Metrics: Which Ones You Need And Why They Matter

When you’re building a startup, especially in eCommerce or tech, your ability to understand and interpret business metrics determines how effectively you can grow. Numbers tell the story behind your marketing, product performance, and profitability. Below, we’ll break down some of the most important metrics every founder should know; what they mean, when to use them, how to calculate them, and why they matter.

ROAS (Return on Ad Spend)

What It Is: ROAS tells you how much revenue you generate for every dollar you spend on advertising. It's the most direct way to measure whether your ad campaigns are actually making you money or just lighting your budget on fire.

When to Use It: Use ROAS when you're running paid advertising campaigns and need to know which channels, campaigns, or ad sets are profitable. It's perfect for quick decisions about where to allocate your ad budget.

The Formula: ROAS = Revenue from Ads / Ad Spend

Real Example: Let's say you spent $5,000 on Facebook ads last month and generated $20,000 in revenue from those ads. ROAS = $20,000 / $5,000 = 4This means you got $4 back for every $1 you spent. Not bad.

Why It Matters: ROAS helps you make fast decisions about your advertising. If a campaign has a ROAS of 0.5, you're losing money and need to fix it or kill it. If it's 5, you should probably invest more. However, ROAS doesn't tell the whole story because it ignores your product costs and other expenses. That's where other metrics come in.

MER (Marketing Efficiency Ratio)

What It Is: MER is your blended efficiency metric that looks at all your revenue compared to all your marketing spend. Unlike ROAS, which focuses on specific ad campaigns, MER gives you the big picture of your entire marketing operation.

When to Use It: Use MER when you want to understand your overall marketing health, especially when you're running multiple campaigns across different channels. It's also crucial when attribution is messy.

The Formula: MER = Total Revenue / Total Marketing Spend

Real Example: Your startup generated $100,000 in revenue last month. You spent $15,000 on Facebook ads, $5,000 on Google ads, $3,000 on influencer partnerships, and $2,000 on content marketing. That's $25,000 total. MER = $100,000 / $25,000 = 4

Why It Matters:  MER is more reliable than ROAS because it accounts for everything, organic traffic influenced by ads, word of mouth sparked by your campaigns, and all the messy reality of how customers actually find you. When iOS updates break your tracking or customers see your ad but Google you later, MER still tells you the truth about your marketing efficiency.

LTV (Lifetime Value)

What It Is: LTV is the total revenue you can expect from a single customer over their entire relationship with your company. It's one of the most important metrics for understanding the long-term value of acquiring customers.

When to Use It: Use LTV when you're making decisions about how much to spend on customer acquisition, planning your business model, or pitching investors. It's especially critical for subscription businesses or any company with repeat purchases.

The Formula: LTV = Average Order Value × Purchase Frequency × Customer Lifespan 

Or, for subscription businesses: LTV = Monthly Recurring Revenue per Customer / Churn Rate

Real Example: You run a subscription box service. The average customer pays $40 per month and stays subscribed for 18 months before canceling. LTV = $40 × 18 = $720

Why It Matters: LTV tells you how much you can afford to spend to acquire a customer while still being profitable. If your LTV is $720 and you're spending $800 to acquire each customer, you're in trouble. But if you're spending $200, you've got room to scale aggressively. The golden rule: your LTV should be at least 3x your CAC.

AOS (Average Order Size)

What It Is: AOS is simply the average dollar amount customers spend per transaction. It's straightforward but incredibly useful for understanding your revenue per sale.

When to Use It: Track AOS when you're testing pricing strategies, creating product bundles, implementing upsells, or trying to understand customer purchasing behavior. It's especially useful for e-commerce businesses.

The Formula: AOS = Total Revenue / Number of Orders

Real Example: Last month, you processed 500 orders and generated $22,500 in revenue. AOS = $22,500 / 500 = $45. Your average customer spends $45 per order.

Why It Matters: Increasing your AOS is often easier than acquiring new customers. If you can get your AOS from $45 to $55 through better product recommendations or bundling, you just increased revenue by 22% without spending more on marketing. Small improvements here compound quickly.

TAPS (Total Annual Potential Spend)

What It Is: TAPS estimates the maximum amount a customer could spend with your business in a year if they bought everything relevant to their needs from you. It's a theoretical ceiling that helps you understand your opportunity with each customer.

When to Use It: Use TAPS in B2B contexts or when selling multiple products/services to understand how much room you have to grow with existing customers. It's gold for planning account expansion strategies.

The Formula: TAPS = Sum of All Potential Products/Services a Customer Could Purchase Annually

Real Example: You sell marketing software. A mid-sized company could potentially buy:

• Email marketing platform: $3,600/year
• Social media management: $2,400/year
• Analytics dashboard: $1,800/year
• Content calendar tool: $1,200/year

TAPS = $3,600 + $2,400 + $1,800 + $1,200 = $9,000

Why It Matters: TAPS helps you identify upsell and cross-sell opportunities. If a customer is currently spending $3,600 with you but their TAPS is $9,000, you know there's $5,400 in potential expansion revenue. This metric is crucial for SaaS companies and B2B businesses focused on account growth rather than just new customer acquisition.

CAPS (Current Annual Potential Spend)

What It Is: CAPS is similar to TAPS but more realistic. It represents what a customer is actually likely to spend with you this year based on their current behavior, budget, and needs. It's TAPS with a reality check.

