Math that every startup needs to know.

One of the questions I constantly manage K-Startup Center is how to do the math startups need. ?To help them, and hopefully you out, here are the top 25 most essential calculations a founder needs. ?I have included what it measures and why it is important for a founder and an investor.

Math. Learn it. Love it. Live it….and succeed!

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1. Customer Acquisition Cost (CAC)

Metric: Measures the cost of acquiring a new customer. Lower CAC indicates more efficient customer acquisition.

Calculation: CAC = Total Sales and Marketing Expenses / Number of New Customers Acquired.

Example: Total Sales and Marketing Expenses = $50,000, Number of New Customers Acquired = 500. CAC: $50,000 / 500 = $100.

Why It’s Important for Founders: Helps founders understand the efficiency of their marketing and sales strategies.

Why It’s Important for Investors: Indicates the potential profitability and scalability of the business.

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2. Lifetime Value (LTV)

Metric: Estimates the total revenue a business can expect from a single customer over their entire relationship. A higher LTV indicates more valuable customers.

Calculation: LTV = (Average Purchase Value × Number of Purchases per Year) × Customer Lifespan.

Example: Average Purchase Value = $200, Number of Purchases per Year = 3, Customer Lifespan = 5 years. LTV: ($200 × 3) × 5 = $3,000.

Why It’s Important for Founders: Helps determine how much can be spent on acquiring customers while remaining profitable.

Why It’s Important for Investors: Indicates the long-term revenue potential from each customer.

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3. Churn Rate

Metric: Measures the percentage of customers who stop using the product or service over a specific period. A lower churn rate indicates better customer retention.

Calculation: Churn Rate = (Number of Customers Lost during a Period / Total Number of Customers at the Start of the Period) × 100.

Example: The number of Customers Lost is 50, and the Total Number of Customers at Start is 1,000. The Churn Rate is (50 / 1,000) × 100 = 5%.

Why It’s Important for Founders: Indicates the effectiveness of customer retention strategies.

Why It’s Important for Investors: Shows the sustainability and growth potential of the startup.

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4. Monthly Recurring Revenue (MRR)

Metric: Measures the predictable and recurring revenue from subscriptions or contracts. Higher MRR indicates steady revenue growth.

Calculation: MRR = Number of Subscribers × Average Revenue per User (ARPU).

Example: Number of Subscribers = 1,000, ARPU = $50. MRR: 1,000 × $50 = $50,000.

Why It’s Important for Founders: Helps forecast future revenue and manage cash flow.

Why It’s Important for Investors: Indicates the stability and growth potential of the revenue stream.

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5. Gross Margin

Metric: Measures the percentage of revenue that exceeds the cost of goods sold. Higher gross margin indicates better profitability.

Calculation: Gross Margin = (Revenue - Cost of Goods Sold) / Revenue × 100.

Example: Revenue = $100,000, Cost of Goods Sold = $40,000. Gross Margin: ($100,000 - $40,000) / $100,000 × 100 = 60%.

Why It’s Important for Founders: Indicates the efficiency of production & potential for profit.

Why It’s Important for Investors: Provides insights into the core profitability of the business.

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6. Burn Rate

Metric: Measures the rate at which a startup is spending its capital. A lower burn rate indicates a longer runway before needing additional funding.

Calculation: Burn Rate = (Starting Cash Balance - Ending Cash Balance) / Number of Months.

Example: Starting Cash Balance = $200,000, Ending Cash Balance after 6 months = $50,000. Burn Rate: ($200,000 - $50,000) / 6 = $25,000 monthly.

Why It’s Important for Founders: Helps manage expenses and extend the operational runway.

Why It’s Important for Investors: Indicates financial health and the time frame for achieving profitability or needing additional investment.

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7. Runway

Metric: Measures how long a startup can continue operating before running out of cash. Longer runway indicates better financial stability.

Calculation: Runway = Cash on Hand / Monthly Burn Rate.

Example: Cash on Hand = $100,000, Monthly Burn Rate = $25,000. Runway: $100,000 / $25,000 = 4 months.

Why It’s Important for Founders: Provides a timeline for achieving key milestones before requiring additional funding.

Why It’s Important for Investors: Assesses the time available to reach critical growth and profitability milestones.

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8. Conversion Rate

Metric: Measures the percentage of visitors who take a desired action (e.g., make a purchase, sign up). A higher conversion rate indicates more effective marketing and sales efforts.

Calculation: Conversion Rate = (Number of Conversions / Total Number of Visitors) × 100.

Example: Number of Conversions = 150, Total Number of Visitors = 5,000. Conversion Rate: (150 / 5,000) × 100 = 3%.

Why It’s Important for Investors: Indicates the effectiveness of the startup’s customer acquisition strategies.

