Key Financial Metrics to Track Before Your Business Turns a Profit

Tracking financial metrics like cash burn rate and gross profit helps you answer, “When will my business make a profit?” and make smarter decisions about pricing, spending, and growth.

Why financial metrics matter before you’re profitable 

When you first start your business, you might:

• Invest heavily in equipment, inventory, or software
• Hire your first employees
• Test pricing and marketing channels

You may still be asking yourself: When will my business make a profit?

Profitability is important, but it’s not the only number that matters, especially early on. Until you’re consistently profitable, your job is to:

• Stay alive: Don’t run out of cash.
• Learn fast: See what’s working and what’s not.
• Adjust quickly: Make changes before problems get too big.

This is where the financial metrics below come into play. 

1. Cash burn rate: How fast you’re using cash 

Cash burn rate is how much cash your business spends (net of what you bring in) over a period of time, usually per month.

Why it matters

You can be “unprofitable” on paper and still survive if you manage your cash well. Burn rate tells you:

• Whether your current spending is sustainable
• How quickly you need to increase revenue or reduce costs
• Whether you need more funding (loan, investors, or owner contributions)

How to calculate burn rate 

The burn rate formula is:

Burn Rate = Beginning Cash – Ending Cash (for the period)

Here’s how to use it:

1. Pick a period (typically one month)
2. Start with your cash balance at the beginning of the month
3. Subtract your cash balance at the end of the month

A positive result shows you how much cash you burned. 

Example

Let’s say your beginning cash is $40,000 and your ending cash is $32,000. 

Burn Rate = $40,000 – $32,000 = $8,000 per month

You can then use your burn rate to figure out your runway.

2. Cash runway: How long your cash will last 

Runway tells you how many months you can keep operating at your current burn rate before you run out of cash.

Why it matters

Runway gives you a timeline:

• How long you have to reach break-even or raise more money
• When to cut expenses or push harder on sales
• How urgent your financial decisions are

How to calculate runway

Use your current cash balance and monthly burn rate. The runway formula is:

Runway = Current Cash / Burn Rate

Example

Using the previous example:

• Current cash: $32,000
• Burn rate: $8,000 per month

Runway = $32,000 / $8,000 = 4 months

Having only four months of runway is a signal to increase revenue, decrease spending, or both. 

3. Gross profit and gross margin: Are your sales worth it? 

Gross profit is your revenue minus the direct costs to produce your product or service. These direct costs are called cost of goods sold (COGS).

Gross margin is your gross profit expressed as a percentage of revenue.

Why it matters

Gross profit and margin tell you:

• Whether your pricing covers your direct costs
• How much money is left to pay overhead, salaries, and other expenses
• Whether you should raise prices, lower costs, or change your offer

How to calculate gross profit and gross margin 

Use the following formulas to calculate gross profit (revenue minus direct costs) and gross margin (profit as a percentage of revenue):

1. Gross Profit = Revenue – COGS
2. Gross Margin (%) = (Gross Profit / Revenue) x 100

Example

Let’s say your revenue is $50,000 and your COGS is $30,000. 

Gross profit = $50,000 – $30,000 = $20,000

Gross margin = ($20,000 / $50,000) x 100 = 40%

If your gross margin is low, you may need to raise prices, negotiate better supplier rates, or reduce inefficiencies in production. 

4. Operating expenses: What it costs to stay open 

Operating expenses (OpEx) are the ongoing costs of running your business that aren’t directly tied to producing goods or services, like rent or mortgage and marketing. 

Why it matters

Even if your gross margin looks good, high operating expenses can keep you unprofitable. 

Tracking OpEx helps you see where your money is going each month, decide where to cut or slow spending, and understand how much revenue you need to cover overhead costs. 

How to calculate operating expenses

You can calculate operating expenses by adding up all indirect costs of daily operations. Examples include:

• Rent or mortgage for your space
• Utilities 
• Salaries and benefits (for non-production staff)
• Marketing and advertising
• Software subscriptions and insurance

The formula depends on what operating expenses you have. But it would look something like this:

Operating Expenses = Rent + Utilities + Marketing + Payroll + Office Supplies + Professional Fees (etc.)

Example 

Let’s say you have the following operating expenses:

• Rent: $4,000
• Utilities: $700
• Salaries and benefits (for non-production staff): $10,000
• Marketing and advertising: $3,000
• Software subscriptions and insurance: $500

Your operating expenses would be the sum of all the above, which is $18,200. 

5. Break-even point: When revenue covers costs 

Your break-even point is the level of sales at which your total revenue equals your total costs. At break-even, your profit is zero, but you’re no longer losing money.

Why it matters

Break-even helps you answer:

• How much do I need to sell each month to stop losing money?
• How many units, projects, or hours do I need to sell?
• What happens if my costs or prices change?

How to calculate break-even point

The break-even point in units formula is:

Break-even Point in Units = Fixed Costs / (Price Per Unit – Variable Cost Per Unit)

You’ll need:

• Fixed costs: Costs that stay the same regardless of sales (e.g., rent, salaries).
• Variable cost per unit: Direct cost for each unit sold (materials, direct labor).
• Price per unit: What you charge customers.

Example

Let’s say your monthly fixed costs are $10,000. Your price per unit is $100 and your variable cost per unit is $40.

Break-even Point in Units = $10,000 / ($100 – $40)

Break-even Point in Units = ~167

You need to sell about 167 units per month to break even.

