Lagging Financial Metrics

Annual and Monthly Recurring Revenue (ARR/MRR).  Track recognized ARR/MRR and ARR run rate (most recent month’s MRR * 12).  They are rarely the same value for growing companies.  Track ARR growth rate.

Customer Lifetime Value (LTV).  This is the average revenue per customer x the average number of years a customer is retained.

Customer Acquisition Cost.  Sum of Sales and Marketing Expenses in a given quarter over the number of new customers acquired in that same quarter.

CAC Payback.  The number of months it takes to payback the sales and marketing costs to acquire that customer.

Sales Magic Number.  The amount of new ARR that you can acquire for $1 of sales and marketing spend.  If you spent $100K in a quarter and added $200K of ARR your sales magic number is 2.0.  If your number is greater than 1.0 there is room to invest further in sales and marketing.  If its less than 0.5 than there may be a need to improve a few things.

Gross Margin.  Total Revenue less Cost of Sales.  The Cost of Sales gets a little hazy but the best practice is to include all third party software components, as well as services and support costs.  Basically everything but OpEx.

Burn Rate.  Total Revenue less Total Expenses.

Gross Retention Rate (GRR).  The amount of recurring revenue in a given period less recurring revenue that churns (does not renew).  For a mature company, this number should be north of 90%.

Net Retention Rate (NRR).  This is GRR but including any upsells or expansion revenue from customers in the same period. If you are between 100 and 110% you are doing great.

Leading Sales Metrics

Bookings.  This is the dollar amount of sales that is booked.  Booked sales is future revenue, rarely unless its hardware can it be recorded right away.  Booked sales may also have deferred cash collection.  Its important to split booked sales out by revenue type.  Example, recurring software value vs services; or tracking multiple years of booked sales versus one year, etc.

Opportunity Creation.  The number of opportunities created in a period of time.  (Ex. Monthly, Quarterly, Annually).  Track opportunity types between New Customer, Existing Customer, and Renewal Opportunities.

Win rate.  Number of Opportunities Won over Opportunities Won and Lost in the same period.  Ideally track across New vs Existing, by industry, rep, region, product family, and opportunity source.

Average Contract Value.  The average size of a new contract (bookings).  Focus on new customer opportunities.

Sales Cycle Length.  How many days does it take to close an opportunity from start to finish.  Track New Customer from Existing Customer deals as they will be different.

Sales Velocity.  A number which will tell you instantly if you have enough momentum to hit your number.  It’s the product of Number of Opportunities in Current Funnel x Average Contract Value x Win rate over Sales Cycle Length.  The product will be the number of dollars you are closing each day.  So if your target is $1M new bookings for the year, your sales velocity should be $2,700.

Funnel Attrition.  This is the number of meetings it takes to get an opportunity.

Other Operational Metrics

Services Backlog.  Number of contracted hours you have approved.  Divide that by your services capacity to tell you how many months of work you have contracted.

Utilization Rate.  How many hours in a given period (week/month) is your services team busy on value creation (or billable customer work versus admin work).  Your number should be north of 70% but best in class services teams would be in the 80% range.

Average Revenue per Employee.  Total Revenue divided by Number of Employees.  Ideally you will be operating at 2X the average cost per employee.

Project Gross Margin.  Total Revenue less Cost as a percentage of revenue on a project.  Ideally in the 40-50% range.

Customer Net Promotor Score.  A simple but effective measure of customer satisfaction.  The range is -100 to 100.  A great score in B2B tech sectors would be 30+.

Conclusion

Companies that achieve profitable efficient growth as measured by the Rule of 40 are worth double the valuation multiple of their counterparts.  The formula is simple, but getting there takes effort and rigor.  It’s a combination of people, processes, and systems.  There are no silver bullets.

TekStack’s R40 Performance program provides you the supporting role and is designed for bootstrapped founders who want to increase the value of their company by a factor of 3-5X within three years or less.  Instead of hiring expensive new management, or implementing distracting new process and tools; work with TekStack to get faster results with less risk and less cost.