Entrepreneurship - 6.3 Success

6.3 Measuring Success

Key Metrics to Track:

Choosing the right metrics is crucial to steer the company. Most startups track a blend of financial metrics and customer metrics:

Financial Metrics: These show fiscal health. Track Monthly Recurring Revenue (MRR) if you have subscription revenue, or simply monthly sales revenue if not. Also measure Net Profit Margin (the percentage of sales that turns into profit), and Gross Margin (how much revenue exceeds cost of goods sold). A stable or improving profit margin means your growth is sustainable. Keep an eye on Burn Rate (cash spent per month) and Runway (months of cash left)– you don’t want to suddenly run out of money. Typically investors like to see a runway of 12–18 months at any time.
Customer/Engagement Metrics: These gauge market traction. Customer Acquisition Cost (CAC) is the cost to get one new customer (sum of sales/marketing spend divided by number of new customers). Customer Lifetime Value (LTV) is how much revenue you earn from a customer over the entire relationship. For a healthy model, LTV should be several times your CAC. Also track Churn Rate (percentage of customers lost in a period) or Retention Rate, since retaining customers is often cheaper than acquiring new ones. Other key numbers might include activation/engagement (e.g. daily active users, session length) for a consumer app, or net promoter score (NPS) to gauge satisfaction.

The North Star Metric is the single key measure that reflects your product’s core value. It aligns the team on one ultimate goal. For example, an e-commerce startup might choose “monthly active users” or “gross merchandise value,” a SaaS company might pick MRR growth, and a social app might pick “time spent by users.” This metric should be tied to long-term customer value. Supporting metrics (like retention rate, conversion rate, etc.) feed into the North Star. By focusing on one guiding metric, all departments can prioritize the actions that move the needle most.

A founder analyzing key business metrics.

Regularly review dashboards of these metrics. Key metrics act like an “early warning system” – for instance, rising CAC or falling retention should trigger immediate attention. In weekly or monthly reviews, plot these KPIs and discuss strategies to improve them. Remember that what to measure evolves: in very early stages, simple metrics (e.g. number of users, initial revenue) matter, but as you scale you’ll refine the indicators (customer cohorts, unit economics, etc.).

Setting a North Star Metric:

A North Star Metric (NSM) is one number that best captures the value you deliver to customers. It should meet three criteria: drive revenue, reflect customer value, and track growth. For example, a streaming service might use “total watch-time per week,” while a marketplace might use “completed transactions.” Once chosen, everyone in the company aligns around improving the NSM. This focus helps break down silos: marketing, product, and sales each have tasks that contribute to that one metric. The NSM shouldn’t be vanity (total registered users) but something that indicates healthy engagement. Companies often share example frameworks. For instance, a social app’s NSM might be Daily Active Users (DAU), with supporting metrics like retention rate and average session length. Regularly revisit your NSM: it can change if your business model shifts. But having that guiding star keeps everyone rowing in the same direction.