6. Customer acquisition cost (CAC): What it costs to get a customer 

Customer acquisition cost (CAC) is the average cost to acquire one new customer. It includes:

• Advertising spend
• Marketing tools and software
• Sales commissions
• Salaries for sales and marketing staff (if you include them)

Why it matters

CAC helps you:

• Evaluate whether your marketing and sales are efficient
• Compare different marketing channels (social, search ads, events, etc.)
• Set realistic budgets for growth

How to calculate CAC

The cost to acquire a customer formula is:

CAC = Total Sales and Marketing Costs / Number of New Customers 

Choose a time period, like a month. 

Example 

Let’s say your total marketing and sales spend last month was $5,000. You acquired 50 new customers. 

CAC = $5,000 / 50 = $100 per customer

It costs you $100 to get each new customer. Compare your CAC to your lifetime value (LTV) to determine if it’s efficient and sustainable. 

7. Customer lifetime value (LTV): How much a customer generates  

Customer lifetime value (LTV) estimates how much revenue (or profit) you can expect from a typical customer over the entire time they do business with you.

Why it matters

LTV tells you:

• How much you can afford to spend to acquire a customer
• Which customer segments are most valuable
• Whether you should focus on retention, upselling, or new customer growth

How to calculate LTV

There are several formulas to calculate LTV, based on your business model. including:

LTV = Average Revenue Per Customer X Average Customer Lifespan 

Example

Let’s say each customer spends an average of $400 per year. Each customer remains a customer for three years on average. 

LTV = $400 x 3

LTV = $1,200

Now compare LTV to CAC:

• CAC: $100
• LTV: $1,200

In this case, spending $100 to earn $1,200 over time is a strong ratio.

8. Accounts receivable and accounts payable: Who owes what 

Accounts receivable (AR) is money customers owe you. Accounts payable (AP) is money you owe to vendors and suppliers.

Why it matters

AR and AP help you:

• Avoid cash crunches
• Understand who pays late
• Plan when to pay your bills

How to calculate AR and AP

Consider using accounting software to track and manage accounts receivable and accounts payable. 

You can use aging reports to view which invoices are overdue and by how much. 

Improve the way you manage your accounts payable and receivable by:

• Invoicing promptly and clearly.
• Offering simple online payment options.
• Following up on overdue invoices.
• Negotiating payment terms with vendors.

9. Cash flow from operations: Are core business activities working? 

Cash flow from operations shows how much cash your core business activities generate or use over a period of time.

Keep in mind that cash flow from operations is different from:

• Financing cash flow (loans, owner contributions)
• Investing cash flow (buying equipment, vehicles, or property)

Why it matters

You can’t rely on loans or outside cash forever. Healthy businesses eventually:

• Generate positive cash flow from operations
• Use that cash to pay owners, reinvest, and build reserves

Tracking cash flow from operations tells you whether your day-to-day operations are moving in the right direction.

How to calculate cash flow from operations

Use the following formula to calculate operating cash flow:

Cash Flow From Operations = Net Income + Non-cash Expenses – Increase in Working Capital

Typically, you can find this information on your cash flow statement. 

Example

Let’s say you have net income of $100,000. You have non-cash expenses of $20,000 and a change in working capital of $5,000.

Cash Flow From Operations = $100,000 + $20,000 – $5,000

Cash Flow From Operations = $115,000

When will my business make a profit?

You might be wondering how the above metrics come together to answer “When will my business make a profit?”

Here’s a simple way to think about it:

1. Know your fixed costs. Rent, salaries, insurance, subscriptions, etc.
2. Know your gross margin. How much profit you keep from each sale after direct costs.
3. Calculate your break-even point. How many units or how much revenue you need to cover fixed and variable costs.
4. Check your burn rate and runway. How long you have to reach break-even at your current pace.
5. Improve the equation. Increase prices, lower direct costs, reduce overhead, improve marketing spend efficiency, and improve customer retention. 
6. Track monthly and adjust. Compare your actuals to your plan. Make small changes early instead of big, painful changes later.

There’s no single date that fits every business, but with these metrics, you can turn “I hope we make a profit soon” into “Here’s what needs to happen, and by when.”

Overview of key financial metrics [Chart]

Here’s a quick reference you can use when reviewing your numbers each month:

Metric	What It Tells You	How to Calculate
Cash Burn Rate	How fast you’re using cash	Beginning Cash – Ending Cash (per month)
Runway	How long your cash will last	Current Cash / Monthly Burn Rate
Gross Profit	Profit after direct costs	Revenue – COGS
Gross Margin (%)	Profitability of sales	(Gross Profit / Revenue) x 100
Operating Expenses	Cost to keep the doors open	Sum of all non-COGS operating costs
Break-Even Point	Sales needed to stop losing money	Fixed Costs / (Price Per Unit – Variable Cost Per Unit)
Customer Acquisition Cost	Cost to win a customer	Sales & Marketing Spend / New Customers
Customer Lifetime Value	Revenue from a typical customer over time	Average Revenue Per Customer X Average Customer Lifespan
Accounts Receivable / AP	Timing of cash in vs. cash out	Track balances and aging reports
Cash Flow From Operations	Cash from core business activities	From statement of cash flows (operating section)

Frequently asked questions 

Want to spend less time on spreadsheets and more time growing your business? Get the financial data you need at your fingertips with Patriot’s accounting software.  

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