13 KPIs Every ISV Should Track

These metrics can help ISVs evaluate current health and enable agility in adapting to market changes and competition. 

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Mastering key business metrics is important for attracting investors, making strategic decisions, and monitoring business health. From my experience in preparing software companies for deal-making, these metrics evaluate current health and enable agility in adapting to market changes and competition. 

  1. Customer Acquisition Cost (CAC) is the cost of acquiring a new customer. Efficient marketing strategies lead to a lower CAC, indicating more effective resource use. CAC is vital for startups where optimized resource allocation is a must. It shows how current strategies are performing and whether they are sustainable in the long term. It also helps make informed decisions about budgeting and strategizing future marketing and sales efforts, ensuring that every dollar spent contributes to business growth.
    CAC = Total Cost of Sales and Marketing / Number of New Customers Acquired
  1. Monthly Recurring Revenue (MRR) and Annual Recurring Revenue (ARR) provide a clear view of your predictable income, which is crucial for planning and forecasting. These are key indicators watched closely by investors and deal-makers to assess your venture’s financial stability and growth trajectory. They are often used to evaluate the company’s valuation during funding rounds or M&A activities.
    MRR = Sum of all monthly recurring revenues.
    ARR = MRR x 12
  2. Growth Rate measures the increase in recurring revenue. It assesses short-term health and checks on growth progress. High growth rates indicate solid adoption and growing market share.Review MRR and ARR regularly, in conjunction with other metrics, to ensure that growth strategies align with financial health indicators. Failing to convert growth into recurring revenue can significantly impact the business’s success and sustainability. Beware that large deal sizes don’t always translate into customer retention, and mass account growth does not always convert into recurring revenue.
    Net MRR Growth Rate = [(Net MRR of Current Month – Net MRR of Previous Month) / Net MRR of Previous Month] * 100
    ARR Growth Rate = [(Current Year ARR – Previous Year ARR) / Previous Year ARR] * 100
  3. Churn Rate reflects the percentage of customers who discontinue using your service within a given time frame. It’s a critical metric for subscription-based businesses, providing direct insight into customer retention and overall satisfaction with your service or product.Tracking churn rate is crucial for revenue forecasting, growth planning, and enhancing the customer experience—Automate churn tracking via CRM systems to record subscription changes accurately. High churn rates affect revenue and growth and inflate Customer Acquisition Cost (CAC), undermining profitability. By diligently tracking, analyzing, and responding to churn rate trends, software businesses can enhance customer retention strategies, improve product offerings, and ultimately build a more resilient and customer-centric business.
    Churn Rate = (Lost Customers / Total Customers at the Start of Period) x 100
    Retention Rate = 100%- Churn Rate
  4. Customer Lifetime Value (CLV) gauges the long-term financial contribution of customers, guiding retention and upselling strategies. It identifies key customer segments for targeted marketing, with higher CLV indicating strong engagement and loyalty. Comparing CLV to Customer Acquisition Cost (CAC), especially a CLV: CAC ratio of 3:1, highlights business model sustainability and efficient customer acquisition investment.CLV calculation links higher purchase values, transaction rates, and lifespans to increased CLV. Regular reviews help identify trends, improvement opportunities, and the impact of customer-focused strategies.
    CLV = Average Purchase Value x Number of Transactions x Retention Time Period
    For subscription-based models, this can be simplified to: CLV = Month Subscription Fee x Average Customer Lifespan (in months)
  5. Net Promoter Score (NPS) indicates customer satisfaction, loyalty, and advocacy potential, asking customers their likelihood to recommend a product on a 0-10 scale and classifying them as Promoters, Passives, or Detractors. Calculated by subtracting Detractors’ percentage from Promoters’, a high NPS suggests strong customer endorsement and potential for organic growth via word-of-mouth, whereas a low NPS highlights areas needing improvement to boost customer experience. Analyzing Promoter traits enhances marketing precision, and tracking NPS over time enables businesses to gauge the effectiveness of initiatives.
