Revenue Metrics

Customer Lifetime Value

Theory

Application

  • Contribution margin per customer per month = Revenue per customer per month — variable costs associated with a customer
  • Average lifespan of a customer = 1/monthly churn

Practice

  • The focus of seed rounds is to achieve actual revenue and top line growth rates, but also seed stage investors look at unit economics (Lang, M., 2020).
  • Usually, a cut off after two to three years is taken for lifetime value. Everything beyond this is hard to predict.

LTV:CAC Ratio

Theory

Application

  • Start by analyzing your overall + your LTV:CAC for the individual customer segments (Skok, D., 2019).
  • Look at CAC and LTV individually (overall and per customer segment) to see which levers you can take for optimizing the overall ratio (Skok, D., 2019).

Practice

  • Focused target market
  • Customer referrals
  • Inbound marketing
  • CRO
  • Differentiation to competition
  • Increased brand awareness
  • Use freemium or free trials
  • Optimize customer acquisition
  • Capitalize on referrals — if possible
  • Automate sales processes
  • Use demo videos — reduces the amount of salespeople needed to explain a product (Skok, D.., 2019).
  • Cross- and upselling
  • Increase referrals
  • Reduce churn
  • Add repeat business
  • Determine the main source of customers with high LTV and pinpoint your ideal target group.

Revenue

Theory

Application

Monthly Recurring Revenue

Theory

Application

Practice

MRR Growth

Theory

Application

  • New MRR = Σ revenue from new subscriptions
  • Expansion MRR = Σ revenue from subscriptions from up or cross-selling
  • Churn MRR = Σ of lost revenue due to canceled subscriptions
  • Net New MRR = New MRR + Expansion MRR — Churn MRR (Law, 2016).

Practice

Annual Contract Value

Theory

Application

  • Customer A has signed a 3 year contract worth $36,000, therefore, the ACV is $12,000.
  • 100 customers subscribed to a monthly plan and pay $100 per month. Here the ACV is also $12,000 (Baremetrics).

Practice

  • DEEP TECH: An ideal benchmark in the deep tech industry is an ACV of 100k. ACV will gradually improve over time with a higher customer satisfaction. Thus higher ACV volumes can be expected after the second or third year after a contract has been signed with a certain client.
  • FINTECH: For fintech companies selling to enterprises ACV is essential in the pre-seed phase. They need to show the ability to expand a deal in the distant future by horizontal expansion or upselling. This can be assessed through reference calls with industries to understand their types of usage in practice.
  • B2B: For B2B seed stage companies at least one customer should have converted and proven the in the pre-seed projected ACV and 2–3 customers should be in the pipeline with a clear approach on how to reach them and how to expand the feature set.
  • SEED TECH: ACVs should be monitored closely in the seed stage. Meaning, what are the ACVs, how are the contracts structured and who are the buyers for startups in the industry space.

Average Revenue Per User

Theory

Application

  • Simply calculate ARPU as stated below
  • Monitor it over time for different customer groups (Skok, D., 2019).

Burn Rate

Theory

Application

Runway

Theory

Application

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Speedinvest Pirates is the growth marketing unit of Speedinvest. We provide the growth marketing expertise and operational excellence.

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Speedinvest Pirates

Speedinvest Pirates

Speedinvest Pirates is the growth marketing unit of Speedinvest. We provide the growth marketing expertise and operational excellence.

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