If you are a startup founder looking for seed funding, you need to know how to measure your progress and communicate it to potential investors. Tracking the right metrics can help you validate your product-market fit, optimize your growth strategy, and showcase your traction. In this article, we will cover six key metrics that you should track during a seed round and why they matter.
Monthly recurring revenue (MRR) is the amount of money that you generate from your customers every month. It is a crucial metric for subscription-based or SaaS businesses, as it indicates your revenue stability and growth potential. Investors want to see that you have a consistent and scalable MRR that can support your operating costs and future expansion. To calculate your MRR, multiply your average revenue per user (ARPU) by your total number of customers.
Why is this important? Because investors love stability and growth, and a steady, predictable MRR screams both! It shows you're not just making one-time sales, you're building reliable income that can fuel your future success. Calculating MRR is easy: just multiply your average customer revenue (ARPU) by the total number of customers you have. Think of it as the secret sauce that shows investors you're here to stay and ready to scale! Remember: Higher MRR = more happy investors (and potentially more funding for your awesome business!) Stable MRR = reliable income to keep your business thriving.
Customer acquisition cost (CAC) is the amount of money that you spend to acquire a new customer. It includes all the expenses related to marketing, sales, and onboarding. CAC is a key metric for evaluating your marketing efficiency and profitability. Investors want to see that you have a low CAC that can be recovered within a reasonable time frame. To calculate your CAC, divide your total acquisition costs by your number of new customers.
During a seed round, key metrics to track include user acquisition cost (CAC), customer lifetime value (CLV), monthly recurring revenue (MRR), churn rate, and overall burn rate. These metrics provide insights into financial health, growth potential, and the efficiency of your startup, aiding in informed decision-making and attracting future funding.
Customer lifetime value (LTV) is the amount of money that you expect to earn from a customer over their entire relationship with your business. It reflects your customer retention, loyalty, and satisfaction. LTV is a key metric for assessing your long-term value proposition and competitive advantage. Investors want to see that you have a high LTV that exceeds your CAC by a significant margin. To calculate your LTV, multiply your ARPU by your average customer lifespan.
Churn rate is the percentage of customers who stop using your product or service within a given period. It measures your customer attrition and satisfaction. Churn rate is a key metric for identifying your product-market fit and retention issues. Investors want to see that you have a low churn rate that indicates a strong product-market fit and a loyal customer base. To calculate your churn rate, divide your number of lost customers by your total number of customers.
Net promoter score (NPS) is the percentage of customers who would recommend your product or service to others. It gauges your customer satisfaction and loyalty. NPS is a key metric for evaluating your customer feedback and word-of-mouth potential. Investors want to see that you have a high NPS that shows that you have a loyal and enthusiastic customer base that can help you grow organically. To calculate your NPS, subtract the percentage of detractors (customers who would not recommend your product or service) from the percentage of promoters (customers who would recommend your product or service).
NPS metrics can be helpful but aren't essential in a seed round. It's good to have but not a must. Usually, you haven't hit Product-Market Fit (PMF) yet, making it challenging to get a meaningful NPS score. Investors may not stress that metric much. What matters more is user adoption and plans to increase it. Focus on tools like analytics platforms (e.g., Mixpanel, Amplitude) to track user behaviour and optimize adoption strategies.
Burn rate is the amount of money that you spend more than you earn every month. It indicates your cash flow and runway. Burn rate is a key metric for managing your finances and planning your fundraising. Investors want to see that you have a low burn rate that can sustain your operations for at least 12 to 18 months. To calculate your burn rate, subtract your monthly revenue from your monthly expenses.