Business MetricsKPI
Common metrics for growth companies: total addressable market (TAM) is the revenue available if a product won its whole market; customer acquisition cost (CAC) is the cost of winning one customer; monthly and annual recurring revenue (MRR, ARR) measure subscription revenue; gross merchandise value (GMV) is the value of goods sold through a marketplace.
Beyond revenue and profit, companies report operating metrics such as users, customers or sales volume. These key performance indicators (KPIs) can explain why Earnings are moving — but only if you know exactly how they are defined.
- Category
- Fundamentals and Macroeconomics
- Reading time
- 3 min
- Also called
- Key performance indicators, KPIs, Operating metrics
- Updated
Business metrics in plain words
Common examples include revenue per user, daily or monthly active users, and the number of active customers.1
When a company reports such a figure, US guidance expects it to explain exactly what it measures and how it is worked out.1
Etsy's gross merchandise sales (GMS), for example, is the value of goods sold on its sites after refunds and before shipping — and it is not the company's revenue.2
How to analyse a company's KPIs
List the KPIs
Identify the operating metrics the company highlights, such as revenue per user or active customers.1
Read the definition
Read how each metric is defined and calculated.1
Separate volume from revenue
Don't mistake volume for income: sales on a marketplace are not the marketplace's revenue.2
Compute ratios
Revenue ÷ GMS gives the take rate; revenue ÷ users gives ARPU.
Track trends
Compare quarters and years, not one period.
Compare with peers
Check definitions match before comparing.
Worked examples
Example 1 — Take rate
Take rate 20%A hypothetical marketplace has $2B gross merchandise sales and $400M revenue.
| GMS | $2B |
| Revenue | $400M |
| Take rate | 20% |
GMS measures what buyers spent, not what the company kept.2
Example 2 — ARPU
ARPU $15A hypothetical app has 10M monthly active users and $150M quarterly revenue.
| MAU | 10M |
| Revenue | $150M |
| ARPU | $15 |
Revenue per user and active users are among the most common operating metrics.1
Example 3 — Changed definition
Misleading jumpA hypothetical firm redefines 'active user' and users jump 30%.
| Old users | 5M |
| New users | 6.5M |
| Real growth | Unclear |
Without a clear definition, a metric like this can't be compared from year to year.1
KPIs vs GAAP figures
| Aspect | Business KPIs | GAAP financials |
|---|---|---|
| Examples | Users, GMS, ARPU | Revenue, net income |
| Standardised | No, company-defined | Yes |
| Audited | Usually not | Yes |
| Best for | Explaining drivers | Measuring results |
Who uses business metrics
Growth investors
Track users and customers in Fundamental Analysis.
Earnings traders
KPI surprises can move stocks around Earnings.
Valuation analysts
Link KPIs to Market Capitalisation.
Subscription analysis
Track recurring revenue such as MRR and ARR.
Advantages and disadvantages
Advantages
- Explain what drives revenue.
- Often lead financial results.
- Allow peer comparison when defined alike.
- Highlight business model changes.
Disadvantages
- Definitions are set by the company.
- Usually not audited.
- Easy to cherry-pick.
- Disclosure rules differ by country.
Going deeper
Read as far as you need. Each level builds on the one before it.
What KPIs are
Beginner
These are operating figures — users, customers, revenue per user — rather than accounting results.1
Volume vs revenue
Intermediate
A marketplace's GMS counts everything sold on it after refunds, so it is far larger than the fees the company actually earns.2
Definition risk
Advanced
Check that the definition stays the same over time; a quiet change can break comparisons.1 Metrics like CAC and TAM are estimates, not reported facts.
Common mistakes
Treating GMS as revenue
It is volume, not income.
Comparing different definitions
'Active user' varies by firm.
Ignoring costs
User growth can be bought expensively.
Trusting TAM blindly
Market size estimates are often optimistic.
Check your understanding
Test yourself before moving on. Each answer comes with an explanation.
Key points to remember
- Business metrics explain revenue drivers.
- Examples: ARPU, active users, GMS.
- Always read the definition.
- Volume metrics are not revenue.
- KPIs are usually unaudited.
Frequently asked questions
Are KPIs audited?
What is ARR?
Which KPI matters most?
Further learning
- Fundamental Analysis
Putting KPIs in context.
- Earnings
The results KPIs explain.
- Market Capitalisation
Linking KPIs to value.
- Initial Public Offering
Where KPIs get heavy attention.
Sources
This article is written in our own words. The sources below support the specific facts, rules and figures marked with a number in the text. Links open the original publisher’s page.
- SEC. Commission Guidance on Management's Discussion and Analysis of Financial Condition and Results of Operations (Release 33-10751) (opens in a new tab) Checked .
- Etsy, Inc. (Form 10-K filed with the SEC). Etsy, Inc. Annual Report on Form 10-K for 2024 (opens in a new tab) Checked .
Educational content, not financial advice. Examples use hypothetical prices and simplified costs; actual fees, margin rules and regulations vary by broker, market and country. We are not affiliated with any publisher linked above. Last reviewed . Report an error or request a source credit.