Profit ratio

9 Key Startup Metrics African Founders Should Focus On When Raising Capital

1) Monthly Recurring Revenue (MRR) and Annual Recurring Revenue (ARR): MRR is the expected revenue for your business based on the total number of subscriptions of your customers. To calculate your MRR, multiply your total subscriptions by the average revenue per user (ARPU). For example, if you have 2,000 customers who subscribed to your service at an average cost of $10, then your MRR is $4,000. To calculate your MRR growth or decline, you will then need to factor in new subscriptions, upgrades, downgrades, and cancellations/attrition. Your Annual Recurring Revenue (ARR) is basically your MRR multiplied by 12.

2) Gross Merchandise Volume (GMV)

GMV is the total value of goods/merchandise sold. It mainly applies to e-commerce businesses and is important because revenue will come from fees/commissions charged in addition to GMV. So if a business has $500,000 as monthly GMV, assuming they charge 4% commission on GMV, they will have revenue of $20,000.

3) Customer Lifetime Value (CLV)

CLV measures the average revenue generated over the duration of a customer’s relationship with a business. For example, based on a startup’s data, if their customer spends $10 on a monthly subscription and stays with the company for 18 months, the startup’s CLV would be calculated as $10 multiplied by 18 months, then multiplied by the average number of transactions. For a company like Spotify with a monthly subscription model, the CLV would be $10 X 1 X 18 months, which equals a CLV of $180.

  • CLV = Average Order Value X Frequency X Average Customer Lifetime

VCs can estimate the profitability of the startup’s customers and its business potential for long-term growth based on its CLV.

4) Customer Acquisition Cost (CAC)

Customer acquisition cost is the average amount of money spent to obtain a customer, so helping investors see how effective your customer acquisition is is crucial. Founders looking to raise capital should review their Fully loaded CAC: This involves the total cost of everything and everyone involved in acquiring new customers.

Your CLV/CAC report helps you determine if your CAC is high or low relative to your CLV and shows your investors your customer’s value to the business over their average lifetime. To calculate it, you divide your CLV by your CAC. For example, if your CLV is $1,000 and your acquisition cost is $200, then your CLV/CAC ratio is 5:1.

6) Customer Churn Rate / Retention Rate

Investors want to see how well your business can build customer loyalty over time, which indicates that your product/service provides value to customers. Customer retention rate helps a business understand how many customers it can retain over a certain period of time. Customer cohort analysis Shows you a group of customers acquired in a given month and how they buy over time based on the initial month they signed up.

Income cohort analysis displays the monthly revenue generated by your customer cohort; it shows investors how profitable your clients are over time.

7) Gross profit and gross profit margin

Gross profit is especially important for e-commerce business models, and it helps to show the profitability of a business to see if it is making a profit on every product sold and if your Gross margin can cover all other operating expenses of your business. It is usually calculated by subtracting the cost of goods sold (COGS) or services rendered to customers from revenue. COGS does not include marketing expenses, staff costs, and other operating expenses.

  • Gross Profit = Total Revenue ($100) – Cost of Goods Sold ($50) = $50

Gross margin – is simply your gross profit represented as a percentage (%) of your revenue

8) Monthly Active Users (MAU)

Monthly active users are the total number of unique users who performed an action on your website/app in the last month (30 days). For example, the number of people who buy a product, make a transaction, etc. A growing MAU base is a good sign of growth for the company, and investors would like to see a positive indicator.

Cash Burn rate is the rate at which a company depletes its available cash, which determines your track, that is, how long you can run the business. If your business has $10,000 in cash and spends $1,000 per month but generates $500 in revenue per month, your net consumption rate will be $500 per month while your gross consumption rate is $1,000 per month. months, which gives you a 20 month track to be in business. .

Before you raise capital, make sure these metrics are in order and your startup has a roadmap to optimize them as you steer your business toward profitability.

Princewill Ejirika is an experienced product marketing and growth marketing executive in Africa with a passion for building tech communities and helping tech startups/companies scale their growth.

*Views expressed in this article are those of a Business Insider Africa contributor. It does not represent the views of the Business Insider Africa organization.