Measuring is caring. If you don’t measure progress, you don’t care.
You can measure the performance of just about anything and everything.
If you search the Internet for performance indicators, hundreds of them exist.
Every article recommends different ones, but strangely enough, they never mention the important ones.
As a result, we have hundreds of tools at our disposal, but most people don’t know what they’re actually for.
Before choosing which KPIs to track, let’s ask ourselves the following question.
Remember what we learned in the 4 business levers chapter.
We aim to ensure that your business delivers maximum value to its market for as long as possible.
To achieve this, we strive for the following ideal:
Build a business that sells expensive, unique, and recurring products (or services) that cost little to produce while delivering a phenomenal amount of value to buyers.
So, to have a rolling business, we can move three sliders:
Our KPIs must help us:
The KPIs presented below are the indicators investors look at when investing in your business. The reason they look at these figures is that, taken together, they allow you to measure whether your business:
These indicators show how close your company is to meet the ideal business criteria (see “The 4 business levers” chapter).
In other words, they show how sustainable you are.
If your business is sustainable, you can deliver more value to the world for longer.
And, if you provide more value for longer, you’re winning at the business game.
Below, you’ll find the key KPI definitions, formulas, and explanations that matter for your business.
At the end of this chapter, there’s a Notion database I built that calculates all of them automatically.
These KPIs will stay with you through your whole business journey, helping you project, plan, and make sharper decisions.
NB: The following KPIs are intricately linked to each other.
Keep on reading even if you encounter one you don’t fully understand.
The definition will follow.
The best VCs don’t stop at metrics. They judge the people behind the company on three key criteria:
Important note:
If you’re setting personal KPIs, start with those three—they matter most for business.
I’ve written about them in the chapter “The 4 business levers”.
I recommend you read it.
The money generated from all sales in a given period of time.
This figure enables you to calculate your business’s Gross Profit (and, by extension, its GPM and LTGP).
If you don’t accurately track your total sales, you won’t be able to visualize your Gross Profit Margin properly.
Total Sales formula
All the money generated by sales of goods/services.(aka COGS)
The direct cost of producing the goods sold by a company.
This figure enables you to calculate your business’s Gross Profit (and, by extension, its GPM and LTGP).
If you don’t track this figure precisely, you won’t be able to visualize your Gross Profit Margin correctly.
COGS formula
+ Opening Inventory Value
+ Purchases of Inventory
- Closing Inventory Value
or…
+ Raw Materials
+ Salaries
+ Packaging Costs
+ Freight Costs
+ …
or…
+ Sum(Products' Direct Labour Costs)
+ Sum(Products' Other Direct Costs)(aka GP, Gross Income)
The revenue minus the direct cost of servicing an additional customer.
This is the money the business makes, on average, on a sale.
This indicator is a pragmatic way of measuring the health of your business.
Companies with a low Gross Profit often cannot pay their employees properly or provide a quality customer experience.
GP formula
+ Total Sales
- COGS(aka GPM, Gross Income Margin)
A profitability metric that indicates the amount of revenue left after subtracting the cost of goods sold, expressed as a percentage of total revenue.
This indicator is a direct derivative of your Gross Profit. It tells us the average margin a business makes on a sale in percentage form.
You’ll need to monitor the evolution of this margin to improve the customer experience you provide.
This indicator is the quality potential at your disposal to achieve your mission and bring value to your market.
In simpler terms, if I make 90 cents on a 1$ sale, my GPM is 90%.
GPM formula
(Total Sales - COGS) / Total Sales
or…
Gross Profit / Total Sales(aka LTGP)
The gross profit accrued over the entire lifetime of a customer.
Like the Gross Profit Margin (GPM), this number is a direct derivative of your Gross Profit.
Lifetime Gross Profit gives you an idea of how much you’ll earn from a single customer over one’s lifetime.
This indicator enables you to project yourself more easily into the future to better understand how to develop your GPM.
LTGP formula
GPM x Average Purchase Value x Number of Purchase x Customer Lifetime
or…
GPM x LTV(aka CAC, Cost of Acquisition)
The total expense incurred by a business in acquiring a new client.
This number lets you calculate your overall acquisition cost (CAC x # of customers.)
Your CAC is a good indicator of your sales and marketing performance. You know whether you’re spending a lot on each new customer and whether or not you can afford to lose any.
Moreover, we can calculate your Net Profit with your CAC and Overhead.
CAC formula
(Marketing Expenses + Sales Expenses) / Number of Customers Generated(aka Operating expenses)
Ongoing business expenses that cannot be directly attributed to a specific activity. The cost of operating the structure.
These are the company’s overall expenses.
They should not be confused with the Cost of Goods Sold (COGS). Overhead represents all expenses remaining after COGS.
This figure is simply used to calculate the company’s Net Profit.
Overhead formula
+ Admin
+ Rent
+ Loan
+ Taxes
+ …Remaining revenue after all the company’s expenses.
The total sales of a company minus expenses like cost of goods sold, selling, general and administrative expenses, operating expenses, depreciation, interest, and taxes.
This is the money left over after everything has been paid for.
It’s literally the number that tells you how much time you have left.
Thanks to this final sum, you know what you can reinvest in the business or how much you can put into the pockets of the organization’s members.
Net Profit formula
GP - CAC x Number of clients - OverheadIn the day to day life, what you really need to look at is your Payback Period.
It’s how long it takes until your Gross Profit (GP) becomes superior to your Customer Acquisition Cost (CAC).
In other words, how long it takes to break even.
Ideally, your 30-day GP should be over 2× your CAC.
That means each client funds two more within a month — unlocking exponential growth.
Ultimate Payback Period formula
30 Day GP > 2 x CACNow that you know what to track to monitor your business’s health status, you can draw your calculator AFAP or use the free auto-calculator template I made named KPIs calculator in the free tools section.
Enjoy!