Glossary of Metrics.
Retention cohorts measure how well a company retains its customers and revenue over specific periods, such as 6 or 12 months. These metrics provide insights into customer loyalty, satisfaction, and the company’s ability to sustain and grow revenue from its existing customer base.
Concentration examines the distribution of revenue across customers helping identify potential vulnerabilities and stability issues. High revenue concentration can indicate increased risk, while diversification generally suggests more stable earnings.
This section examines the components as well as trends of gross profit and operating profit from the monthly or quarterly income statement.
Growth accounting breaks down the company’s customer and revenue growth into its component parts.
With regards to customer growth, this includes new users, churned users, and user who churned but came back – referred to as resurrected users.
With regards to revenue, growth accounting includes revenue from new customers, expansion revenue from existing customers paying more, resurrected revenue from customers who churned but came back, revenue lost from churned customers, and contraction of revenue from existing customers paying less.
As an example, a company’s revenue growth rate of 0.5% = 7.2% new customer revenue + 1.8% resurrected revenue + 1% expansion revenue – 0.7% contraction of revenue due to customers paying less – 8.8% revenue lost due to customers churning.
Talent metrics provide insights into a company’s workforce dynamics, including employee retention, experience, productivity, and turnover. These measurements help organizations understand the efficiency of their human resources, optimize workforce planning, and assess the overall health and satisfaction of their employees.
Unit economics measures the profitability of acquiring and retaining customers by comparing gross-margin Lifetime Value (gmLTV) to Customer Acquisition Cost (CAC). It helps businesses assess the long-term value of a customer relative to the cost of acquiring them, providing insight into the efficiency of growth strategies.
Revenue projected for a full year based on current or partial-year data. It helps in forecasting and comparing financial performance.
Example: If a company generates $500,000 in a month, its annualized revenue would be $6 million ($500,000 x 12).
Similar to annualized revenue but calculated on a rolling quarterly basis, instead of using only the latest period, to provide a smooth view of profitability trends.
Revenue generated per employee on an annualized basis. It’s a measure of productivity and efficiency.
Example: If a company with 100 employees generates $10 million in revenue, the annualized revenue per employee is $100,000.
The average number of years of experience among employees. It can indicate the skill level and stability of the workforce.
Example: An average of 5 years of experience may indicate a more skilled workforce.
Compares the Average Gross Margin Lifetime Value to the Customer Acquisition Cost. Indicates how much revenue is generated for every dollar spent on acquiring a customer and on the product, wioth higher ratios showing more efficient customer acquisition.
Example: An average gmLTV12/CAC ratio > 1 means the typical cohort is profitable including COGS and CAC after 12 months, while a ratio < 1 means the cohort has not yet achieved payback.
Amount of recurring revenue, excluding any revenue from customer expansion or upselling. Provides insight into customer loyalty and the stability of the core revenue base.
Example: A gross retention of 80% means the company retained 80% of its revenue from the last period.
Compares the Average Lifetime Value to the Customer Acquisition Cost. Indicates how much revenue is generated for every dollar spent on acquiring a customer, with higher ratios showing more efficient customer acquisition.
Example: An average LTV12/CAC ratio > 1 means the typical cohort is profitable (without considering COGS) after 12 months, while a ratio < 1 means the cohort has not yet achieved payback.
Amount of loss in recurring revenue due to customer cancellations or downgrades, offset by revenue gained from customer expansion. Provides a more balanced view of revenue retention.
Example: A Net Churn of 80% means the company is losing 80% of recurring revenue from existing customers. A Net Churn of -20% means the company not only retained revenue from the last period, but has also expanded through upselling to existing customers.
Measures how efficiently a company can generate additional revenue per unit of revenue lost, with a higher ratio indicating stronger customer retention and growth.
Example: A Quick Ratio of 3x indicates that the company generates $3 in additional revenue for every dollar lost from existing customers.
Identifies whether the revenue distribution is balanced or disproportionately influenced by a few large values. A ratio close to 1 implies relatively equal distribution.
