Startup Unit Economics and Financial Model
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Transcript of Startup Unit Economics and Financial Model
Customer Unit Economics& Startup Financial Models
Austin Neudeckerfor EvoStart II
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)
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.
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
How to Calculate CAC
• Well, it depends…What is the channel?
How do you acquire a customer?
Dave McClure’s Startup Metrics for Pirates
EXAMPLE CHANNELS
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.
Example: Calculate CAC
Classic SEM example: CPC cost / Conversion Rate
$2 CPC and 5% conversion = ???
What is your CAC & LTV?
• Anyone know theirs??• Anyone have a model?
• Everyone quickly scratch up a rough estimate• Discuss publicly
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
Dave McClure’s Startup Metrics for Pirates
Start here, work backwards
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)
LTV
• What is a customer worth to you?
(Each company)
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
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
Your Models?
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