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Understanding Key Metrics for Sustainable Business Growth

  • Writer: Alana Harrison
    Alana Harrison
  • Apr 22
  • 4 min read

Updated: Oct 1

You might grow a company quickly without understanding how. However, you will never scale one that way.


These key metrics separate sustainable growth from unsustainable expansion. Throughout my career, I have worked closely with RevOps, finance leaders, and C-suite executives. I have seen firsthand how mastering these numbers transforms good operators into strategic business partners.


These metrics aren’t just for leadership. If you work in tech, whether in GTM, product, RevOps, partnerships, or customer success, you must understand them. They show if the business is growing responsibly, not just getting bigger without improving.



LTV:CAC Ratio – Are You Growing Sustainably?


The LTV:CAC Ratio is often mentioned in discussions but remains fundamental. It’s my favorite metric to bring up in job interviews. Good candidates know it, great candidates acknowledge when they don't but show a willingness to learn. Those to avoid will bluff through the conversation.


Essentially, the LTV:CAC Ratio compares the lifetime value of a customer (LTV) with the cost it took to acquire them (CAC). This ratio shows whether your customer acquisition strategy is economically viable. If you are spending more to acquire customers than they will ever bring in revenue, you are heading for trouble.


Basic Formula


  • LTV: average monthly revenue × gross margin × customer lifespan

  • CAC: total cost to acquire a new customer.


Example


Consider a customer who pays £1,000 per month. The gross margin is 75%, and the average lifespan is 36 months.


This leads to:

  • LTV: £1,000 × 36 × 0.75 = £27,000


If CAC is £9,000, then the ratio indicates the value derived from customers.


What to Aim For


  • 3:1 is a strong ratio.

  • Below 2:1 is risky.

  • Above 5:1 might mean you're under-investing in growth and could spend more to capture market share.


When It’s Useful


This ratio is especially useful when your pricing, churn, and margin are relatively stable. It serves as a board-level signal for scalability.


When It’s Not Useful


If you have just launched, do not have retention data, or your pricing model keeps changing, the LTV:CAC Ratio can become messy. This may cause frustration for your team.



Magic Number – Are We Spending Efficiently on Growth?


The Magic Number reveals how effectively your sales and marketing spend converts into new recurring revenue. It quickly shows you if your GTM model is working.


Basic Formula


(New ARR this quarter – ARR last quarter) ÷ previous quarter's sales and marketing spend.


Example


If ARR in Q1 is £4.6m and ARR in Q2 is £5.2m, the New ARR is £600k. If Q1's sales and marketing spend is £700k, the Magic Number is:


  • Magic Number = 600 ÷ 700 = 0.86


What to Aim For


  • 0.75 or above means GTM spend is working effectively.

  • Below 0.5 means something is broken.

  • Over 1.0 is excellent.


When It’s Useful


The Magic Number is useful in scenarios with short sales cycles and predictable revenue recognition.


When It’s Not Useful


It becomes less relevant in long enterprise sales cycles where ARR lags significantly behind spending.



Net Revenue Retention – Are Customers Growing with Us?


Net Revenue Retention (NRR) reveals how much revenue from existing customers is retained and expanded. It is a clear indicator of product-market fit and long-term value creation.


Basic Formula


(Start-of-period revenue + expansion – churn – contraction) ÷ start-of-period revenue.


Example


If the starting Monthly Recurring Revenue (MRR) is £100k, the expansion is £20k, and churn totals £10k, then:


  • NRR = (100 + 20 – 10) ÷ 100 = 110%


What to Aim For


  • Over 100% indicates strong expansion and retention.

  • 90–100% means steady but flat growth.

  • Below 90% signals a problem that requires immediate attention.


When It’s Useful


Net Revenue Retention is crucial after you have gone through a few renewal cycles or established expansion revenue.


When It’s Not Useful


The NRR metric may be misleading if there’s no upsell motion or if you only have fixed pricing.



CAC Payback Period – How Long Until We Stop Losing Money?


The CAC payback period indicates how long it takes to recover the cost of acquiring a customer. It is crucial to understand when you actually break even on customer acquisition.


Basic Formula


CAC ÷ gross margin per customer per month.


Example


Consider a CAC of £9,000, and the gross margin per month is £750. Hence,


  • Payback period = 12 months.


What to Aim For


  • Less than 12 months indicates a very healthy situation.

  • 12–18 months is acceptable if cash reserves are sufficient.

  • Over 18 months can be dangerous unless NRR is high.


When It’s Useful


This metric is always useful, particularly when planning headcount, territory expansion, or calculating runway.


When It’s Not Useful


If margins are unclear or customer value varies too much across segments, then the payback metric can mislead you.



Sales Efficiency – Are We Getting a Return on GTM?


Sales efficiency offers a broader, long-term view of GTM performance compared to the Magic Number. It shows how much ARR you generate per £1 spent.


Basic Formula


Net new ARR ÷ total sales and marketing spend.


Example


If the net new ARR is £2.4m with a sales and marketing spend of £1.8m, then:


  • Sales Efficiency = 1.33.


What to Aim For


  • Over 1.0 indicates good performance.

  • Over 1.5 is strong.

  • Below 0.8 suggests something isn’t working as it should.


When It’s Useful


This metric aids in strategic planning, regional comparisons, and board-level discussions.


When It’s Not Useful


Sales efficiency can be misleading if the GTM model or spending mix has changed significantly mid-year.



Beyond Dashboards: Why These Metrics Matter


Throughout my career, I have witnessed the differences between teams optimizing for metrics versus those optimizing for business outcomes. The best leaders—whether in marketing, sales, product, or operations—think like investors. They understand how their daily decisions impact these core metrics and the overall valuation of the company.


As market conditions tighten and capital efficiency becomes essential, connecting functional expertise with financial outcomes is not just valuable—it is crucial. The most strategic contributors execute their functions well while also comprehending how their work creates lasting business value.


Whether you are leading a team, considering joining a startup, or evaluating an investment opportunity, these metrics provide a framework for distinguishing between growth and value creation.


After all, if you are not tracking the right things, you are not scaling—you are merely guessing.

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