Example: If a dataset consisted of [1,2,99], then the average to median ratio would be 34 / 2 = 17. If a dataset consisted of [10,10,10], then the average to median ratio would be 10 / 10 = 1.
A metric used to assess how efficiently a startup or company is using its cash to generate revenue growth.
Example: A burn multiple of 2.0x means every 2 dollars expensed leads to one dollar in new revenue.
The total cost of acquiring a new customer, including sales and marketing expenses. It’s essential for understanding the efficiency of customer acquisition efforts.
Example: If a company spends $1,000 on marketing to acquire 10 customers, the CAC would be $100 per customer.
Lost revenue from customers who were active in the previous period, but contributed no revenue in the present period.
Example: A customer with $20k MRR has stopped the service, leading to $20k churned revenue.
The proportion of total revenue lost due to customers discontinuing the product or service, calculated as Churn Revenue ÷ Total Revenue.
Example: If a company lost $50,000 of $500,000 in total revenue due to customers leaving, the churn rate would be 10% ($50,000 ÷ $500,000).
CMGR stands for Compound Monthly Growth Rate over different periods (3, 6, and 12 months). It measures the average monthly growth rate over these specified periods, providing insight into growth trends in revenue, profits, or other financial metrics.
Example: A CMGR3 of 2% means an average growth of 2% per month over the past 3 months.
The direct costs of producing goods or services sold by a company, including materials and labor.
Example: If a company incurs $300,000 in costs to produce $1 million in sales, the COGS is $300,000.
Lost revenue in the present period compared to the previous period from active customers.
Example: A customer feels that the plan provided is not worth $500 per month, and has downgraded to another plan for $200 per month, leading to a contraction revenue of $300.
The proportion of total revenue lost from existing customers reducing their spending or downgrading, calculated as Contraction Revenue ÷ Total Revenue.
Example: If a company had $500,000 in total revenue and lost $50,000 due to customers downgrading, the contraction rate would be 10% ($50,000 ÷ $500,000).
Directly measures the profitability of individual customers after variable costs, highlighting whether scaling up the business is financially sustainable
Example: If the total acquisition spend is $10000 and cohort size is 500, then the CAC for this month would be $10000 / 500 = $20.
A measurement of the total number of years of work from everyone who worked at a company over time.
Example: If 2 people worked at a company for 9 months, then there was 2 x 9 / 12 = 1.5 “person-years” of work exerted.
The number of employees who left the company during the current period. It reflects employee turnover and can be an indicator of employee satisfaction or company challenges.
Example: If 10 employees left the company in the last quarter, that would be the churn for that period.
The percentage of employees retained after one year (or two ears). It’s a key metric for employee satisfaction and company culture.
Example: A retention rate of 85% means 85 out of every 100 employees stay with the company after one year.
The distribution of employees based on their seniority level, typically categorized by entry-level, mid-level, and senior/executive positions. It provides insight into the depth of experience and leadership within the company.
Example: A company may have 10 executives, 30 mid-level employees, and 60 entry-level employees.
A collection of profiles or summaries of the company’s founders and executives. It often includes their career history, key accomplishments, and role within the organization.
Example: An executive profile might include details like “John Doe, CEO and Co-Founder, has 15 years of experience in the tech industry and led the company to a 300% revenue growth in the last 5 years.”
Extra revenue in the present period compared to the previous period from active customers.
Example: A customer who is already using one product with $10k MRR has purchased another service, leading to $5k in expansion revenue.
The proportion of total revenue growth from existing customers through upselling or cross-selling, calculated as Expansion Revenue ÷ Total Revenue.
Example: If a company generated $500,000 in total revenue and earned $100,000 from upselling existing customers, the expansion rate would be 20% ($100,000 ÷ $500,000).
The total cost of an employee, including salary, benefits, and other expenses. It helps in understanding the total investment in human resources.
Example: A fully-loaded cost of $120,000 per employee might include $80,000 in salary, $20,000 in benefits, and $20,000 in other costs.
