6 Numbers To Know
Not knowing these stats about your business off the top of your head – or simply having them in an addendum and easy to reference – will come across as unprepared and amateur. Before you go into your pitch, arm yourself with these insights about your business.
1. Total sales
This is a no-brainer that too many entrepreneurs neglect, and might be the first question you get asked. Having substantial sales is the primary indicator that your business solves a problem in the market (and having the answer to this question shows you know your business inside and out). It also gives investors an idea of where you’re at in your business; you’ll need different support if you’re pre-sales versus $200M in sales, and where you fall on that spectrum helps them determine if they’re the right people or firm to invest in your business.
2. Profit margin
Sales don’t matter unless you’re making money from them. Your margin is the difference between what it costs to make your product or deliver your service and how much people pay for it – a.k.a. your profit. It’s not necessarily bad to have low margins if you’re in the beginning stages of your business. Just be prepared to share how you’re going to scale and amp them up. For example, once you prove out your prototype, you might have a manufacturer secured to drive down cost, thus increasing your margin.
3. Customer retention
Also referred to as “churn” in the software world, customer retention gives investors insight into the product-market fit and the viability of your business model. If you’re able to prove that your customers keep coming back for more, that’s a sign you’re targeting the right market and that business will continue to thrive.
4. Valuation formula
A potentially less likely question to get asked – but a good one to be prepared for – is how you came up with the value of your company. There are plenty of ways entrepreneurs evaluate their businesses (check out Cameron Chell’s FasterClass on How to Build a Financing Strategy for more on that), and no way is inherently right or wrong. But it’s good to be prepared to explain how you arrived at your final number.
5. Customer acquisition cost
Your customer acquisition cost is how much you have to spend to get one new customer. This is usually the sum of all your sales and marketing expenses divided by your total number of customers. This number gives investors insight into how sustainable your business model and marketing approach is; they’ll want to see a large gap between what it costs to bring in a customer and how much they spend with you. Which leads to the number six.
6. Lifetime customer value
The lifetime value of a customer is the total worth of a customer to your business for the entirety of your relationship with them. This is a great piece of information that can complete the customer acquisition cost story. For example, if the lifetime value of a customer is $4,800, that can help justify why you might spend $500 to acquire each new customer – because in the end it pays off.
2 Numbers To Ditch
1. Market size
Unless you have a hyper-niche product that serves an industry your investors have never heard of, all you’re doing is wasting time by sharing irrelevant data. Showing that the software industry is $390B or the rideshare industry is $180B tells them nothing new; of course people buy software and rideshare. You’re not here to prove that. You’re here to prove why your solution is better than the competition, and how you’re going to earn market share.
2. Total addressable market
Like the information above, TAM doesn’t tell investors anything about the viability of your business – especially if you make some gross claim like “if we can earn sales from only 2% of the TAM, we’ll sell $300B next year.” These numbers are too large and nebulous to hold any real meaning. Keep your pitch focused on real data that proves your business model instead.