Have some numbers; on the house

Picking metrics is one of the most important things you’ll do. Get them right and you’ll have a map to your north star and keep the team aligned on what’s important (and what’s not). A solid grasp of your metrics is also what gets you your next investment round.

We’ve talked about primary and counter (secondary) metrics in the past. The basic idea is the primary tracks progress towards your goal, the secondaries ensure you’re seeing the full picture.

You are what you do…

SaaS businesses are well suited to metrics. Your primary metric is always going to be Monthly Recurring Revenue (MRR). Secondaries are abundant, on the revenue side, Annual Revenue Per User (ARPU). You’ll also want to include a metric indicating how happy your customers are like MRR Churn - look for Negative Churn (when your upsell revenue is growing faster than your downgrades).

Profitable growth relies on the ratio of customer acquisition costs to lifetime value (LTV/CAC). Your payback period is something investors will look at - the time it takes for your CAC to be paid back by MRR.

Phew...for more, download this.

Primary metrics for marketplaces are almost always a version of Gross Merchandise Volume (GMV). Net Revenue is good to track your bottom line but for leading indicators of two- or multi-sided marketplace health look at User Retention (as opposed to dollar retention) and Match Rate/Market Depth. Andreesen has a definitive marketplace metrics guide.

Metrics for subscription businesses are identical to SaaS in many ways, apart from the shortcut to use unit growth/churn instead of revenue.

Transactional models, i.e. FinTech (think Stripe), your focus is on Total Payments Volume (TPV). From this look at Net Revenue and Cohort retention.

For enterprise startups, selling to corporates, your primary metric is always going to be recognised revenue (recognised because you’ve delivered the service). For secondary metrics, look at bookings (the value of your signed contracts, even if you haven’t serviced them yet) and number of customers (too few could be a red flag that you’re overly reliant on them).

Golden Ratios

Beyond Primaries and Secondaries, for some John Nash style analysis, look out for magic ratios.

For SaaS and subscription businesses, that’s the “rule of 40” (coined by Techstars founder Brad Feld) - your MRR growth + your profit should add up to 40% or greater. See here.

In marketplaces, you’ll be looking for a smiling Power User Curve.

That’s all for now!

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Shout out to Susie at Notion for inspiration on the SaaS section.