CFO Advisory for Life Sciences: Tracking KPIs That Actually Matter
Success in life sciences is as much about financial planning and timing as it is about the mission itself. Research and development (R&D), clinical trials, and regulatory approvals are resource-heavy and typically funded through investment, requiring meticulous financial management, reporting, and planning to ensure plans stay on track.
It’s all about timing, planning, and measuring progress – and we’re not just talking about what happens in the lab.
Most startups launch with small, focused teams of experts, scientists, and engineers. But though the scientific breakthroughs are at the core of what you do, financial expertise and forward-looking planning are what will get you to the finish line.
Fractional CFOs provide that critical guidance on an as-needed basis, helping your organization stay lean while tapping into the kind of industry-specific financial knowledge that will see you through your toughest challenges.
CFO-level expertise will provide you with the financial leadership and guidance to carry you forward. Much more than an accountant, CFOs provide strategic financial leadership, helping you reduce risk, improve compliance, enable accurate forecasting, and ensure transparency in investor relations.
Along the way, your CFO will continually track financial performance to ensure you’re always on track. But measuring the right key performance indicators (KPIs) is vital. Knowing what to track and how to interpret the numbers ensures your funding is sustainable and that you’re ready to meet every challenge on the road ahead.
So, what are the right KPIs to track? Let’s discuss.
Essential KPIs to Track According to Growise CFOs
The life sciences sector is unique, with industry-specific challenges. Tracking the right KPIs will help to bring your startup’s financial health into focus.
Unlike other types of startups, life sciences companies have unusually high expenses. Financial KPIs must necessarily focus on tracking cash burn rate, cash runway, burn ratio, gross margin, CAC/LTV ratio, and various other metrics by phase.
Cash burn rate is the rate at which a startup uses cash to cover ongoing expenses. Gross burn is the total of all expenses, including leases, supplies, and payroll, while net burn quantifies the amount of cash you’re spending each month minus revenue.
Why it’s important: burn rate is a key metric in determining cash runway. Understanding your burn rate will help you plan funding activities and will inform cost optimization.
Cash runway measures the number of months the company has before it runs out of cash reserves. The calculation used to achieve this number is (cash on hand)÷(net burn rate) = cash runway.
Why it’s important: Knowing your cash runway numbers will ensure you don’t unexpectedly run out of funding during critical development phases.
Gross margin is the percentage of revenue retained after direct manufacturing, production, and distribution costs are deducted from gross revenue. One calculates this number by subtracting the cost of goods sold (COGS) from revenue, then dividing by total revenue and multiplying by 100.
COGS refers to all costs directly associated with creating the product and does not include R&D costs or indirect expenses.
Why it’s important: Gross margins reflect the profitability (or not) of the product, operational efficiency, and inform the capacity for reinvestment in research and development.
CAC/LTV refers to customer acquisition cost (CAC) and long-term value (LTV). This KPI measures the relationship between the cost to acquire a customer and the revenue or profit they are expected to generate for the company over the lifespan of the business relationship. It is expressed as a ratio, with ideal numbers hovering around 3:1 or higher.
A 3:1 ratio supports startup viability, signaling to investors that the company is on track to achieve its goals.
Lower numbers indicate unprofitability. However, early-stage companies may be able to accept lower ratios as they work to gain market share.
And while you might think that higher ratios, like 4:1 or higher, would indicate strength, they often signal that the company is underspending on marketing or other business-building activities.
In life sciences, CAC is typically higher than in other sectors. There are high costs associated with sales and marketing, often targeting doctors and other clinicians, running pilot projects and studies, obtaining regulatory approvals, and building relationships with ideal customers (such as hospitals and high-level industry thought leaders).
LTV is frequently driven by long-term relationships, such as those we see with medications or medical devices for chronic diseases, diagnostic services, or the ongoing use of consumables (e.g., diabetic supplies).
Why it’s important: CAC/LTV measures operational efficiency and sustainability. These numbers matter to investors, especially as the company and its products mature. It also informs strategic investment in areas such as sales and marketing and provides a basis for revenue projections.
KPI Tracking Frequency: What Investors Want to See
Hiring a fractional CFO might be one of the smartest decisions you’ll make for your life sciences startup. Even if you have a full-time financial team, a fractional CFO has a very specific focus and can often accomplish more simply because they are not focused on the day-to-day.
The KPIs outlined above are just a few of the areas you’ll want to track. However, they are among the most critical and certainly at the top of the list for investors and venture capitalists.
Suggested tracking frequency for financial health KPIs (such as the ones we outlined in this article) is weekly. Weekly tracking will give you a more precise understanding of the company’s performance and will enable you to adjust quickly when needed.
Clinical progress is also important to investors, but as research progress moves at a much slower pace, a monthly cadence is generally sufficient. Items in this category include patient enrollments, trial milestones, and overall success rates.
Slower-moving KPIs, like patent applications, citations, approvals, and other regulatory hurdles, can be tracked quarterly. As the company matures, patterns will emerge to inform investment areas and long-term financial strategy.
The Bottom Line
From startup to maturity, CFO advisory is critical to growth and sustainability. Schedule a call with a Growise fractional CFO today, and let’s talk about your company’s future.