Every business owner tracks revenue and profit. They are the headline numbers, the easiest to see and the most common measures of success. But relying on them alone is like trying to navigate a ship by only looking at the sun; you know the general direction, but you’re missing the critical details that keep you from running aground.
To truly understand the health and long-term viability of your business, you need to look deeper. Key Performance Indicators (KPIs) are specific, measurable metrics that act as your navigation instruments. Here are five essential financial KPIs that our Fractional CFOs track for every client.
1. Customer Acquisition Cost (CAC)
Quite simply, CAC is the total cost of sales and marketing efforts required to acquire a new customer.
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Why it matters: If it costs you $500 to acquire a new customer who only spends $300, you have an unsustainable business model. Tracking CAC is the first step to understanding the profitability of your growth engine.
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How to calculate it: (Total Sales & Marketing Spend) / (Number of New Customers Acquired)
2. Customer Lifetime Value (LTV)
LTV is the total revenue a business can reasonably expect from a single customer account throughout their relationship.
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Why it matters: LTV tells you the long-term value of your customers. A high LTV means your customers are loyal, happy, and continue to provide revenue over time. The real magic happens when you compare it to CAC.
3. LTV to CAC Ratio
This is the holy grail for many subscription and e-commerce businesses. It directly measures the ROI of your customer acquisition efforts.
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Why it matters: A ratio of 3:1 (meaning a customer’s lifetime value is three times the cost to acquire them) is widely considered a healthy benchmark. A ratio below 1:1 means you’re losing money on every new customer. Tracking this KPI is crucial for scalable, profitable growth.
“A business can be wildly profitable on a per-product basis but still fail if its LTV to CAC ratio is unhealthy. This is the number that separates sustainable growth from a house of cards.”
4. Gross Profit Margin
This KPI measures the profitability of your core product or service before accounting for overhead expenses.
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Why it matters: A strong gross profit margin means you have a healthy financial foundation. If your margin is too low, no amount of sales volume will lead to true profitability. It tells you if your pricing and cost of goods are structured correctly.
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How to calculate it: ((Revenue – Cost of Goods Sold) / Revenue) x 100
5. Cash Runway
Cash Runway is one of the most critical survival metrics, especially for startups and businesses in high-growth phases. It tells you how many months your company can continue to operate before it runs out of money, assuming your current income and expenses remain constant.
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Why it matters: Knowing your runway gives you time. It informs your decisions on hiring, spending, and when you might need to seek additional funding. It is the ultimate measure of your company’s financial stability.
Tracking these KPIs moves you from being a reactive business owner to a proactive financial strategist. They provide the deep insights you need to make smarter decisions, optimize your spending, and build a truly resilient company.
If you’re ready to look beyond the headlines and truly understand your business’s financial health, our team is here to build your dashboard.