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9. Net Promoter Score (NPS)

Metric: Measures customer satisfaction and loyalty. Higher NPS indicates more satisfied customers likely to recommend the product or service.

Calculation: NPS = % of Promoters - % of Detractors.

Example: % of Promoters = 60%, % of Detractors = 10%. NPS: 60% - 10% = 50.

Why It’s Important for Founders: Helps gauge customer satisfaction and identify areas for improvement.

Why It’s Important for Investors: Indicates potential for organic growth through word-of-mouth and referrals.

10. Break-Even Point

Metric: Determines the number of units that must be sold to cover all fixed and variable costs. Reaching the break-even point indicates when the business starts to generate profit.

Calculation: Break-Even Point = Fixed Costs / (Price per Unit - Variable Cost per Unit).

Example: Fixed Costs = $50,000, Price per Unit = $100, Variable Cost per Unit = $60. Break-Even Point: $50,000 / ($100 - $60) = 1,250 units.

Why It’s Important for Founders: Helps set sales targets and pricing strategies to achieve profitability.

Why It’s Important for Investors: Indicates the point at which the startup will become self-sustaining.

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11. Revenue Growth Rate

Metric: Measures the rate at which the startup's revenue is increasing. Investors look for high growth rates to indicate a successful and scalable business model.

Calculation: Revenue Growth Rate = [(Current Period Revenue - Previous Period Revenue) / Previous Period Revenue] × 100.

Example: Current Period Revenue = $120,000, Previous Period Revenue = $100,000. Revenue Growth Rate: [($120,000 - $100,000) / $100,000] × 100 = 20%.

Why It’s Important for Founders: Tracks the effectiveness of growth strategies over time.

Why It’s Important for Investors: Indicates the potential for rapid expansion and market dominance.

12. Gross Merchandise Value (GMV)

Metric: Commonly used for e-commerce or marketplace startups, it shows the total value of goods sold through the platform.

Calculation: GMV = Total Sales Volume of Merchandise Sold through a Marketplace in a Given Period.

Example: Total Sales Volume = $500,000 in a given month. GMV: $500,000.

Why It’s Important for Founders: Measures the overall scale and success of the marketplace.

Why It’s Important for Investors: Indicates the transaction volume and potential revenue through commissions or fees.

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13. Operating Expenses Ratio

Metric: This shows what percentage of revenue is spent on operating expenses. Lower ratios indicate better operational efficiency.

Calculation: Operating Expenses Ratio = Operating Expenses / Revenue × 100.

Example: Operating Expenses = $30,000, Revenue = $100,000. Operating Expenses Ratio: ($30,000 / $100,000) × 100 = 30%.

Why It’s Important for Founders: Helps manage operating costs and improve profitability.

Why It’s Important for Investors: Indicates the efficiency of the startup’s operations.

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14. Average Revenue Per User (ARPU)

Metric: Measures the average revenue generated per user. Higher ARPU indicates more value generated from each user.

Calculation: ARPU = Total Revenue / Number of Users.

Example: Total Revenue = $100,000, Number of Users = 1,000. ARPU: $100,000 / 1,000 = $100.

Why It’s Important for Founders: Helps assess the effectiveness of pricing strategies and product value.

Why It’s Important for Investors: Indicates the revenue potential from the user base.

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15. Retention Rate

Metric: Measures the percentage of customers who continue to use the product over a specific period. Higher retention rates indicate better customer satisfaction and loyalty.

Calculation: Retention Rate = (Number of Customers at End of Period - Number of New Customers Acquired) / Number of Customers at Start of Period × 100.

Example: Number of Customers at End of Period = 950, Number of New Customers Acquired = 150, Number of Customers at Start of Period = 1,000. Retention Rate: (950 - 150) / 1,000 × 100 = 80%.

Why It’s Important for Founders: Helps improve customer retention strategies and long-term growth.

Why It’s Important for Investors: Indicates the sustainability and loyalty of the customer base.

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16. Profit Margin

Metric: Measures the percentage of revenue that translates into profit. Higher profit margins indicate better financial health and profitability.

Calculation: Profit Margin = Net Profit / Revenue × 100.

Example: Net Profit = $20,000, Revenue = $100,000. Profit Margin: $20,000 / $100,000 × 100 = 20%.

Why It’s Important for Founders: Helps understand the overall profitability of the business.

Why It’s Important for Investors: Indicates the potential return on investment.

17. Cost of Goods Sold (COGS)

Metric: Measures the direct costs attributable to producing the goods sold. Lower COGS indicates better production efficiency.

Calculation: COGS = Beginning Inventory + Purchases During the Period - Ending Inventory.

Example: Beginning Inventory = $10,000, Purchases During the Period = $50,000, Ending Inventory = $15,000. COGS: $10,000 + $50,000 - $15,000 = $45,000.

