7 Metrics Every Seed-Stage Company Should Be Tracking
As we get ready to welcome in the new year, companies are planning ahead to maximize the potential of 2021. Seed-Stage SaaS companies especially are always on the lookout for the best metric tools to measure their progress and have the data they need to bring to investors. It can be incredibly difficult to try to figure out where to begin. Here at Elate we have first-hand experience being an early-stage company and we’re going to share our hard earned lessons with you.
You might be tempted to pick a metric to measure randomly or to choose one that makes your company look good, but this will most likely give you inconclusive results. This puts your organization at risk to end up off track. On the other hand, feeling like you need to measure everything can be overwhelming and off putting.
There is no one metric to use all the time, but we’ve compiled the magnificent 7 you should start tracking today. Below we'll break down the most important metrics for seed stage companies like you and get you set up for success in 2021 and beyond.
- Monthly/Annual Recurring Revenue
This metric should be #1 on everyone's list. Depending on the structure of your organization, you will need to track the recurring revenue you are counting on either a monthly or annual basis. Not only is this vital to understanding how you’re growing over time, it’s one of the first things investors will ask about. Counting on recurring revenue is a safety net that will allow you to lay a strong foundation.
MRR: Monthly ARPU (Average Revenue per User) x Total # of Monthly Users = Monthly Recurring Revenue
ARR: (Overall Subscription Cost Per Year + Recurring Revenue From Add-ons or Upgrades) - Revenue Lost from Cancellations.
- Churn Rate
We would all love to think that our companies will never have churn, but the truth is there will always be customers who end up not being a great fit or bought in too early and their needs no longer align with what you offer. Having the pulse on your churn rate is important information to influence future planning.
Do you know why you lost that customer? Conducting SaaS cancellation interviews with recently churned clients will help you get insight into why they left and how you might be able to make adjustments so you don’t run into the same issue again.
Churn Rate = number of churned customers / total number of customers
Elate Tip: Drill down into the revenue churn vs churn rate of customers. There’s a difference between losing your highest paying customer or a few of your lowest paying customers.
- Average Contract Value (ACV)
This metric helps you understand what people are willing to pay for your platform. This is so important for seed stage companies because you may have some assumptions on pricing, but you're still learning and have the flexibility to make adjustments.
Make sure to track before and after changes of ACV to have solid data to back up your changes and help you better understand what types of deals you can close in the future.
ACV: It's the total contract value (excluding one time fees) divided by the total years in contract.
- Customer Acquisition Cost (CAC)
Bottom line: how much does it cost to acquire a new customer? Take a look at your sales and marketing spend and divide that by the number of customers you onboarded in that time period. Is that number sustainable? If so, press into the channels that you are getting the most out of your budget and become hyper efficient.
CAC: (Total Marketing Expenses + Total Sales Expenses) divided by the number of customers acquired
- Life Time Value (LTV)
LTV is an estimate of the average revenue that a customer will generate throughout their lifespan as a customer. For example, if your average customer stays 2 ½ years vs 6 months you can spend more to acquire them because the LTV to CAC ratio is lessened. If you realize your ratio is not fitting into your budget, you either need to acquire customers for less money or figure out to keep them longer.
This may seem simple, but if you’re not paying attention it can turn into a lost opportunity. Start to track these numbers from an early stage and you will have more flexibility to influence the numbers as you grow. You know what they say when you assume…
LTV: Customer Value X Average Customer Lifespan
- Average Burn Rate
How much money are you losing each month? Most seed stage companies aren't profitable and that’s okay, but what does that look like in 3-6 months for your bottom line? It’s important to focus on the word ‘average’ here because there can be certain months that contain bigger spending events that can skew your perspective such as an extra pay period or a new hire.
Average Burn Rate: Add the monthly burn rates together and divide by the number of months included
Runways are not just for pilots and models. Knowing how many months you have before you run out of money is crucial to your planning and success. How much cash you have in the bank - how much you are spending will give you a clear picture of how long you have before you need to start reaching out for more funding.
Everyone should be tracking revenue milestones to make sure they’re hitting their goals and staying on pace. Runway is especially important when it comes to new hires. Adding a new team member will have a huge impact on your runway, but having the extra help to reach revenue milestones faster can justify the spend.
Elate tip: Knowing how much cash on hand you have is important, but you also have to factor in your burn rate. If two similar companies both have a million dollars in the bank, but one has a much higher burn rate they will experience a different financial timeline.
Runway: Take your beginning cash balance and divide that value by your net burn rate.
Now that you have the metrics, it’s time to get tracking.
At each stage of growth you'll find that you have to apply additional metrics in order to measure everything you need to understand your company's journey. But focusing on one metric at each stage will help set a North Star vision for your efforts to align goals across your entire team.
Stop using manual spreadsheets and start tracking your metrics in one place. Make data-supported decisions and build efficiency into your growth with real-time data powering the direction of your organization with Elate. Get started today.