  6. Product Engagement Score, derived from metrics like daily active users DAU, session length, feature usage, and usage frequency. It indicates user behavior and feature appeal; higher scores signal valuable user experiences, enhancing retention and revenue, while lower scores may indicate a need for functionality or user experience adjustments. This weighted average helps identify areas for improvement and successful features, guiding strategic enhancements to boost engagement.
    Product Engagement Score = Weighted Average of (DAU + Session Length + Feature Usage + Frequency of Use)
  7. Burn Rate and Runway indicate how long you can operate under current financial conditions and the necessity of reaching critical milestones. These metrics, key to investors, reflect financial discipline and viability. Maintaining accurate income and expense records through accounting software enables real-time financial oversight, allowing for adjustments that support continued growth and profitability.
    Burn Rate = Total Cash Spent Over Period / Number of Months in Period
    Runway = Current Cash Reserves / Monthly Burn Rate
  8. Gross Margin reflects your business model’s efficiency, with a higher margin indicating efficient cost management and profitability. In contrast, a lower margin suggests potential inefficiencies or high production costs. It’s crucial for assessing the sustainability of pricing models and overall operational health. COGS for software companies may cover hosting, support, and third-party services. Again, utilizing accounting software for meticulous financial tracking helps optimize gross margin, which is essential to achieving long-term success.
    Gross Margin = (Total Revenue – Cost of Goods Sold (COGS)) / Total Revenue * 100
  9. Daily Active Users (DAU) and Monthly Active Users (MAU) quantify the engagement levels of a software’s user base within specific time frames. By monitoring and actively working to improve these metrics, companies can ensure that their software remains valuable to their users.
    DAU/MAU Ratio = DAU / MAU
  10. Total Addressable Market (TAM) quantifies the maximum potential revenue at 100% market share, which is key for assessing product scalability and guiding market entry and growth strategies. It helps evaluate market segment viability for expansion, focusing on high-opportunity areas. Calculated via bottom-up, top-down, or value-theory methods, TAM assists startups and investors in assessing returns and scalability. Though static, comparing TAM with current penetration highlights growth avenues, with software analytics on demographics and behavior sharpening TAM estimates. An example is a fitness tracker expanding into mental wellness to increase its TAM.
    TAM = Total Market Size x Segment Percentage
  11. Code Deployment Frequency and Bug Fix Time help gauge the agility of your development process. Regular, efficient updates and quick bug fixes, enabled by CI/CD tools, enhance product quality and user satisfaction.
  12. Team ability and well-being drive innovation and operational success. Practices like measuring team satisfaction, skill, and knowledge exchange and ensuring a positive work environment are vital to boosting team performance and navigating challenges effectively.

Embed these insights into the fabric of your decision-making processes to illuminate innovation, resilience, and competitive advantage. Empower your venture to navigate confidently and clearly, ensuring survival and a thriving future.

Lindsey Robertson

Lindsey is the current Leadership Fellow for Women Who Code Data Science and Director of Operations & Data Strategy at a boutique Mergers and Acquisitions advisory, iKadre. There she helps facilitate consulting clients on deal positioning, sourcing, transactions, and integrations. With a deep background in P&L management, strategic planning, and training in data science, she loves the intersection of predictive analytics and decision making in business. A techno-optimist, she is passionate about contributing to innovation, progress, and a tech industry of inclusion.


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Lindsey Robertson
Lindsey is the current Leadership Fellow for Women Who Code Data Science and Director of Operations & Data Strategy at a boutique Mergers and Acquisitions advisory, iKadre. There she helps facilitate consulting clients on deal positioning, sourcing, transactions, and integrations. With a deep background in P&L management, strategic planning, and training in data science, she loves the intersection of predictive analytics and decision making in business. A techno-optimist, she is passionate about contributing to innovation, progress, and a tech industry of inclusion.