What KPIs Matter, and Which Ones to Track
Most founders hear “KPIs” and assume it’s accounting jargon they should already understand. In reality, KPIs are simply the vital signs of a business—the measurements that indicate whether the company is healthy, stable, or quietly drifting into trouble.
The issue isn’t that founders don’t want to track KPIs. It’s that the numbers are rarely explained in plain terms: what they mean, how to calculate them, and how they should guide decisions.
This article breaks that down.
What Exactly Is a KPI?
A KPI—Key Performance Indicator—is a measurable number that helps leadership understand how the business is performing.
A true KPI must:
Measure something essential
Show clear movement over time
Directly inform a decision
If a metric doesn’t help improve a business decision, it isn’t a KPI—it’s noise.
The KPIs below fall into four categories: revenue, margin, operating discipline, and growth efficiency.
1. Monthly Revenue (or MRR for Subscription Businesses)
What it stands for:
MRR = Monthly Recurring Revenue
What it measures:
Total revenue generated in a given month. For subscription businesses, this reflects recurring revenue.
How to calculate:
Sum all revenue recognized in a calendar month.
Why it matters:
Revenue trends indicate demand and momentum. Growth, stagnation, or decline becomes visible long before it appears in annual results.
2. Gross Margin
What it measures:
The percentage of revenue remaining after direct delivery costs.
Formula:
(Revenue − Cost of Goods Sold) ÷ Revenue
Why it matters:
Margin reveals efficiency. Weak margins signal pricing or cost issues and make scaling painful. Strong margins create room to hire, reinvest, and grow sustainably.
3. Operating Expenses (OpEx)
What it measures:
All non-delivery costs required to run the business.
Examples include:
Salaries
Rent
Software
Marketing
Insurance
How to calculate:
Sum all operating expenses monthly.
Why it matters:
OpEx creep happens quietly. Monitoring it consistently prevents surprises and protects margins.
4. EBITDA
What it stands for:
Earnings Before Interest, Taxes, Depreciation, and Amortization
What it measures:
Core operating profitability, independent of financing and accounting structure.
How to calculate:
Start with net income and add back interest, taxes, depreciation, and amortization.
Why it matters:
EBITDA removes accounting noise and highlights whether the underlying business model is profitable.
5. Cash Balance
What it measures:
The amount of cash available in bank accounts.
How often to track:
Daily or weekly.
Why it matters:
Revenue reflects activity. Profit reflects accounting. Cash reflects reality.
6. Cash Burn Rate
What it measures:
How much cash the business spends each month after revenue.
Formula:
Monthly Cash Outflows − Monthly Cash Inflows
Why it matters:
Burn rate defines how quickly reserves are being consumed and how much flexibility the business has.
7. Cash Runway
What it measures:
How many months the business can operate at its current burn rate.
Formula:
Cash Balance ÷ Monthly Burn Rate
Why it matters:
Runway defines urgency. Under six months typically requires immediate action—reducing burn, increasing revenue, or securing capital.
8. Customer Acquisition Cost (CAC)
What it stands for:
Customer Acquisition Cost
What it measures:
The average cost to acquire one customer.
Formula:
(Total Sales + Marketing Spend) ÷ New Customers Acquired
Why it matters:
Rising CAC without proportional revenue growth signals inefficiency in the growth engine.
9. Customer Lifetime Value (LTV)
What it stands for:
Lifetime Value of a Customer
What it measures:
Total revenue expected from a customer over the duration of the relationship.
Simple formula:
Average Revenue per Customer × Average Customer Lifespan
Why it matters:
Higher LTV allows businesses to invest more aggressively in growth while remaining profitable.
10. LTV / CAC Ratio
What it measures:
The relationship between customer value and acquisition cost.
Formula:
LTV ÷ CAC
Why it matters:
A commonly accepted benchmark is 3:1—earning $3 for every $1 spent acquiring a customer. Ratios below that indicate growth that becomes difficult to sustain.
How KPIs Should Be Used
KPIs are not meant to be tracked in isolation. They function as a system.
Revenue without margin hides inefficiency.
Profit without cash hides risk.
Growth without LTV/CAC hides fragility.
The objective is not to track more metrics, but to track the right ones consistently—and use them to guide decisions.
When KPIs are aligned and reviewed with discipline, leadership shifts from reaction to intention.
Virginia Sky Advisory publishes practical guidance to improve financial clarity, operating discipline, and executive decision-making. When leadership can read the numbers correctly, decisions get faster and cleaner.
