The numbers that describe the business.
WHAT RECURRING REVENUE MEASURES
Predictable revenue per month or year, excluding one-time amounts.
WHY EXCLUDING THEM MATTERS
Including one-time revenue overstates the underlying business.
WHAT CHURN MEASURES
Customers or revenue lost in a period.
WHY REVENUE CHURN DIFFERS FROM CUSTOMER CHURN
Losing many small customers differs from losing one large one.
WHAT NET REVENUE RETENTION MEASURES
Revenue from existing customers, including expansion, against the prior period.
WHY IT IS THE MOST INFORMATIVE SINGLE FIGURE
Above one hundred per cent, the business grows without any new customers.
WHAT CUSTOMER ACQUISITION COST MEASURES
Everything spent on sales and marketing, divided by customers won.
WHAT LIFETIME VALUE ESTIMATES
Total expected profit from a customer.
WHAT THE RELATIONSHIP SHOULD BE
Lifetime value comfortably exceeding acquisition cost.
WHAT PAYBACK PERIOD MEASURES
How long until a customer repays what they cost to acquire.
WHY IT MATTERS MORE THAN THE RATIO
It determines cash requirements, which is what actually constrains a small business.
WHAT TO BE CAREFUL WITH
Lifetime value calculated from optimistic retention Averages concealing very different segments Metrics computed differently each time
WHAT TO DEFINE
Each metric precisely, and calculate it the same way every period.
WHAT TO TRACK MONTHLY
Revenue, churn, new customers, and cash.
