If you are at a point in your business venture when it is time to search for investments, you have to understand your business performance.
There are several metrics potential investors and venture capital firms care about.
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These are:
1. Customer Acquisition Cost (CAC)
Customer acquisition cost tells investors and venture capitalists how much it costs you to acquire a new customer.
This covers expenses on marketing, sales, and onboarding divided by the number of new customers acquired during a specific period.
It is important to show that your customer acquisition cost is reasonable and can decrease over time as your marketing becomes more efficient.
Use our CAC calculator to estimate your customer acquisition cost.
2. Customer Lifetime Value (CLV or LTV)
Customer Lifetime Value is the total amount of revenue a business can expect from a customer over the course of their relationship with the business.
To attract investments, the value you get from a customer should be significantly higher than what it costs to acquire them (CAC).
A healthy ratio between CLV and CAC (typically at least 3:1) shows that your business is sustainable.
You can сalculate CLV using our estimation tool.
3. Annual Recurring Revenue (ARR)
For all businesses, especially SaaS-based, yearly recurring revenue is a crucial metric.
It shows the steady, predictable income generated from subscriptions.
Investors look at ARR to see how stable your business is and how quickly it’s growing.
Tracking ARR growth rate is essential to show how much revenue you’re adding month over month.
Use our ARR calculator to estimate annual growth.
4. Churn Rate
The churn rate measures how many customers stop using your product over a specific period. Usually monthly or annually.
The churn rate indicates customer satisfaction and retention.
High churn can raise red flags about product fit or market competition and be an obstacle for investments.
Use churn rate calculator to estimate your churn rate.
5. Product-Market Fit
While hard to measure directly, investors are always looking for signs of product-market fit, which means your product is meeting a real demand in the market.
One common proxy for this is user engagement and customer feedback.
High user engagement (e.g., time spent using the product, frequent logins) is a positive signal that your product is valuable to your customers.
6. Net Promoter Score (NPS)
Net promoter score measures customer satisfaction by asking customers how likely they are to recommend your product to others.
A high NPS score shows investors that your customers are happy, loyal, and likely to spread the word about your business, which can drive organic growth.
7. Return on Investment (ROI)
ROI measures how efficiently your business is using startup capital to generate profits.
ROI is calculated by dividing net profit by the total investment.
Investors usually use this metric to evaluate the effectiveness of their investment and compare it to other potential opportunities.
8. EBITDA
EBITDA stands for Earnings Before Interest, Taxes, Depreciation, and Amortization.
It’s a way to measure a company’s profit from its core operations before all the other financial stuff (interest, taxes, depreciation, and amortization) so you can focus on the core business.
Calculating EBITDA helps the company understand how much money it’s making from its core business operations, excluding factors like loan interest payments, taxes, and non-cash expenses.
This clarifies the company’s operational performance and helps make strategic investment decisions.
9. Present Value
Present Value (PV) is used to determine the current value of future cash flows, discounted to account for risk and time.
Investors use this to evaluate the long-term profitability of your startup by estimating the worth of future earnings in today’s terms.
Calculating present value is important when projecting the future success of your business.
10. Runway
Your runway is the amount of time your business can operate before it runs out of cash based on your burn rate.
Investors want to know how much longer you can sustain operations without additional funding.
A longer runway gives investors confidence that your startup is managing its finances well.
Investors will look at these metrics to understand if your startup is profitable, scalable, and worth to put their money in.
Make sure you focus on these startup valuation metrics to improve the success of your fundraising efforts.