1 Track net income over time. Net income is the amount of money left over after all expenses have been paid. It is the most basic measure of profitability.
2 Calculate profit margins. Profit margins show how much profit is generated from each unit of revenue. Gross profit margin measures the percentage of revenue that remains after direct costs of goods sold have been subtracted. Operating profit margin measures the percentage of revenue that remains after all operating expenses, including direct costs of goods sold and selling, general, and administrative expenses, have been subtracted. Net profit margin measures the percentage of revenue that remains after all expenses, including taxes, have been subtracted.
3 Analyze revenue growth. Revenue growth is the rate at which revenue is increasing over time. It is a key indicator of a startup’s health and growth potential.
4 Look at customer acquisition costs (CAC). CAC is the average cost of acquiring a new customer. It is important to track CAC to ensure that it is lower than the lifetime value of a customer.
5 Monitor customer churn rate. Customer churn rate is the percentage of customers who stop using a product or service over a period of time. It is important to keep customer churn rate low to maintain profitability.
6 Evaluate customer lifetime value (CLV). CLV is the average amount of revenue that a customer is expected to generate over the course of their relationship with a company. It is important to track CLV to ensure that it is greater than CAC.
7 Track unit economics. Unit economics measures the profitability of each unit of revenue. It is important to track unit economics to ensure that the startup is generating a profit on each sale.
8 Analyze cash flow. Cash flow is the movement of money into and out of a business. It is important to track cash flow to ensure that the startup has enough money to operate and grow.
9 Compare financial performance to peers. Comparing financial performance to peers can help to identify areas where the startup is excelling or falling behind.
10 Use a discounted cash flow (DCF) analysis. A DCF analysis is a valuation method that takes into account the future cash flows of a business. It can be used to estimate the value of a startup and to track its profit growth over time.