Regardless of how a startup is financed or its stage of development, management requires clear data on key performance indicators(KPIs) that are regularly updated on a dashboard.
Let's look at the KPI reports you need to be generating based on your stage of growth or funding model. Then, with concrete examples specific to startups, you'll understand why KPI reporting is essential.
1 - The value of daily KPI reporting
At every stage in the life of a startup, managers need to have an overview of financial and operating performance, as well as of cash flow. And it does not matter how your startup is funded or what stage of growth it is at: managers need KPIs to monitor the progress of the business.
1.1 - Pre-seed or seed-stage startups: what kind of management?
To set up a company in the pre-seed phase, i.e. a startup, you can rely on self-financing, investments and donations from family(love money), and public funding, for example. In this way, you begin as a bootstrapped startup, hoping that the revenues generated will also support growth. Even in this situation, KPIs and reporting are essential, especially for monitoring your cash burn and CAC. Because your - often limited - financial resources are precious. But if you burn through all your cash without realizing it, how can you reach the next stage of development?
1.2 - Startups and growth: KPI and reporting needs
When a startup raises seed capital, i.e.the first round of financing, it brings in investors. Obviously, these capital providers require regular information on the business, cash flow, and performance. They have a right to information on performance, and the norm for management is to provide them with the right performance KPIs. KPIs and reports are the key to presenting key indicators in a professional way. Whether a startup decides to continue its growth by seeking further Series A, B, or C funding, or by taking on debt, it will always be accountable to its financial partners.
1.3 - Bootstrapped startup: development using equity capital
In the case of a startup that is developing solely on its own capital, it is vital to monitor business and financial metrics closely and regularly. After all, equity capital is not expandable. The development of products or services requires new money, even though the startup does not yet have a significant sales volume. Cash flow and profitability must therefore be carefully monitored.
💡 The cash runway calculates the number of months of cash remaining based on monthly cash consumption (net burn rate). This is a vital KPI for a bootstrapped startup.
📌 Example:
- Current cash: €100,000
- Net burn rate: €20,000 per month
- Cash runway = 5 months
- As a result, CEOs need to start thinking today about how they want to finance their growth—before they find themselves with €0 cash flow in 5 months' time. This could involve raising funds from business angels, for example.
1.4 - Startups and non-dilutive financing
Do you prefer to mix different sources of financing, so as not to dilute capital too much? Use bank debt, a quasi-equity loan, or RBF (revenue-based financing). This gives you the cash you need to finance your growth strategy.
You then pay your acquisition and advertising expenses and can hire sales staff, provided that these new expenses generate sufficient sales.
📌 Example: To increase customer acquisition, you decide to hire a sales rep and take out a loan with a bank. If the monthly repayments (interest + repayment)represent €50,000/year, then your sales rep must generate sales that are higher than the repayments.
In all these situations, KPIs provide the clear view needed to monitor growth and manage cash flow. After all, if debts aren’t repaid on time, you’ll end up defaulting on payments.
2 - KPI reporting for informed decision-making
As you can see, KPIs and reporting are essential for all startup business models.
Are your KPIs telling you that your company’s performance and profits are deteriorating? Here are some concrete actions that your managers can take or decisions they can make to turn the situation around.
2.1 - Example 1: reacting to a deterioration in CAC
Customer acquisition cost (CAC) is an indicator that measures the expenditure required to win a new customer. If it deteriorates, you run the risk of burning cash and seeing performance decline.
📌 Example: if your LTV/CAC ratio is equal to 1, then your revenues are not sufficient to absorb your expenses and generate profits. The expected norm is a ratio equal to 3 (you spend €300 to acquire a customer, who then spends €900 on average).
Analysis of this financial data should lead you to take action and re-evaluate your acquisition expenses:
- Study the KPIs specific to your acquisition strategy, in both SEA (advertising) and SEO (search engine optimization), to identify what's going wrong.
- Ask customers about their level of satisfaction and areas for improvement.
- Adjust your advertising campaigns or your presence on social networks.
- Fine-tune your website's UX (user experience) to improve conversion.
2.2 - Example 2: correcting a critical cash burn
KPIs and reporting are all about anticipation. Precise cash flow information, such as the number of months of available cash (cash runway), gives you peace of mind and a clear view ahead. You can then look for a solution in advance, such as a new investor or a loan because finding financing can take time. Having key indicators at your fingertips gives you reassurance and reduces the risk of bankruptcy.
2.3 - Example 3: adjusting your offering if churn is high
Are you keeping a close eye on your attrition rate (churn rate) and how it’s changing? If you observe an increase in customer churn, investigate the reasons and then take corrective action (or actions). Do customers stop subscribing because of the quality of the service, the user-friendliness of the app, the price, the after-sales service, etc.?
📌 Example: if you're losing €1,000 MRR a month due to churn, reducing it by 30%will save you a loss of (30% x €1,000) x next 12 months, in other words €3,600 MRR over a year.
2.4 - Example 4: changing your pricing to develop ARR
A SaaS offering usually includes several plans, some in the form of monthly subscriptions, others on an annual basis.
Tracking indicators and sales mix are essential for understanding how different offerings are performing. Sometimes, a price adjustment—with a temporary discount, for example—can boost sales of an offering.
2.5 - Don’t fancy KPIs or reporting? On your head be it!
With these examples, it's easy to see that running a startup without KPIs and reporting is like sailing stormy waters with your eyes shut. Yet startups, with their specific growth and business models, are just the kind of businesses that need to monitor growth and cash flow the most.
Without growth and cash, you won't get far. To achieve your business objectives, don't neglect your key indicators. KPIs and reporting seriously reduce your financial risks and enable you to make better decisions. Setting up a relevant dashboard is good. Using it regularly is better. Fincome is the partner of choice for SaaS companies. Book a free demo to find out how we help you build reliable, up-to-date KPI reporting in just a few hours.
💡 Complete your reading with the following articles:
- 3 common mistakes that kill SaaS startups
- Why SaaS reporting is a must (plus the best KPIs)
- Top tips for communicating with SaaS investors
- Automated reporting for SaaS: a quick guide
- Why is SaaS financial reporting still crucial for your startup in 2023?