Why It’s Important for Founders: Helps manage production costs and improve gross margin.

Why It’s Important for Investors: Provides insights into the direct costs associated with production and profitability.

18. Debt-to-Equity Ratio

Metric: Measures the proportion of debt financing relative to equity financing. Lower ratios indicate less reliance on debt.

Calculation: Debt-to-Equity Ratio = Total Liabilities / Shareholders' Equity.

Example: Total Liabilities = $150,000, Shareholders' Equity = $300,000. Debt-to-Equity Ratio: $150,000 / $300,000 = 0.5.

Why It’s Important for Founders: Helps manage financial leverage and risk.

Why It’s Important for Investors: Indicates the startup's financial stability and risk profile.

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19. Return on Investment (ROI)

Metric: Measures the profitability of an investment as a percentage of the original cost. Higher ROI indicates better investment efficiency.

Calculation: ROI = (Net Profit from Investment / Cost of Investment) × 100.

Example: Net Profit from Investment = $30,000, Cost of Investment = $20,000. ROI: ($30,000 / $20,000) × 100 = 150%.

Why It’s Important for Founders: Helps evaluate the effectiveness of investments and allocate resources efficiently.

Why It’s Important for Investors: Indicates the potential return they can expect from investing in the startup.

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20. Annual Recurring Revenue (ARR)

Metric: Measures the annualized value of recurring revenue from subscriptions or contracts. Higher ARR indicates stable and predictable revenue.

Calculation: ARR = MRR × 12.

Example: MRR = $50,000. ARR: $50,000 × 12 = $600,000.

Why It’s Important for Founders: Helps forecast long-term revenue and manage financial planning.

Why It’s Important for Investors: Indicates the startup's long-term revenue potential and stability.

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21. Quick Ratio (Acid-Test Ratio)

Metric: Measures the startup’s ability to meet short-term liabilities with its most liquid assets. A higher ratio indicates better liquidity.

Calculation: Quick Ratio = (Current Assets - Inventory) / Current Liabilities.

Example: Current Assets = $150,000, Inventory = $20,000, Current Liabilities = $50,000. Quick Ratio: ($150,000 - $20,000) / $50,000 = 2.6.

Why It’s Important for Founders: Helps ensure the startup can meet its short-term obligations without relying on inventory sales.

Why It’s Important for Investors: Indicates the liquidity & financial health of the startup.

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22. Accounts Receivable Turnover

Metric: Measures how efficiently a startup collects revenue from its customers. Higher turnover indicates faster collection.

Calculation: Accounts Receivable Turnover = Net Credit Sales / Average Accounts Receivable.

Example: Net Credit Sales = $300,000, Average Accounts Receivable = $50,000. Accounts Receivable Turnover: $300,000 / $50,000 = 6 times.

Why It’s Important for Founders: Helps manage cash flow and assess the efficiency of the credit policy.

Why It’s Important for Investors: Indicates the startup’s effectiveness in collecting its receivables and managing working capital.

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23. Working Capital

Metric: Measures the startup’s operational liquidity and short-term financial health. Positive working capital indicates the ability to meet short-term obligations.

Calculation: Working Capital = Current Assets - Current Liabilities.

Example: Current Assets = $200,000, Current Liabilities = $80,000. Working Capital: $200,000 - $80,000 = $120,000.

Why It’s Important for Founders: Helps ensure sufficient liquidity to cover short-term expenses and operations.

Why It’s Important for Investors: Indicates the startup’s ability to sustain day-to-day operations and financial stability.

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24. Customer Retention Cost (CRC)

Metric: Measures the cost associated with retaining existing customers. Lower CRC indicates more cost-effective retention strategies.

Calculation: CRC = Total Customer Retention Expenses / Number of Retained Customers.

Example: Total Customer Retention Expenses = $10,000, Number of Retained Customers = 200. CRC: $10,000 / 200 = $50.

Why It’s Important for Founders: Helps optimize retention strategies and budget allocations.

Why It’s Important for Investors: It indicates the efficiency of customer retention efforts and the potential for long-term customer loyalty.

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25. Time to Market (TTM)

Metric: Measures the time taken from product development to market launch. A shorter TTM indicates faster go-to-market strategies.

Calculation: TTM = Date of Market Launch - Date of Product Development Start.

Example: Market Launch = December 2024, Product Development Start = January 2024. TTM: December 2024 - January 2024 = 11 months.

Why It’s Important for Founders: Helps streamline development processes and reduce time delays.

Why It’s Important for Investors: Indicates the startup’s agility in responding to market demands and opportunities.

?I hope this helps! If there are any calculations that you use in your business that you find especially helpful, please share them here and make the world a better place!