A consumer startup has its own set of key financial fundamentals that founders should track. Understanding which metrics matter most as your startup develops can make it easier to open dialogues with investors, keep the team aligned, and – crucially – avoid running out of cash.

In this article we go from top (line) to bottom (line), covering some commercial metrics relating to your sales and marketing efficiency, as well as how to measure your financial health using your cash flow and working capital data.

The tactics used to win new customers in consumer startups are very different compared to startups that sell to other businesses. But the key metric dictating the success of your customer acquisition efforts is often the same: the ratio comparing your customer acquisition cost (CAC) to the customer’s lifetime value (LTV).

CAC = sales & marketing expense / number of new customers

We cover LTV:CAC in detail in our dedicated resources on customer acquisition and customer retention.

The rate at which new customers ‘pay back’ their cost of acquisition also matters. In the typical consumer startup, CAC payback should be less than 12 months, meaning that if you spend £100 to win a new customer, that customer should spend at least £100 with your company over the next year.

That’s different from the total lifetime value of the relationship, but a quicker payback period is a signal that your sales and marketing is targeted at the right consumer demographics, who are engaged and ready to buy your products or services.

On top of acquisition costs, consumer companies (particularly those operating subscription businesses) often look to increase the average order value (AOV) over a given timeframe. In particular, tracking AOV month on month can help founders gauge how well the business is able to expand its product offer over time.

Of course, selling more products, subscriptions and/or services is key to growing your top line revenue. For consumer startups and scaleups, gross merchandise value (GMV) is a common way to measure the total value of all goods sold.

GMV = number of transactions x AOV

GMV omits reductions related to selling fees, refunds and discounts. Often, net merchandise value (NMV) can provide a more rounded view, because it factors in the impact of discounts and other expenses on your revenue growth.

NMV = GMV – value of returns, cancellations, discounts, payment fees etc

While increasing GMV over time is a positive signal, NMV is less ‘vanity’ and more ‘sanity’ for most early-stage companies.

Top line revenue – and your revenue growth rate – is critical. But if you aren’t focusing on profitability, cash flows and net income, you don’t have a compelling growth story for investors, employees and other stakeholders.

Consumer companies use a range of data points to measure overall efficiency and profitability. For instance, consumer founders and investors often track contribution margin - the money you generate per sale once you remove the cost of goods sold as well as variable costs such as marketing spend.

Contribution margin = revenue – COGS – Marketing Costs

Generally, a high percentage of variable costs in startups and scaleups come from sales and marketing initiatives, as is natural in a fast-growing company. Investor Tomasz Tunguz states that typically, “contribution margins range from 5 percent to 25 percent depending on the sector.” Monitoring growth in your contribution margin over time is especially valuable as an indicator that your commercial engine is becoming more efficient.

The popularity of a metric isn’t the whole story: it's important to understand what the right metric is for your business. Metrics that measure the retention and stickiness of customer relationships are also important.

For instance, are your 2024 customers returning more often, and showing higher order values, than the customers that bought from you in 2023?

Building customer cohorts lets you measure how your AOV is changing (and hopefully growing) year-on-year, as well as how many of your customers return to make repeat purchases in a given timeframe.

Longevity pioneer and entrepreneur Bryan Johnson’s motto – ‘Don’t Die’ – could have been coined for startups battling cash flow challenges. Job number one? Don’t run out of money.

This is especially relatable as it seems there's more VC funding than ever available to a small number of AI-enabled startups experiencing exponential growth, while the majority of early-stage businesses are finding it more difficult to secure the capital they need.

This need for efficiency, coupled with slowing later stage investment into consumer startups, is partly why "seed strapping" has become more popular.

In an environment where later stage investment into consumer startups has been slowing, the ‘seed-strapping’ phenomenon has become more popular. This approach is where startups raise one early round of funding, after which they aim to reach breakeven. It seems to be favoured by founders looking to prevent excessive dilution.

As such, there is more pressure than ever for founders (even in early-stage startups) to focus on reducing their net burn rate.

Runway (in months) = cash reserves / average monthly net cash outflow

Your monthly net burn rate lets you calculate the number of months you have until you run out of cash, a time period known as your ‘runway’. Understanding this metric is essential to properly plan and execute on your strategy and whether you have the appropriate runway to reach profitability without further investment. (Read more on burn rate in our deep dive article.)

In this context, it’s essential to understand the relationship between cash flow and profitability. In startups or scaleups that have reached breakeven, net profit (your gross profit minus all expenses, taxes and other costs) is key to understanding your financial position. Companies that are yet to hit profitability don’t need to dwell on EBITDA (earnings before interest, taxation, depreciation and amortisation) and net profit.

For instance, a business with positive net cash flow) might still be unprofitable if it has high depreciation and amortisation costs. Conversely, a company can post profits in a given quarter or year while exhibiting negative free cash flow, for instance if the business is capitalising costs relating to research and development. This might also be the case during programmes of intensive capital expenditure, such as an expansion into a new product line.

Loan repayments can also affect net cash flow: while net income statements include interest payments on loans, they exclude principal repayments. A financial period in which a company pays down significant amounts of the principal on a loan would not be reflected in its net income but would impact free cash flow. Operating profits that also generate cash gives you more flexibility over how you spend money that drives growth, which may be financed either through equity investment or by leveraging your balance sheet and securing debt funding.

Consumer startups and scaleups are generally more exposed to macroeconomic conditions, from interest rates through to supply chain pressures and tariffs, compared to B2B companies. With this in mind, it’s important for consumer founders to familiarise themselves with the conventional methods of reporting on their top line and bottom line.

From high-level financial planning down to fundamental unit economics, it’s crucial to understand which metrics best reflect the performance and position of your business and market context. Some key metrics we’ve covered here include LTV to CAC ratios, payback periods, net revenue and profit (where applicable), customer retention trends, and the relationship between profitability and cash flow.

A solid grasp of your most important metrics enables more robust forecasting, better communication with your key stakeholder groups like employees and investors, and, in the end, faster growth.