There’s no excuse for not knowing how much money you are taking in, or how many people have purchased your product. Yet you might be surprised how easily business owners are stumped by questions like these. That’s why we asked nine members from Young Entrepreneur Council (YEC) what metrics all founders should be aware of—always.
Here’s what they had to say:
1. Cash on Hand
Cash is the life-blood of any startup, and you should always have a pulse on how much of it you have left and how long it’s going to last. It is incredibly easy to let this slip by the wayside. You don’t want to be in a position where your runway is getting thin.
– James Simpson, GoldFire Studios
2. Lifetime Customer Value
While everything having to do with your income and expenses is important for any entrepreneur to understand and monitor, the most important number to know by heart at any given time is your LTV: Lifetime Customer Value. How much do you earn per customer? Per lead? If you know that, you will know how much you can spend to find them, and you will have your key piece of information for all of your napkin math.
– Cody McKibben, Thrilling Heroics
3. ROI per Marketing Channel
It’s crucial to keep a handle of ROI per marketing channel in order to optimize marketing spending. It’s not enough to check this every quarter. You should check it monthly or weekly.
4. Renewal Rates
If you’re selling anything, understanding renewal rates is absolutely critical. If for some reason you’re not getting repeat customers, that’s a major problem and you need to spend as much of your time on it as possible. After all, a sustainable business model requires repeat customers! I’m always letting our clients know I genuinely care and getting as much feedback as possible so we can improve our client services.
5. Gross Margin
It is crucial for entrepreneurs to understand their costs of goods and services. Keeping track of gross margin assures you know the value of each additional sale. Keeping track of gross margin by product offering will help you determine what balance of products and services will be best for your business. Furthermore, staying on top of gross margin will help you understand how much room you have left for other business expenses.
6. Profitability Date
Knowing when you expect to be profitable will influence every other business decision you make. You need to know when your company will start making money to know how to manage the money you have in the bank. This impacts every decision related to your business, from hiring more staff to expanding product offerings to investing in marketing.
7. No Specific Metric
I believe all entrepreneurs should know their business. This includes a general understanding of the finances. For me, there is not one metric that is more important than another—you should be up to speed with every aspect.
– Matthew Moisan, Moisan Legal, P.C.
8. Burn Rate
This is the rate at which a company uses up its capital to finance overhead before generating positive cash flow from operations. As a measurement of negative cash flow, the burn rate is what you need to compare all your forecasts to so you don’t run out of money prematurely, and by lowering operating costs appropriately.
9. Income to Expenses Ratio
All other metrics eventually lead back to this one. Are you earning more than you spend? All other decisions hinge on whether or not you’re in the black or in the red.
– Colin Wright, Asymmetrical Press
Scott Gerber is the founder of the Young Entrepreneur Council (YEC), an invite-only organization comprised of the world's most promising young entrepreneurs.
