Smart orthopedic startups use metrics to monitor the health of their business.
Below are 11 useful metrics that software startups use.
How many metrics from these 11 is your company using today ?
1/ Runway:
A startup dies without capital.
Your runway is how many months you have left alive.
It becomes harder to raise from VCs if you have under 12 months of runway.
Runway = cash in the bank / monthly burn
2/ Product-Market Fit Score:
Ask your users how disappointed they’d be if they couldn’t use your product next time.
If 40% or more say “very” then you’re likely reaching PMF.
I prefer this over NPS because it focuses on the user, not hypothetical actions (“would you refer…?”).
3/ Recurring Revenue:
Founders and investors both love predictable revenue from existing customers.
It means you only need to make a sale with a customer once.
It’s a key metric for fundraising and can be shown as MRR (monthly) or ARR (annually).
ARR = Annual revenue from existing customers.
4/ Burn Multiple:
Startups should spend more than they make early on but efficiency matters (a lot).
Burn multiple shows how much cash a startup burns in order to generate each incremental dollar of ARR.
Burn multiple = monthly burn / net new ARR
5/ Compound Growth Rate:
How fast is your startup growing?
Pick a start date and a period length (week, month, etc).
Y Combinator looks for startups growing 5-10% per week (or more).
6/ Churn Rate:
Churn is the % of users or subscribers that left during a given period.
Startups can’t afford to have a leaky bucket.
Look at churn per day, week, month, or year.
Churn rate = (starting users – ending users) / starting users
7/ Active Users:
A startup should have a simple way of defining what “active” means (ex: opened the app).
You can measure this weekly (WAU), or monthly (MAU).
Active users = defined by the startup
8/ Conversion Rate:
The percentage of potential users who take some desired action.
Maybe this is a request for product information, the first sales pitch in person, a surgeon training course, or something else.
Conversion = conversions / potential conversions
9/ Customer Acquisition Cost:
How much do you spend to acquire a new user?
Add up your total marketing and sales costs and see how many new customers that’s driving for you.
CAC = Total spent on acquisition / number of new users
10/ Payback Period:
The amount of time it takes to recover the cost of acquiring a new customer.
The faster the payback, the faster you can reinvest more cash into other parts of the business.
Look at this in terms of months.
Payback period = CAC / average revenue per user
11/ Run Rate:
Run rate is the annualized sum of ALL revenue a startup did during a single month.
Don’t confuse this with recurring revenue.
It’s useful when thinking about the overall size of your business.
Run rate = total monthly revenue * 12