A measure of revenue concentration, ranging from 0 to 1.
Example: A Gini coefficient of 0 means every customer generates equal revenue, while a Gini coefficient of 1 means one customer generated all revenue.
Gross Margin Lifetime Value over six or twelve months compared to Customer Acquisition Cost (CAC). This metric incorporates gross margin into the LTV calculation to provide a more precise measure of profitability.
Example: If a company earns $300 in gross margin from a customer over six months and the CAC is $100, the gmLTV6/CAC is 3. Similarly, if the gross margin over a year is $600 and the CAC is $200, the gmLTV12/CAC is 3.
The percentage of revenue remaining after deducting the cost of goods sold (COGS). It measures production efficiency and profitability.
Example: A gross margin of 40% means the company retains $0.40 for every $1 of revenue after covering production costs.
The percentage of revenue that remains after covering all costs of goods sold, indicating how efficiently a company is producing or delivering its products or services relative to its revenue.
Example: A gross margin of 40% means the company retains 40 cents for every $1 of income, after accounting for the costs of goods sold.
Similar to gross margin but calculated on a rolling quarterly basis to provide a smooth view of profitability trends.
Example: A rolling quarterly gross margin of 38% indicates the company consistently retains 38% of revenue after COGS over the last quarter.
A metric used to estimate the profitability of potential investments. It is the discount rate that makes the net present value (NPV) of cash flows from an investment equal to zero.
Example: If an investment of $100,000 generates annual cash flows of $30,000 for 5 years, and the IRR is calculated to be 15%, this means the investment is expected to yield an annual return of 15%, making the NPV of the investment zero at that rate.
The percentage of employees retained over the lifetime of the company. It measures long-term employee loyalty.
Example: If a company retains 40% of its original workforce after 10 years, that would be the lifetime retention rate.
The amount of recurring revenue, excluding any revenue from customer expansion or upselling, integrated over all time.
The percentage of recurring revenue a company retains from its existing customers, integrated over all time.
The expansion revenue over revenue lost, integrated over all time.
The percentage of customers retained over six or twelve months, based on the number of customer accounts (logos). It indicates customer loyalty and satisfaction over these respective periods.
Example: If a company starts with 100 customer accounts and retains 85 after six months, the 6-month logo retention is 85%. If it retains 70 accounts after one year, the 12-month logo retention is 70%.
Lifetime Value over six or twelve months, representing the total revenue expected from a customer during those respective periods. It’s used to assess customer profitability over shorter (6 months) or longer (12 months) timeframes.
Example: A customer who generates $500 in revenue over 6 months would have an LTV 6M of $500, while a customer with $1,200 in revenue over a year would have an LTV 12M of $1,200.
The ratio of Lifetime Value over six or twelve months to Customer Acquisition Cost (CAC). It helps measure the return on investment for acquiring new customers over these respective periods.
Example: An LTV6/CAC of 3 means the company earns 3 times the acquisition cost from a customer in six months, while an LTV12/CAC of 4 suggests the customer generates 4 times the acquisition cost over a year.
A financial metric that evaluates how efficiently a company can grow its revenue relative to its sales and marketing expenses.
Example: A magic number > 1 indicates efficient growth, while a magic number < 1 suggests inefficient growth (company spending more on acquisition than its gain).
The number of months for a cohort to reach profitability, accounting for its acquisition costs.
Example: A customer whose gmLTV at 4 months equals the CAC has achieved payback in 4 months.
Revenue from customers contributing for the first time in the present period.
Example: A cohort of new users contributes $50k new revenue.
The proportion of total revenue generated from new customers, calculated as New Revenue ÷ Total Revenue.
Example: If a company generated $500,000 in total revenue and $150,000 came from new customers, the new rate would be 30% ($150,000 ÷ $500,000).
The total number of employees in a company. It can be used to assess company size, efficiency, and productivity when compared to financial metrics like revenue and profit.
Example: A company with 500 employees can assess its revenue or profit per employee for productivity insights.
