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KPIs and Financial Reporting for Startups

Part art, part science, wholly important in communicating what is going on to investors and other stakeholders.

Financial reporting is part science, part art. At its best, it can be an invaluable help to founders, senior leadership team and board as they seek to steer a promising business to global leadership. At worst, it can be missing or even misleading, which leads to erosion of trust between all stakeholders and erodes opportunities for success.

Let’s look at some tips on how to make it successful.

Key financial and Key Performance Indicators can be categorised into

  • Budgets (the plan we are tracking to)
  • Actuals (what has actually happened)
  • Forecasts (what do we think is going to happen, based on what we have learnt so far)

This is a big topic that can easily span whole books, but I have tried to give an overview below by covering each of the three in turn (feel free to comment on the blog if anything isn’t clear).


Most people have an intuitive sense for what a budget is, but it is sometimes less obvious why it is helpful. Budgets can help us: a) forecast how much money we need (to make sure we raise enough and don’t run out of cash), and b) translate our business assumptions into a set of financial results which we can use to figure out if our execution is tracking to plan.

To accomplish a), our budget has to be relatively sophisticated, in the sense that it should take care not just of the profit and loss of our business, but also the cash flow. We need to have a firm handle on cash – it is the lifeblood of business.

To accomplish b) we need to create a model which crystallises the key assumptions in our business plan in the form of Key Performance Indicators (KPIs), and then translate the evolution of those KPIs into financial results. Let’s say you are running a SaaS company, and a key part of your business plan is to grow your average deal value from $10k/year to $25k/year. In that case, this KPI should be an input variable in your financial model so you can track against it and evaluate what happens if you actual performance is different to the plan (which is invariably will be). Importantly, this will link back to point a), so that you can see how your cash-out date changes as your KPI changes.

Another key input variable might be productivity per sales-rep or the upsell value on contract renewal. If improving these parameters are an important part of your strategy, they should probably be in your financial planning tool (AKA the budget).

If you have different parts of your business (for instance you might have a core business that provides services and then a new business plan to sell software), you’ll want to split these out so that your board and advisers can understand how you plan to allocate funds to the core business and to R&D to the new software product.


In the actuals section of your reporting, you track what actually happened and compare this to your budgets. So, for instance, if your amount of sales per rep was forecasted to grow from £20k/month/rep in Q1 to £50k/month/rep in Q4, you’ll want to track how the actual sales evolved and to illustrate this using a time series graph.

Time series is an effective way to communicate status and trend to your board and advisers.


This is the magic of financial reporting, and where art meets science. With your forecasts, you effectively take your initial budget and repopulate assumptions using your best estimate informed by most recent actuals.

Let’s say for instance that your budgeted average sale price (ASP) in Q1 was $10k, but your actual grew from $10k to $20k, faster than anticipated. You can now revise the expected sales numbers if your budget for the rest of the year, and see the impact of the accelerated deal size. This can go both ways, and in particular this is a useful tool if your KPIs are behind budget so you can replan for additional cash requirement.


Different stages of startups require the tracking of different things. If you haven’t made any sales yet, it’s probably too early to make a super detailed plan for the impact of sales productivity. Given that you are still trying to learn if you can sell your product, that is where you should focus your analytical efforts. So if you are very early in the commercial traction phase, you might want to capture other data points such as how many customer meetings you have successfully booked, how many of these have led to proposals etc.

Metrics to track and Common pitfalls

Cost of Sales / Cost of Goods Sold vs Expenses

In your profit and loss account, you will typically have

- Cost of Sales
= Gross Profit
- Expenses (Sales & Marketing, R&D, General & Administrative)
- Interest & Depreciation
- Tax
= Net Profit

Your Cost of Sales (or Cost of Goods Sold as it is often called, to avoid confusion with the actual cost of your sales team) comprise the cost that go into delivering your service. If you are a SaaS company this includes:

  • hosting costs
  • customer success or any other support / service cost to deliver on signed contracts
  • any third party services that are used to deliver directly to existing customers

It does not include the general cost of your sales team, which should go in the “Expenses” column.

Sales (bookings) vs. Revenue

In SaaS, we often sign annual contracts and then recognise that revenue over the following year. This means that whereas you can count the “sale” on the day the contract is signed, the revenue itself will flow in the period that follows (often either 1/12 per month or 1/365 per day). Sales tells us how well our sales team is doing at pulling in new business. Revenue tells us how financially sound our business is on a monthly basis. Keep track of both and don’t mix them up.

Sales productivity

On a monthly basis, report how much you are spending on sales vs. how much new business is being brought in (not renewals). Chart both on a time-series. This is a measure of sales effectiveness, and gives both you and your board key insights as to how effective your sales efforts are.

Existing customers vs. “new logos”

Many businesses have a different process for selling to new customers than the one they use to service and support existing ones. It is often said that selling to a new customers is much harder than servicing existing clients, but both are essential if the business is to succeed. In particular for a SaaS business that relies on long-term recurring revenue, it is key to service existing clients well.

Split the sales numbers and the associated costs out for the two and report them to the board. You’ll find the resulting insights valuable when trying to understand where the business performs well and where it needs to improve.

Research & Development

R&D spend is all about investing in technology to create capability that either a) allows you to sell to new customers, or b) sell more or more expensively to your existing customers. Keep track of how much you spend and report it to your board. They will want to see R&D spend, because R&D is core to any tech business. Separating this out will give everyone a much better understanding about how you are investing in the future.