Financial Metrics to Track in your Start-up

Measuring or evaluating the financial aspects of a start-up is equally crucial as analysing the market and customers.

The benefit of evaluating this metric is two faced, first is that the owner is able to analyze the attributes of revenues and expenses that are generated by the business and the second is for investors who are interested to invest and want to analyze your business before that. Hence, we have stated some of these metrics below so that you and your business can gain an advantage through them.

However, before we proceed, keep in mind that some of them might not benefit you or be applicable to your company yet as you are in your early stage wherein you are focused on building a customer base and improving your product or service. At this stage, the revenue is quite low which is completely fine. Although, later on, when your income will become stable and constant, they will certainly be beneficial.

Average revenue of every customer

Record the average revenue per customer by simply dividing the total revenue by the number of customers on a weekly, monthly, and quarterly basis. This metric is recommended especially for B2C businesses as the size of customers stay relatively the same in them.

Recurring revenue

A lot of businesses adopt subscription-based billing systems particularly when they are offering a service or products that need to be purchased at regular intervals, such as, contact lenses. This type of billing system ensures a steady income on a weekly, monthly, quarterly, or yearly basis creating a win-win situation for you as well as your customers. Try to adopt this model in your start-up so that you have a stable income even doing a business.

Growth rate

It is pivotal to track the growth rate of your revenue from time to time so that you are well aware about the status of your business in the market and also forecast these reports in order to attract investors. You can do this by subtracting your current revenue by previous revenue divided by previous revenue into hundred.

(Current revenue – previous revenue)/ previous revenue * 100

Total Addressable Market

You might be unfamiliar with this term if you are a newbie, however, if you are planning to expand in the future, you will be asked to pitch Total Addressable Market in front of investors. Through this, you will be presenting the total size of the customer base or market your business is targeting. To exemplify, if you are selling handbags then your Total Addressable Market will be the sum of all handbag sales from all the producers for the recent year. You can get this information online through effective research.

Gross and net profit margins

If you are a commerce student, you must have heard about these terms and the calculation here is also the same. If you have to calculate Net profit margin, subtract all the expenses from the revenue including the cost of goods sold, marketing cost, administrative cost, research and development cost, etc., whereas, to calculate gross profit margin, simply subtract the cost of goods sold from the earned revenue. This will reflect the efficiency of the business in terms of revenue.

Overhead costs

There are two types of costs in every business, one is fixed and the other is variable. As the name suggests, fixed cost does not change, no matter if you produce one product or thousands, for example, rent and electricity, whereas, variable costs are the costs dependent on the production and increase with addition to every unit of production. One should always strive to make the fixed cost variable by negotiating with the landlord for instance. This will be helpful when you need to scale down in the future and do this anyway.

Calculating, reporting and documenting all these costs will be beneficial for your business in the long term if not short as you will be well aware of where your business is leading you to, success or debt-trap. All the big companies appoint employees to do this on a regular basis so why not you?

Source- https://www.it-blue.com/blog/how-to-maintain-finances

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