The Most Important KPIs & Metrics to Track By Industry (and How to Calculate Them)
"What gets measured, gets managed." - Peter Drucker
In startups, success isn't just about having a novel idea or great product. It's about understanding your company's performance and making informed decisions to drive growth.
This is where Key Performance Indicators (KPIs) come into play. These powerful metrics provide clear, actionable insights that can mean the difference between thriving and merely surviving.
In this article, we'll dive into the world of KPIs, exploring what they are, why they matter, and how you can harness their power to propel your business forward.
What Is a KPI?
Key Performance Indicators are quantifiable measurements that are used to evaluate the success of a company. These metrics are important for businesses, because they help the company keep track of progress and make informed decisions.
KPIs give a clear, data-driven picture of performance across the entire business, from financial health to operational efficiency and customer satisfaction.
Effective KPIs are specific, measurable, achievable, relevant, and time-bound, or SMART. They are different per industry, business model, and individual company goals. For example, a SaaS company might focus on different metrics than an e-commerce brand.
Why Do They Matter?
KPIs matter because they provide measurable insights into a company's performance. This allows the company to make data-driven decisions.
Let’s say a startup wants to improve customer retention. Without KPIs, they might implement some initiatives based on their gut feeling, and but not know how effective those strategies are. By tracking a KPI like Churn Rate, they can quantify the impact of their efforts. For instance, if they implement a new onboarding process and see their monthly churn rate drop from 5% to 3%, they have clear evidence that the initiative is working.
This allows them to double down on successful strategies, quickly identify and address ineffective ones, and make more informed decisions that drive business growth.
The Most Important KPIs & Metrics to Track By Industry
General for All Startups
Let’s start by looking at some of the KPIs & metrics that apply to all startups. Take note, the ones in this list also apply to the categories we’ll dive into later.
Burn Rate
The amount of money a company spends each month to cover its operating expenses.
How to calculate? Monthly Burn Rate = Total Expenses / Number of Months
You can turn this into daily, weekly, or yearly by adjusting the formula accordingly.
Runway
The amount of time a company can continue operating before it runs out of cash, if it doesn’t make or raise any additional money.
How to calculate? Runway = Cash on Hand / Monthly Burn Rate
Gross Margin
The percentage of revenue after you subtract the cost of goods sold (COGS).
How to calculate? Gross Margin = (Revenue - Cost of Goods Sold) / Revenue * 100%
Net Profit Margin
The percentage of revenue after all expenses, including taxes and interest, have been deducted.
How to calculate? Net Profit Margin = (Net Income / Revenue) * 100%
Customer Acquisition Cost (CAC)
The total cost to acquire a new customer, including all marketing and sales expenses.
How to calculate? Customer Acquisition Cost = Total Sales and Marketing Expenses / Number of New Customers Acquired
This is typically calculated over a specific period, such as a month or quarter.
Customer Lifetime Value (CLV)
The total revenue a business makes from a single customer account throughout the relationship.
How to calculate? Customer Lifetime Value = (Average Purchase Value * Average Purchase Frequency * Average Customer Lifespan)
This can be adjusted for gross margin using the formula: CLV * Gross Margin Percentage.
Year-over-Year Growth Rate (YoY)
The percentage increase in a specific metric compared to the same day last year.
How to calculate? Year-over-Year Growth = (Current Year's Value - Previous Year's Value) / Previous Year's Value * 100%
Return on Investment (ROI)
The profitability of an investment expressed as a percentage of the investment’s cost.
How to calculate? Return on Investment = (Net Profit / Cost of Investment) * 100%
For more complex scenarios, you can use: (Gain from Investment - Cost of Investment) / Cost of Investment * 100%
Software-as-a-Service (SaaS)
Now, let’s look at some of the KPIs & metrics that are important to software-as-a-service, specifically.
Rule of 40
A principle stating that a healthy SaaS company's growth rate plus profit margin should equal or exceed 40%.
How to calculate? Growth Rate + Profit Margin ≥ 40%
Monthly Recurring Revenue (MRR)
The total revenue generated by a company from all active subscriptions in a particular month.
How to calculate? Monthly Recurring Revenue = Number of Subscribers * Cost of Subscription
Churn Rate
The percentage of customers or subscribers who stop using a company's product or service during a given time period.
How to calculate? Churn Rate = (Number of Customers Lost During a Period / Total Number of Customers at the Start of the Period) * 100%
E-Commerce
Some other ones are especially relevant for e-commerce. Let’s take a look at some of the most important ones.
Conversion Rate
The percentage of website visitors who make a purchase.
How to calculate? Conversion Rate = (Number of Conversions / Number of Visitors) * 100%
Average Order Value (AOV)
The average amount of money spent each time a customer places an order on a website or in a store.
How to calculate? Average Order Value = Total Revenue / Number of Orders
Return on Ad Spend (ROAS)
The amount of revenue earned for every $1 spent on advertising.
How to calculate? Return on Ad Spend = Revenue from Ads / Cost of Ads
Key Takeaways
Let’s recap:
KPIs are measurable metrics used to evaluate a company's success.
They provide a clear, data-driven picture of performance across various business aspects.
Effective KPIs are SMART – Specific, Measurable, Achievable, Relevant, and Time-bound.
KPIs vary by industry, business model, and company goals.
They allow for data-driven decision-making, letting companies identify successful strategies and areas for improvement.
With this information and these KPIs in mind, you can make more informed decisions and improve the overall performance of your company in an educated way.
