1. CAC (Customer Acquisition Cost)
Definition: The average cost to acquire a new customer.
Formula:
CAC = Total Marketing & Sales Spend / Number of New Customers
Example:
If you spend $10,000 on marketing in a month and acquire 100 new customers, your CAC is $100.
2. LTV (Lifetime Value)
Definition: The total revenue a business can reasonably expect from a single customer account over the entire relationship.
Formula:
LTV = Average Order Value × Purchase Frequency × Customer Lifetime
Example:
If a customer buys $50 worth of products 4 times a year and stays for 3 years:
LTV = $50 × 4 × 3 = $600
3. ROAS (Return on Ad Spend)
Definition: Measures the revenue generated for every dollar spent on advertising.
Formula:
ROAS = Revenue from Ads / Cost of Ads
Example:
If you spend $1,000 on Facebook ads and earn $5,000 in sales:
ROAS = 5,000 / 1,000 = 5 (or 500%)
4. Conversion Rate
Definition: The percentage of users who complete a desired action (e.g., purchase, sign-up).
Formula:
Conversion Rate = (Conversions / Total Visitors) × 100
Example:
If 2,000 people visit your site and 100 make a purchase:
Conversion Rate = (100 / 2,000) × 100 = 5%
5. Churn Rate
Definition: The rate at which customers stop doing business with a company.
Formula:
Churn Rate = (Customers Lost in a Period / Total Customers at Start) × 100
Example:
Start with 500 customers, lose 25 in a month:
Churn Rate = (25 / 500) × 100 = 5%
6. MRR (Monthly Recurring Revenue)
Definition: Predictable revenue a business expects to receive every month.
Formula:
MRR = Average Revenue per User × Total Active Users
Example:
If you have 200 subscribers paying $30/month:
MRR = 200 × 30 = $6,000
7. ARR (Annual Recurring Revenue)
Definition: The value of recurring revenue from subscriptions over a year.
Formula:
ARR = MRR × 12
Example:
MRR = $10,000 → ARR = $120,000
8. ARPU (Average Revenue Per User)
Definition: Measures revenue per active user over a specific period.
Formula:
ARPU = Total Revenue / Number of Active Users
Example:
If 1,000 users generate $20,000 in revenue:
ARPU = 20,000 / 1,000 = $20
9. Gross Margin
Definition: The percentage of revenue left after subtracting the cost of goods sold (COGS).
Formula:
Gross Margin = ((Revenue - COGS) / Revenue) × 100
Example:
Revenue = $100,000; COGS = $40,000
Gross Margin = ((100,000 - 40,000)/100,000) × 100 = 60%
10. Net Profit Margin
Definition: The percentage of revenue left after all expenses (including taxes and operating costs).
Formula:
Net Profit Margin = (Net Profit / Revenue) × 100
Example:
Revenue = $100,000; Net Profit = $10,000
Net Margin = 10,000 / 100,000 × 100 = 10%
11. Burn Rate
Definition: The rate at which a startup spends its capital before generating positive cash flow.
Formula:
Burn Rate = Monthly Operating Expenses
Example:
If you spend $50,000 per month and make $20,000:
Burn Rate = $30,000/month
12. Runway
Definition: How long the business can operate before it runs out of money.
Formula:
Runway = Cash in Bank / Monthly Burn Rate
Example:
If you have $150,000 and burn $30,000/month:
Runway = 5 months
13. MOIC (Multiple on Invested Capital)
Definition: Shows how much return you get relative to the original investment.
Formula:
MOIC = Total Value Returned / Capital Invested
Example:
Invest $1M, get back $4M → MOIC = 4.0x
14. EBITDA
Definition: Earnings before interest, taxes, depreciation, and amortization — used to evaluate profitability.
Formula:
EBITDA = Net Income + Interest + Taxes + Depreciation + Amortization
Example:
If Net Income = $100k, Interest = $10k, Taxes = $20k, Depreciation = $15k, Amortization = $5k
EBITDA = $150k
15. Retention Rate
Definition: Percentage of customers who continue to use your product over time.
Formula:
Retention Rate = ((Customers at End - New Customers) / Customers at Start) × 100
Example:
Start with 500 customers, gain 50, end with 480:
Retention Rate = ((480 - 50)/500) × 100 = 86%