Welcome to article 2 in our cap raising metrics series! In case you missed it, article 1 gave a broad overview of the metrics at each stage of the journey. Now, we’re looking at those of you in the pre-seed to seed stage. We know it’s easy to feel overwhelmed by all the metrics people say you should be tracking, but in these early days, your job isn’t to have picture perfect dashboards or hit massive growth targets. Your real focus is something much simpler (and more important), proving you’re heading in the right direction. So let’s check out the crucial metrics for this stage, and remember – we can help!
Here’s a picture again to keep you in the loop of where we’re at:
New logos/Bookings
Your earliest customers are a huge milestone for you and the business you’ve been pouring everything into. Tracking the number of new logos (aka customers) and the dollar value of those early bookings is less about revenue size and more about showing that someone out there finds value in what you’re building, as the investors who genuinely care about what you are doing will want to know about this.
How to calculate:
- No. of new logos (aka customers) sold during the month
- Value of new customers (aka customers) sold during the month
Extra tips:
In data from the US, you’ll likely hear the term ‘bookings’. This is the contract value that has been sold. For annual contracts (billed annually or monthly) it is the annual contract value. As you keep growing, you may have multi-year deals, and so bookings would be the multi-year contract value. Annual Contract Value (ACV) might be an average across the years.
Burn rate & runway
Do you know exactly how much money you’re ‘burning’ every month and how long you can operate before you run out of cash? This isn’t optional, it’s survival and essential at this stage of your journey. Keeping this front and centre helps you make better decisions and extend your operating time, which is often the difference between success and running out of time.
How to calculate:
- Gross burn rate = Total cash operating expenses for the latest month
- Net burn rate = Total cash operating expenses less receipts for the month
- Runway (months) = Cash at bank/burn rate, where burn could be either gross or net
Extra tips:
- If you’re worried about your ability to consistently close new sales going forward, you’re more likely to use gross burn
- While runway (technically) is how long until cash = $0, at different times you may also want to track runway until a certain minimum acceptable cash point based on your comfort level. At times of distress this would also need to allow for wind-up costs.
MRR/ARR (monthly/annual recurring revenue)
Even a small amount of recurring revenue is a strong start. It shows that users are not only interested, but willing to pay repeatedly – and this is fantastic from an investors viewpoint, at this stage, it’s not about scale, but about traction and repeatability. If you’re still pre-revenue, that’s okay, but if you’re bringing in even a few hundred dollars a month in recurring revenue, that’s gold, (investors love that).
How to calculate:
MRR is a way of ‘normalising’ recurring revenue where you may be selling a mixture of monthly, quarterly, annual etc contracts.
- For annual billing MRR = billed amount / 12
- For quarterly billingMRR = billed amount / 3
- For monthly billing MRR = billed amount, and ARR = MRR * 12
Extra tips:
- Fairly early on for a SaaS company you’ll need to introduce the accounting concept of revenue recognition, which is typically an end of month process that turns billing into revenue recognised in your accounting system. If you apportion your recognition equally across all months, then the revenue shown on your profit & loss income statement is the same as your MRR
- It is quite common for early stage SaaS companies to recognise 100% of the amount billed as revenue but it is not technically correct, and is one of the first questions investors will ask: “have you accounted for this correctly”
- Early on you can do this pretty simply in spreadsheets, but as you grow you’ll likely need to introduce tools to help you do this at scale
- While a single (close end of month) MRR is a starting point, you’ll get more sophisticated as you grow and break this into new MRR, expansion, contraction and lost…and that’s even before you start to segment it across different customer types
Churn
Are users sticking around? Or are they disappearing after a few days? High churn in the early days is a feedback loop telling you something’s off with your product, messaging, onboarding, or value delivery. Don’t ignore this: churn isn’t just a metric, it’s a compass, so use it to iterate quickly.
How to calculate:
- Customer churn % = No. lost customers in month/last months no. customers
- Dollar churn % = Lost MRR in month/last months closing MRR
Extra tips:
- Start to track the reasons why customers have churned as you can bet investors will ask this during due diligence (reasons could include product market fit, service, pricing etc)
Customer acquisition cost (CAC)
You’ll want CAC to be as low as humanly possible. Forget about flashy ad budgets or over-engineered funnels, this is the time for resourceful, creative marketing and customer acquisition. If you can demonstrate early customer growth with minimal spend, it sends a strong signal that your product has pull, not just push.
How to calculate:
- CAC = sales + marketing expenses for new customers/no. of new customers in the month
Extra tips:
- This calculation should include all the direct costs (eg wages, CRM subscriptions) and fully load them (eg superannuation benefits, rent etc)
- Early on this will be a large number as you’re doing things that don’t scale as they say because you’re figuring out why customers are buying your product. You’re trying to show that you’re paying attention to it and that, progressively, it should be going down. Ultimately, a lot of future investment dollars are going to be paying for this, so you can reverse engineer the $ raised to no. of customers
- There can be confusion about what’s included in the sales & marketing expenses, so for this metric (and in fact all metrics) it’s good to be explicit about what you include so that investors can see this clearly
What’s next?
At this early stage it’s about showing that you are paying attention to metrics – they won’t be perfect by a long shot and that is absolutely fine. As well as a bit of accounting, you’re going to spend a fair amount of time talking about making sure you’re collecting the right data behind the metrics. Make sure you’re collecting clean, usable data, it doesn’t have to be perfect, but it does need to be intentional. The numbers you report and how you track them lay the groundwork for future funding rounds and smarter decisions, and attracting the right kind of investors.
You don’t need to have it all figured out. But you do need to start measuring what matters. We’ll be breaking all of this down in future articles, so stick around! And if you’ve got questions or want help figuring out where you’re at, get in touch. We’ve got your back.
