8 terms, metrics, and KPIs that should show up in your startup pitch deck
Fundraising is a critical piece of building your business. But every investor you reach out to is probably getting pitches from dozens, or hundreds, of other startups every day — a lot of which might be in your same market. As you start to get ready to make a full-court press on fundraising, you’ll need to have your key performance indicators (or KPIs) in order.
While those may vary from startup to startup, there are some rough guidelines you can start with when putting together your pitch deck (or that initial email). They show up often in fundraising pitch decks for a reason: they are pretty good face-value benchmarks for your startup when trying to convince someone to invest tens (or hundreds) of thousands of dollars in your startup after just a few conversations.
These definitions, however, are strewn all over the internet — so we decided to take the time to find some of the most essential terms and lay them out here in one spot. Here’s a quick overview of what to ensure you cover in your conversations when you are out looking to fundraise:
Customer acquisition cost (CAC)
The cost associated with convincing a customer to buy a product or service. You’ll probably want to include the timeframe it would take for a customer to pay back the cost of this investment.
How you should define it: Defining CAC will vary from company to company, but is generally speaking,
Total spend can include marketing, paid acquisition, or even the compensation for your team that went into acquiring that customer. CAC is often calculated on a quarter-by-quarter basis.
Why you need to know it: You should be able to explain how much your customer acquisition strategy roughly costs, and how you are going to cover that cost or reduce it over time.
Lifetime Value (LTV)
The return on investment from a customer before they churn. LTV is a function of the revenue from users, your gross margin, and your churn rate.
How you should define it: Roughly,
Churn can be a little challenging to define, which we’ll get into below. You’ll probably calculate this on a quarter-by-quarter basis.
Why you should know it: You should be able to explain how your customers will cover the cost of your operations, or how you will get to that point. That'll give the investors you are pitching during your fundraising a good sense of how you're going to deploy your capital if they invest in you.
The rate at which your customers leave after they have signed up and become a customer. Defined as the number of customers who leave compared to the total customers you have, including ones added (or projected) in that time.
How you should define it: Churn is a bit tricky depending on your business because you need to determine what qualifies as a churn event.
- For e-commerce, that might be loss of a repeat customer in a quarter, but it can be pretty open-ended.
- For SaaS, this might typically be the rate at which users are terminating their subscriptions.
- For marketplaces, this may be when a specific time period passes without making an additional transaction
It’s more or less on you to define an accurate value for churn. Be careful here, as growth can mask churn, so it is also important to analyze on a cohort-basis. This means look at of the customers added in one particular month, how many are still customers 3, 6, ...12 months later. Make sure the denominator is appropriately defined.
Why you need to know it: You need to explain how efficient you are about holding onto your existing customers, which need to eventually generate enough value to pay back their acquisition cost and a profit following that.
Annual recurring revenue (ARR)
Revenue generated from subscriptions mapped out across the next year.
How you should define it: Roughly,
You typically need to have terms that span at least a year to reasonably count them in your ARR.
Why you need to know it: If you’re a subscription-based business, whether that’s e-commerce subscriptions or a SaaS business, you’ll have to use it as a metric for your performance.
Total negative cash flow for a period of time (typically measured monthly). Basically, how much money in your account was used up and not replenished.
How you should define it: Pretty straightforward! Roughly,
In short, the net amount of money that is (disappointingly or otherwise) exiting your bank account every month.
Why you need to know it: Investors will want to know how long you have remaining to operate and how efficiently you are running your business, and the rate at which your burn is increasing (or decreasing).
Cost of goods sold (COGS)
The direct costs you incur to produce your goods or services.
How you should define it: The sum of all costs that go into offering or creating your product, which can vary from company to company.
- For SaaS, this may include hosting costs, upkeep costs, third-party tools in use, or others.
- For e-commerce, this may be a function of your inventory, which might look a little like,
You’ll have to settle on the definition that best-articulates how much it affects your margins.
Why you need to know it: You’ll want to explain how efficient you are in your methods to create your goods or services as a proxy for the quality of your operations.
The total revenue you generated minus the direct costs of operation (or COGS). SaaS businesses typically have very high gross margins, while retailers like Amazon might not.
How you should define it: Pretty straightforward, as we defined cost of goods sold above:
Why you need to know it: It says a lot about how well your business is performing relative to other comparable companies.
Share of voice
The total percentage of mentions you have across some select vertical (usually media or platforms) compared to the mentions of all relative competitors. Often a benchmark to determine the success of earned media. This metric is essential for businesses in which the brand is a key driver of value.
How you should define it: A percentage, roughly,
The metric can vary depending on your target channel, which could include social media, press, search, or others.
Why you need to know it: Investors want to know if your brand is well-positioned in the marketplace and have a sound content and media relations strategy in place moving forward.