Launched a Startup, How to Understand Whether it Brings Profit or Not?

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Launched a startup, how to understand whether it brings profit or not?

With a properly built business strategy, the payback of a startup usually takes two to three years. However, these are very rough estimates, as the exact payback period also depends on the initial budget, target audience coverage, etc. Below we offer you to learn how to independently figure out (for example, using KPIs for startups) how long it will take your business to become profitable.

Choose KPIs for Startups to Understand If You Are on the Right Way

There are two KPI startup metrics that will help you understand when you will start getting profit from your project.

Runway KPI startup metric

This startup KPI metric determines the time of development of your project until your initial budget is exhausted. To get an estimation, just divide your assets by the average monthly expenses. Usually, this KPI startup metric is 12-18 months, but in the end, it all depends on the size of the subsequent investments and sales growth.

CAC recovery time KPI

This is another key metric that shows how long it will take for your startup to pay back its initial investment. With these two metrics for startups, you will be able to understand when you will start making a net profit.

Use Profit Calculator

Besides calculating key metrics for startups we described above, you can also find out how long it will take you to cover your investment using a break-even analysis which is carried out before the startup begins to be realized, that is, at the stage of preparing a business plan. To get an accurate estimation, use this free online calculator.

Calculate Long Distance Profit

When you estimate the metrics startup KPIs, you also have to understand that there is a difference in profits that keep business owners afloat and those that can open up new prospects for it. Therefore, your goal is to make sure that your business refers to the second category.

For this, you have to estimate whether all members of your startup team will receive a decent salary and at the same time, you will be able to invest part of the income in new developments and optimization of your project. This is especially important for attracting investors. To understand whether your business will be profitable over a specific period, you can use a very simple formula: just deduct expenses from your income. The result will be net profit, which is the key object for reporting to investors (potential and existing).

In fact, you need to get not only a positive value for net income, but also to demonstrate the prospects for its growth over the years. In turn, a negative or zero value indicates that your project is unprofitable or does not bring any money.

Note that in the first years after the launch, it will be impossible to get good (not negative) numbers in this formula: the reason for this is the need for initial investment for your project. However, if this indicator remains negative after three or more years, this should be a good reason to reconsider your business concept.

And finally, remember that for some projects, it makes sense to check this indicator for one or several months. This will help you understand seasonal trends and adjust your current business strategy.

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