The total number of employees categorized by their specific function within the company (e.g., Sales, Marketing, Engineering). It helps in understanding the company’s organizational structure and focus.
Example: A company might have 50 employees in engineering, 20 in sales, and 10 in marketing.
The profit a company makes from its core business operations, calculated as revenue minus operating expenses.
Example: If a company generates $5 million in revenue and incurs $3 million in operating expenses, the operating income is $2 million.
The percentage of revenue left after paying for variable costs of production, showing the efficiency of operations.
Example: If a company has $1 million in revenue and $800,000 in operating costs, the operating margin is 20%.
The percentage of revenue that remains after covering all operating expenses, showing how efficiently a company is generating profit from its core business operations.
Example: An operating margin of -200% means the company is expensing $2 for every $1 of income.
Operating margin calculated on a rolling quarterly basis, providing a moving average view of operational efficiency.
Example: A rolling quarterly operating margin of 15% means the company has sustained a 15% margin over the last three months.
The proportion of the workforce employed in sales and marketing roles. It can indicate the company’s focus on growth and customer acquisition.
Example: If 20 out of 100 employees work in sales and marketing, that’s 20% of the total workforce.
The ratio of new employees hired to the number of employees who left (churned) during a specific period. It indicates how well a company is replacing lost employees.
Example: If a company hired 20 new employees and lost 10, the quick ratio would be 2 (20/10).
Revenue from customers who had churned before, but have started contributing revenue again in the present period.
Example: A customer who stopped the service a year ago has reconsidered the decision, returning with $10k in resurrected revenue.
The proportion of total revenue from customers who have returned after leaving, calculated as Resurrected Revenue ÷ Total Revenue.
Example: If a company had $500,000 in total revenue and $20,000 was from returning customers, the resurrected rate would be 4% ($20,000 ÷ $500,000).
Revenue carried over from the previous period to the present period by active customers.
Example: A customer feels that the plan provided is not worth $500 per month, and has downgraded to another plan for $200 per month, leading to a retained revenue of $200.
The total income generated by the sale of goods or services. It’s a fundamental indicator of a company’s financial performance.
Example: A company generating $5 million in sales would report $5 million in revenue.
Revenue calculated over a rolling quarter, providing a moving average view of revenue to smooth out fluctuations and identify trends.
Example: If a company reports $1.5 million in revenue for the last quarter, this amount serves as its rolling quarterly revenue.
The percentage of revenue retained from existing customers over six or twelve months. It shows the company’s ability to maintain revenue from its customer base over these respective periods.
Example: If a company generates $1 million in revenue from existing customers and retains $900,000 after six months, the 6-month revenue retention is 90%. If $800,000 is retained after one year, the 12-month revenue retention is 80%.
Identifies how much of a company’s revenue is concentrated in its most valuable customers to highlight dependence on a small customer base and potential risks if these customers are lost.
Example: The revenue share of the top 10 is 40% for a company with $1M revenue from 100 customers sorted from most revenue to least where the top 10 customers contributed $400k total revenue. This indicates high concentration.
Identifies how much of a company’s revenue is concentrated in its most valuable customers to highlight dependence on a small customer base and potential risks if these customers are lost.
Example: The revenue share of the top 20% is 80% for a company with $1M revenue from 10k customers sorted from most revenue to least where the top 2k customers contributed $800k total revenue. This indicates high concentration.
A financial metric which states that the year over year growth plus the operating margin should exceed 40%.
Example: A company with a growth rate of 30% and an operating margin of 10% will have a rule of 40 of 40%, satisfying the threshold.
Total Operating Expenses, representing all expenses incurred during regular business operations. It’s used to assess cost management and operational efficiency.
Example: A company with total Opex of $3 million is spending that amount on its regular operations.
Year-over-Year Growth measures the percentage change in a financial metric compared to the same period in the previous year. It is a key indicator of a company’s performance and growth trajectory over time.
Example: If a company’s revenue grew from $10 million to $12 million over a year, the YoY growth would be 20%.