TL;DR

• Working Capital

  Working capital measures the difference between current assets and current liabilities. It indicates your business's ability to cover short-term obligations with its short-term assets. Positive working capital means your business can easily meet its financial responsibilities, invest in growth, and handle unexpected expenses. Monitoring working capital helps ensure liquidity and operational efficiency.

• Burn Rate

  Burn rate is the rate at which a start-up spends its capital before generating positive cash flow from operations. It’s typically measured monthly and helps you understand how long you can sustain your current spending levels before running out of cash. Monitoring burn rate is critical for start-ups relying on external funding. It helps you make informed decisions about spending, fundraising, and financial planning.

• Lifetime Value (LTV) of a Customer

  Lifetime value measures the total revenue a business can expect from a single customer account throughout the relationship. It helps you understand the long-term value of your customer base. Comparing LTV to CAC provides insights into the return on investment for acquiring new customers. A higher LTV indicates strong customer retention and effective customer relationship management.

• Customer Acquisition Cost (CAC)

  Customer acquisition cost is the total cost of acquiring a new customer, including marketing, sales, and other related expenses. Keeping CAC low is essential for profitability, especially for start-ups with limited resources. By monitoring CAC, you can evaluate the effectiveness of your marketing strategies and optimize spending to acquire customers more efficiently.

• Churn Rate

  Churn rate measures the percentage of customers who stop using your product or service over a specific period. It’s crucial for subscription-based businesses and those focused on customer retention. A high churn rate indicates issues with customer satisfaction or product value, which need to be addressed to sustain growth. Reducing churn rate can lead to increased customer lifetime value and more stable revenue.

• Revenue Growth Rate

  Revenue growth rate tracks the increase in your business's sales over a specific period, typically measured quarterly or annually. It provides insights into the effectiveness of your growth strategies and market demand for your products or services. A higher revenue growth rate indicates successful expansion and increasing market share. Monitoring this KPI helps you gauge your business's progress and plan for future growth.

• Gross Profit Margin

  Gross profit margin measures the profitability of your products or services by calculating the difference between revenue and the cost of goods sold (COGS). It’s expressed as a percentage of revenue. A healthy gross profit margin indicates that your business can cover its operating expenses and still make a profit. This KPI helps you assess pricing strategies, production efficiency, and overall profitability.

Conclusion