If you are an entrepreneur searching for financing, you need to be familiar with how to assess and convey the financial success of your new company. In addition to your concept, mission, and team, investors are interested in the metrics associated with your business. They are interested in learning about the ways in which you are providing value, controlling expenses, and producing money. In the following paragraphs, we will discuss some of the most important financial indicators that investors search for in a business, as well as the significance of these data.
Rate of Increase in Revenue
The revenue growth rate of your startup is the percentage change in its revenue over a given period of time, which is often one month, one quarter, or one year. It demonstrates the rapidity with which you are extending your market and boosting your sales. Investors are interested in businesses that have a strong and steady revenue growth rate since this implies that the product fits the market, that customers are satisfied, and that the business can scale. However, the growth rate of revenues by itself is not sufficient since it does not take into consideration the profitability or long-term viability of your company model.
Margin de gross sales
After subtracting the cost of goods sold (COGS), which are the direct expenditures linked to making or delivering your product or service, the proportion of revenue that is left over is known as the gross margin, and it is expressed as a percentage. It demonstrates how well you are able to generate money from your core activities and how much capital you have available to spend in other areas of your company, such as marketing, research, and development. An indication of competitive advantage, pricing power, and operational efficiency is a high and consistent gross margin. Investors search for businesses that have this indicator in order to make their investments. However, gross margin by itself is not sufficient since it does not take into account the overhead or fixed expenses associated with operating your company.
Burn Rate
Your startup’s burn rate is the amount of money that it spends each month to meet its running expenses, such as wages, rent, utilities, and marketing. These costs may add up quickly. It reveals the rate at which you are depleting your financial reserves as well as the amount of time you have left before you are unable to continue living. Investors seek out new businesses that have a burn rate that is both low and controllable, since this demonstrates financial discipline, efficient operations, and a sufficient amount of runway. However, the burn rate by itself is insufficient since it does not take into consideration the possibility of either revenue or development inside your company.
The cost of acquiring new customers
Client acquisition cost, also known as CAC, is the average amount of money that you pay to acquire a new client. This sum takes into account the expenses of marketing, sales, and any other activities that are relevant to generating and converting leads. It reveals how successful you are at reaching and acquiring your target market, as well as how much you are able to spend in order to develop your client base. Investors like to put their money into new businesses that have a CAC that is low and falling, since this demonstrates high demand, effective marketing, and loyal consumers. However, CAC on its own is insufficient since it does not take into consideration the worth of your clients or their continued patronage.
Customer Lifetime Value
Client lifetime value, or CLV, is the average amount of money that you anticipate making from a client throughout the whole period of their association with your firm. This sum takes into account the income, expenses, and discounts involved with servicing and maintaining the customer. It illustrates how significant your clients are to your company as well as how much you are willing to spend on maintaining and expanding your relationship with them. Investors seek out new businesses that have a high customer lifetime value (CLV) and are growing, since this demonstrates high-quality goods, pleased consumers, and recurring income. However, CLV on its own is insufficient since it does not take into consideration the pace of growth or turnover within your client base.
Unit Economics
Unit economics is the examination of your company’s profitability and scalability at the individual unit level, such as a client, a product, or a transaction. This may be done to determine whether or not your organization can expand. It shows the amount of income and profit you make from each unit, in addition to the amount of money it costs you to purchase and maintain each unit. Investors seek out firms that have favorable unit economics that are also increasing, since this suggests that the company has a business plan that is both feasible and scalable, as well as a clear path to becoming profitable. However, unit economics by themselves are not sufficient since they do not take into consideration the size of the market or the rivalry that your company faces.