16-Startup-Metrics-Andreessen-Horowitz #

#2 Recurring Revenue vs. Total Revenue #

Investors more highly value companies where the majority of total revenue comes from product revenue (vs. from services). Contribution margin per customer (per month) = revenue from customer minus variable costs associated with a customer. As the company starts to recognize revenue from the software as service, it reduces its deferred revenue balance and increases revenue: for a 24-month deal, as each month goes by deferred revenue drops by 1/24th and revenue increases by 1/24th. This is why investors consider paid CAC [total acquisition cost/ new customers acquired through paid marketing] to be more important than blended CAC in evaluating the viability of a business — it informs whether a company can scale up its user acquisition budget profitably. Investors look at it the following way:

Monthly unit churn = lost customers/prior month total Retention by cohort Month 1 = 100% of installed base Latest Month = % of original installed base that are still transacting

It is also important to differentiate between gross churn and net revenue churn — Gross churn: MRR lost in a given month/MRR at the beginning of the month. As a reminder, here’s a simple calculation: Monthly cash burn = cash balance at the beginning of the year minus cash balance end of the year / 12 It’s also important to measure net burn vs. gross burn: Net burn [revenues (including all incoming cash you have a high probability of receiving) – gross burn] is the true measure of amount of cash your company is burning every month. Investors like to look at monthly GMV, monthly revenue, or new users/customers per month to assess the growth in early stage businesses.