Please Don't Smooth the Metrics

Investors have lots of good habits when it comes to metrics. Operators can copy many of them. One habit they shouldn't copy, however, is smoothing.Smoothing has a legitimate purpose. Investors are trying to understand businesses. They're looking for long-term trends and patterns, so they want to damp out seasonality and quarter-to-quarter noise.Suppose 40% of your orders come in Q4. Roughly 40% of your churn is going to occur in Q4 as well. Maybe more than half of it will occur in December. That volatility doesn't really tell you anything interesting. It's just the calendar. Smoothing makes it easier to see the underlying trend. The same argument applies to CAC. If you hire a bunch of salespeople in Q1, those investments won't pay off until Q2, Q3, and Q4. Looking at quarterly CAC can produce wild swings that don't reflect the underlying efficiency of your go-to-market model. A rolling 12-month CAC ratio is often a much better metric.So, if you're an investor – and you're in…