When to Use It: Use CAPS for sales forecasting and account planning. While TAPS is aspirational, CAPS helps you set realistic revenue targets and prioritize which customers to focus on for expansion.

The Formula: CAPS = Realistic Sum of Products/Services a Customer Will Likely Purchase This Year

Real Example: Using the same marketing software company, you assess that your mid-sized customer is realistically ready to buy:

• Email marketing platform: $3,600/year (already have)
• Social media management: $2,400/year (interested, likely to buy)
• Analytics dashboard: $0 (not ready, using free tools)
• Content calendar tool: $0 (not a priority this year)

CAPS = $3,600 + $2,400 = $6,000

Why It Matters: CAPS keeps your sales team focused on realistic opportunities instead of chasing every possible upsell. It helps you allocate resources efficiently, focusing on the $2,400 social media upsell that's actually likely to close rather than wasting time on the analytics dashboard they're not ready for.

COGS (Cost of Goods Sold)

What It Is: COGS is the direct cost of producing or delivering your product or service. This includes materials, manufacturing, shipping, and any other costs directly tied to creating what you sell. It does not include marketing, salaries for non-production staff, or rent.

When to Use It: Track COGS constantly because it's fundamental to understanding your profitability. You need it to calculate gross margin, set prices, and determine if your unit economics actually work.

The Formula: COGS = Beginning Inventory + Purchases - Ending Inventory

Or, more simply for many startups: COGS = Direct Materials + Direct Labor + Direct Overhead per Unit Sold

Real Example: You make artisanal candles. For each candle:

• Wax and fragrance: $3
• Container: $2
• Wick and label: $1
• Labor to make it: $2
• Packaging: $1

COGS per candle = $3 + $2 + $1 + $2 + $1 = $9If you sold 1,000 candles last month, your total COGS = $9,000

Why It Matters: You can't build a profitable business if you don't know your COGS. If you're selling those candles for $25, your gross margin is $16 per candle ($25 - $9). That $16 needs to cover marketing, rent, salaries, and still leave profit. If your COGS is too high, no amount of marketing genius will save you. You've got a fundamental business model problem.

CPBJ (Cost Per Booked Job)

What It Is: CPBJ measures how much you spend in marketing and sales to secure one booked job or closed sale. It's particularly relevant for service businesses, agencies, contractors, and consultants where "booked jobs" are the key conversion event.

When to Use It: Use CPBJ when you're running a service-based business where the sale is getting someone to commit to a project, appointment, or contract. It helps you understand the true cost of filling your calendar.

The Formula: CPBJ = Total Marketing and Sales Spend / Number of Booked Jobs

Real Example: You run a photography business. Last quarter, you spent:

• Facebook ads: $2,000
• Instagram ads: $1,000
• Website and booking software: $500
• Networking events: $500

Total spend: $4,000You booked 40 photography sessions. CPBJ = $4,000 / 40 = $100It costs you $100 to book each photography session.

Why It Matters: CPBJ tells you if your pricing makes sense. If it costs you $100 to book a session and you charge $150, that's only $50 to cover your time, equipment, and editing. Probably not sustainable. But if you charge $500 per session, that $100 acquisition cost is perfectly reasonable. CPBJ helps service businesses understand their true profitability per job.

CAC (Customer Acquisition Cost)

What It Is: CAC is the total cost of acquiring a new customer, including all marketing and sales expenses divided by the number of new customers. It's the North Star metric for understanding whether your business model is viable.

When to Use It: Use CAC always. Seriously. It should be on your dashboard, in your pitch deck, and top of mind when making any growth decisions. Compare it to LTV constantly.

The Formula: CAC = (Total Marketing Spend + Total Sales Spend) / Number of New Customers Acquired

Real Example: Last month you spent:

• Marketing: $20,000
• Sales team salaries and commissions: $15,000
• Marketing software and tools: $2,000
• Sales tools and software: $1,000

Total: $38,000You acquired 95 new customers. CAC = $38,000 / 95 = $400

Why It Matters: CAC is the ultimate reality check. Combined with LTV, it tells you if you have a real business or an expensive hobby. The magic ratio is LTV:CAC of 3:1 or better. If your LTV is $720 and your CAC is $400, you're at 1.8:1. Workable but tight. Below 1:1, you're burning money with every customer. Above 5:1, you're probably under-investing in growth. 

CAC also varies wildly by channel. Your Facebook CAC might be $300 while your referral CAC is $50. Understanding CAC by channel helps you allocate budget like a pro.

Putting It All Together

Here's the reality: these metrics don't exist in isolation. They're pieces of a puzzle that, together, tell you whether your startup has sustainable unit economics. 

Start with ROAS and MER to understand if your marketing is working. Track CAC to know what you're paying for customers. Calculate LTV to know what they're worth. Monitor COGS to ensure you're actually making money on each sale. Use AOS to find easy wins in increasing revenue per transaction.

For B2B startups, TAPS and CAPS become critical for understanding expansion opportunities. Service businesses lean heavily on CPBJ to price appropriately.

Founders who succeed aren't necessarily the ones with the best product, they're the ones who understand their numbers cold and make decisions based on data, not gut feel. Master these nine metrics, and you'll be way ahead of most entrepreneurs out there.

Now go update that spreadsheet.

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