn from a customer over an, ideally, long-term relationship. Typically, it’s cheaper to retain customers than acquire new ones, so your LTV is an important metric to pay attention to.

LTV = Average Purchase Value × Number of Transactions × Retention Period

5. Customer Acquisition Cost (CAC)

LTV goes hand in hand with Customer Acquisition Cost (CAC). CAC measures how much it costs to get a new customer. This metric helps you understand the efficiency of your marketing efforts compared to the number of customers you acquire in any given period.

CAC= Number of New Customers Acquired / Total Cost of Sales and Marketing

These two metrics are essential in understanding where you should allocate your marketing time and money. A healthy LTV/CAC ratio is 3:1, which indicates that over time, your startup will generate more revenue per customer than it spends to acquire them.

A strong LTV demonstrates that the business is offering value to its customers. Combined with a low CAC, investors will see an attractive business opportunity. Strong figures demonstrate a loyal customer base, effective business model, efficient sales and marketing with future profitability.

Presenting these insights together with your core metrics, which we go into detail here, can help give you a competitive edge. They demonstrate that you have a clear picture of your business goals, financials and operations. With strong numbers in each of these areas, or at the very least plans to improve them, your startup will be considered a much more attractive investment opportunity.