Startup Unit Economics and Financial Model

17
Customer Unit Economics & Startup Financial Models Austin Neudecker for EvoStart II

description

Slides for a workshop about Customer Unit Economics and basic Financial Models for early stage tech startups.

Transcript of Startup Unit Economics and Financial Model

Page 1: Startup Unit Economics and Financial Model

Customer Unit Economics& Startup Financial Models

Austin Neudeckerfor EvoStart II

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Customer Unit Economics• What is a customer worth to you?

• CAC = Customer Acquisition Cost– “How much does it cost to get a paying customer”– On average across all your channels

• LTV = Lifetime Value (of a customer)– “How much does a customer spend with you…– […over some reasonable amount of time”]– Depends on how long they usually stay, attrition rate, etc. but often

<=3-5 years max (I recommend 3 max for super early stage ventures)

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Quick Notes:

• Talking (primarily) about marginal costs• NOT fixed overhead, salaries (unless they are

people associated with/required for the sale)– Exceptions: Engineering customization– Training– Etc.

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Why do people care?

• Fundamental business measurement– Show that CAC < LTV – you have proven you a business– Show that you can reproduce this [at scale] and the

money will flow (customers, investors, etc)!

• CAC & LTV depend on each other– Know how much a customer is worth to you know the

max you can afford to pay for them– Track by channels, parts of the conversion funnel and

always be optimizing

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How to Calculate CAC

• Well, it depends…What is the channel?

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How do you acquire a customer?

Dave McClure’s Startup Metrics for Pirates

EXAMPLE CHANNELS

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How to Calculate CAC

This is one entrepreneur's quantitative approach to assessing many different channels – but please just pick 1-2. Reallocate your money to the ones that work best.

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Example: Calculate CAC

Classic SEM example: CPC cost / Conversion Rate

$2 CPC and 5% conversion = ???

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What is your CAC & LTV?

• Anyone know theirs??• Anyone have a model?

• Everyone quickly scratch up a rough estimate• Discuss publicly

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Transition between the two…

• They are related: as people get deeper into your sales / conversion funnel, they are worth more to you.

• I like to start backwards from the sale

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Dave McClure’s Startup Metrics for Pirates

Start here, work backwards

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LTV• How much does a customer pay you?

– Conversion from Freemium?– One-time or recurring payment?– Diversity in order size?

• Share your mix – trying to always improve

• How long do they stay a customer– How often do they come back?– Do you need to reacquire them each time?– What is the attrition rate?

• Harder Stuff?– How long?– How to handle referrals

• (personally – as recution in average CAC)

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LTV

• What is a customer worth to you?

(Each company)

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Financial Model(focus on revenue)

• How many have an up to date… ?– Balance sheet– Cash flows– Income statement

why?only for the accountant

• Your Finance model: Focus on REVENUE• Where do you see this business going?• Investors are looking for the up-side• Some high-level costs is required• Rough margins are important• Add in your few (2-5) most important Metrics

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Attributes of a Good Financial Model

• Focus on what is important

• 4 key tabs– Summary

• Rev vs. Costs• Graph• Table going out ~5 years

– Assumptions• Can put straight into the next 2, but often preferred separate

– Revenue• Focus on this part

– how do you make money– How quickly do you think you can scale

• I spend ~all my time analyzing this part– Cost

• DON’T spend too much time on this part• Can stack under Revenue if really want to

– Cap table – optional

• As you use it – adjust projected to actuals

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Your Models?

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Yealthy Models(in 000s) 2012 (6m) 2013 2014 2015 2016Rev $10 $218 $1,432 $5,163 $14,590 Cost $206 $1,646 $3,623 $4,855 $7,234