Do you know why many young businesses fail to find partners and investors? One of the basic reasons is having no idea about startup metrics. You cannot expect someone to believe in your business unless you do. It is not enough to be able to interpret them; you need to know what each number stands for.
Investors typically look for a great, friendly team, an awesome product or service, and outstanding execution. You can show it all in a single report that would contain key business metrics for startups. Find the most popular of them below.
Top Metrics of a Startup to Look At
It all starts with the main entry point to pitch a potential investor. Forget about meeting with potential investors until you define and estimate the major metrics. Often, you’ll face analysts with vast experience, so trying to trick them makes no sense. Here are some of the basic startup metrics.
These are users who interact with your goods or services over a certain period of time. The system tracks how many people are there per day and month. It allows you to gauge the stickiness of your product/service. Only the number of active users can tell how many people use your goods. Estimate daily active users (DAU) by adding the sum of original active users per day.
Cost of Customer Acquisition (COCA)
Shelling out plenty of money makes sense if you want to attract more customers. But it’s better to avoid having high COCA for an extended period of time as it may destroy your business. The formula is COCA = Total Spend on Marketing & Sales divided by the Amount of New Customers Obtained. This metric will help you see how much you spend on ads and promotions.
Average Sales Cycle Length
The obvious shapes of this metric identify serious issues with sales. It shows the period from initiating negotiations to closing the deal. The shorter it is, the better. Estimate by taking the total time between former contact and sale and dividing it by the quantity of sales.
Lifetime Value (LTV)
This is the median amount of income from every client during the period he/she uses the company’s products or services. To estimate it, take an average buyer sale value and multiply it by the median customer lifespan. This way, you’ll see how profitable the project is.
Would you like to find out how fast your business spends the budget? This metric will help. It prevents startups from going bankrupt as they see how much they can afford. Just subtract the budget that you have by the end of the month from the one you have at the start.
Recurring Revenue (ARR/MRR)
If your business is more than one year old, estimate its annual recurring rate or at least find out the monthly rate. Companies that use such revenue models tend to generate profits from subscriptions on different bases. The basic formula used is ARR(t) = Σ Annual Recurring Revenue(t).
Common Types of Startup Funding
What is the right revenue model of a startup? How to attract investors? It depends on how much money you plan to raise and why. Today’s startups have several options.
It happens when one company buys the majority of another company’s shares to obtain full control over it. If you want some giant to absorb your business via a takeover, impress them by showing a deep understanding of who, how, and why is using your services. Prove that your site is doing well at converting customers. Retention rate and active users per day matter in this case.
This process stands for gathering funds as donations. The person who is raising the capital is called a fundraiser. They have to convince the potential investors of the product's usefulness, as well as specify how much money has already been raised and how much is left. Prove that you know what you’re doing and control the entire process.
In most cases, it is enough to showcase your business income statement for the recent period. Banks and private lenders are not very interested in the product itself. Prove to them that you have started obtaining traction and making some money. Qualifying for a traditional bank loan is a good idea in case you are sure that the required period of time would be enough to pay back your debts. Many banks have an enhanced commitment to startups. This might be the option for those who are looking for sums that do not exceed $500,000.
Meeting with Investors: Tips & Tricks to Keep in Mind
Before your first meeting with angel investor in person, research to find out more about the potential investor. You may decide that you need another partner, or that you barely have a chance. Hopefully, you have an executive summary and business plan ready by the time you meet potential partners. They wish to see specific numbers instead of naked facts.
Before the due date, get armed to the teeth with your presentation and pitch. Hire someone who specializes in this field or do it yourself, but just make sure to have a quick rehearsal. By adding passion, you can energize your story to impress your audience and grab their attention with a bang. A Q&A session is a must. While you can come up with some questions and answers during the meeting, it’s better to prepare some kind of FAQ for your guests.
We can assist you in that based on our extensive experience as specialists in the field. In particular, we can help you conduct a business analysis and build clickable prototypes or even full-on designs that will help you most favorably present your product to the most demanding investors.
Your key startup metrics may change over time. That is why it is necessary to re-calculate them before each new investor meeting. As the business expands, you may change your priorities, so the basic metrics to consider will also change. Dedicate some time to identifying your business and revenue model and adapting to changes. Show them that you really know your startup, and you’ll get the desired financial support!