When writing a business plan, highlighting the key financial metrics is critical. Without a clear understanding of key financial metrics, it’s challenging to make informed decisions, optimise spending, and plan for growth. In this blog post, we’ll explore the most important financial metrics to include in a business plan, including what healthy and unhealthy ranges look like, and how to use them to guide your startup toward success. 1. Burn Rate What it is: The burn rate is the rate at which a startup spends its capital before becoming profitable. It’s crucial to know how quickly you’re using up your cash reserves and how long you can sustain operations without additional funding. Formula: Healthy Range: Unhealthy Range: Recommendation: A good rule of thumb is to keep your burn rate low enough to extend your runway for 12-18 months before needing additional funding. 2. Runway What it is: Runway is the amount of time a startup can operate before it runs out of money, given the current burn rate. Formula: Healthy Range: Unhealthy Range: Recommendation: Monitor your runway closely, especially when you’re approaching the 6-month mark. If needed, look for ways to reduce costs or raise additional capital. 3. Customer Acquisition Cost (CAC) What it is: CAC is the total cost of acquiring a new customer, including marketing, advertising, and sales expenses. Formula: Healthy Range: Unhealthy Range: Recommendation: To improve your CAC, optimize marketing channels, focus on customer retention, and refine your sales processes. 4. Customer Lifetime Value (CLTV) What it is: CLTV is the total revenue you expect from a customer over the entire duration of their relationship with your business. Formula: Healthy Range: Unhealthy Range: Recommendation: Work on improving retention rates, increasing customer spend through upselling, and enhancing your product or service to keep customers longer. 5. Churn Rate What it is: Churn rate refers to the percentage of customers who stop using your product or service during a given period. Formula: Healthy Range: Unhealthy Range: Recommendation: Focus on improving customer experience, customer support, and continuously adding value to reduce churn. 6. Monthly Recurring Revenue (MRR) / Annual Recurring Revenue (ARR) What it is: MRR and ARR are predictable revenue streams generated from subscriptions or contracts, providing insight into business stability. Formula: Healthy Range: Unhealthy Range: Recommendation: If your MRR/ARR is stagnating, analyze your customer acquisition strategies, product features, and retention efforts. 7. Gross Margin What it is: Gross margin is the percentage of revenue that remains after accounting for the direct costs of producing goods or services. Formula: Healthy Range: Unhealthy Range: Recommendation: Improve operational efficiency, reduce production costs, and look for ways to increase pricing or add value to your offering. 8. Net Profit Margin What it is: Net profit margin measures how much of each dollar of revenue turns into profit after all expenses, taxes, and interest. Formula: Healthy Range: Unhealthy Range: Recommendation: Work toward increasing revenue while controlling costs. A path to profitability should be clear, even if it’s not immediate. 9. EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) What it is: EBITDA is a measure of operating profitability that excludes non-cash expenses and non-operating costs. Formula: Healthy Range: Unhealthy Range: Recommendation: Focus on improving profitability by optimizing operating expenses and finding more efficient ways to generate revenue. 10. Debt-to-Equity Ratio What it is: This ratio compares the company’s total debt to its equity, indicating the degree of financial leverage. Formula: Healthy Range: Unhealthy Range: Recommendation: Keep debt levels manageable, especially during the early stages of your business. Consider equity financing over debt to avoid excessive leverage. 11. Working Capital What it is: Working capital is the difference between a company’s current assets and current liabilities. It measures liquidity and operational efficiency. Formula: Healthy Range: Unhealthy Range: Recommendation: If your working capital is negative, look for ways to improve cash flow, reduce liabilities, or increase assets. Conclusion Tracking key financial metrics is essential for creating a viable business plan. By understanding these metrics and keeping them within healthy ranges, you can make informed decisions about where to allocate resources, when to raise capital, and how to scale your business effectively. Regularly reviewing and optimising these metrics will set your startup on a path to profitability and sustainable growth. Business Plan Help I offer a business plan assistance service, including a financial evaluation of your proposition. My guidance helps you understand the financial health and metrics in your business plan. About | My name is Sohrab Vazir. I’m a UK-based entrepreneur and business consultant. At the age of 22, and while I was an international student (graduate), I started my own Property Technology (PropTech) business under the endorsement of Newcastle University. I grew my business to over 30 UK cities, and a team of four, and also obtained my Indefinite Leave to Remain (Settlement) in the UK. Currently, I help other entrepreneurs with their businesses.