Track the metrics that matter most for your business growth and financial health.
These metrics show how efficiently your business converts revenue into profit:
(Revenue - Cost of Revenue) / Revenue × 100%
The percentage of revenue left after direct costs. This shows the efficiency of your core business model.
Why it matters: Higher margins give you more to invest in growth and provide a cushion against downturns.
Operating Income / Revenue × 100%
Profit margin after all operating expenses. Shows if your core business is profitable before financing costs.
Early-stage companies are often negative as they invest in growth. Mature companies should target 15-25% or higher.
Why it matters: This is the metric that matters most for long-term business sustainability.
Net Income / Revenue × 100%
Bottom-line profitability after all expenses, including interest and taxes.
Why it matters: This is what ends up in retained earnings or gets distributed to owners. Healthy businesses maintain 10-20%+ net margins once mature.
Understanding your unit economics is critical for sustainable growth:
Total S&M Spend / New Customers Acquired
How much you spend to acquire each new customer, including marketing and sales costs.
Include all marketing and sales expenses:
Important: Use a time lag. If your sales cycle is 2 months, divide Month 1-2 spend by Month 3 conversions.
For Subscription: (ARPU × Gross Margin) / Churn Rate
For Transaction: Avg Order × Gross Margin × Purchase Frequency × Customer Lifespan
The total profit you expect to make from a customer over their entire relationship with you.
LTV / CAC
The relationship between what you pay to acquire customers and what they're worth.
CAC / (ARPU × Gross Margin)
How many months it takes to recoup the cost of acquiring a customer.
Why it matters: Shorter payback means less cash needed to fund growth and lower risk.
Track these to understand your growth trajectory:
(Current Period - Prior Period) / Prior Period × 100%
(Starting MRR + Expansion - Churn) / Starting MRR × 100%
Revenue retained from existing customers, including expansions and churn. Critical for subscription businesses.
Critical for understanding your financial position and planning:
(Cash at Start - Cash at End) / Number of Months
How much cash you're spending per month. Can be "gross burn" (total expenses) or "net burn" (expenses minus revenue).
Why it matters: Understanding your burn helps you plan fundraising, manage expenses, and set milestones. Track both gross and net burn to see how revenue growth affects your cash position.
Cash Balance / Monthly Net Burn
How many months until you run out of cash at your current burn rate.
Pro tip: Fundraising typically takes 3-6 months, so don't wait until you're down to 6 months runway.
Growth Rate % + Profit Margin % ≥ 40%
A benchmark for balancing growth and profitability, especially relevant for SaaS companies.
Examples:
Why it matters: It's a framework for understanding if you're growing efficiently or burning too much for your growth rate.
Every business should have one primary metric that best captures value creation:
Your north star should align with customer value delivery and be a leading indicator of revenue.
Formulate calculates all key metrics from your forecast so you can focus on growing your business
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