In the startup world, having a “good idea” isn’t good enough anymore. Investors often want to know certain growth metrics before starting a conversation around fundraising.
If you’re a subscription based business, then you’d want to check out these Metrics Investors Want to Know:
🎯 Customer Acquisition Cost
To calculate this cost, ask yourself: how much do I spend on marketing and sales development for lead generation? Then, divide the cost by revenue, and this will give you your customer acquisition cost.
💰Yearly Revenue
The customer acquisition cost is important because investors compare it to the revenue your business generates since it helps them understand how much money is required for your business to break-even and subsequently grow.
🌱 Customer Lifetime Value to Customer Acquisition Cost Ratio
To calculate this ratio, ask yourself: how long will a customer stay with our company, and how much revenue will that generate? Investors generally seek greater than 3:1.
💸 Monthly (MRR) and Annual (ARR) Recurring Revenue
When highlighting your recurring revenue, you can either highlight what you did in the past, in terms of MRR and ARR, or you can consider highlighting your revenue run rate (RRR).
🏏 Revenue Run Rate (RRR)
Some companies may choose to highlight the prediction for next year based on what they’re doing right now.
📈 Year on Year or Month on Month Growth
Another way to highlight your RRR is to demonstrate that you’re growing constantly. Typically, you’d want growth to be over 40-50% per year, but if you’re a high growth business, then you should be aiming for 100%+ per year growth. Companies that have the easiest time attracting investment, have greater than 100%+ year on year growth, or if they’re early stage then 20%+ month on month growth.
✨ Gross Margin
Gross Margin = Revenue – Cost of Goods Sold
Communicating this is super important because it helps investors understand the potential cash generation machine your business can become over time.
🔥 Cash Run Rate
This helps investors understand when your business may run out of money and this helps set different timelines for capital raising.
Using these metrics investors attempt to form a very clear picture of your business’ growth potential and its financial success.
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