When pitching to potential investors, capturing the most appropriate revenue metrics is crucial when demonstrating your company’s potential. However, not all revenue metrics are created equal. Some metrics could be misleading, inaccurate, or irrelevant to your business model and may hurt your credibility and chances of success. To show how much value you are creating and capturing in the market, it’s important to use the right metrics and methods to present a more convincing and realistic revenue projection.
Some common revenue measurement trip-ups in startup pitches include:
- Using vanity metrics instead of actionable metrics. Vanity metrics are numbers that look impressive but do not reflect the true value or performance of the business, such as total downloads, page views, or registered users. Actionable metrics are numbers that help you make decisions and improve your product or service, such as retention rate, customer lifetime value, or conversion rate.
- Not addressing revenue vs. profit. Identifying the company’s revenue potential but not being prepared to discuss the related costs and margin can cost the company credibility. A start-up should aim to understand its costs and be ready to address them in the follow-up questions from its audience.
- Not accounting for customer acquisition cost (CAC). CAC is the average cost incurred when acquiring a new customer, which includes marketing, sales, and other expenses. A start-up should aim to have a low CAC and a high customer lifetime value (CLV), which is the average revenue a customer generates over their relationship with the business.
- Ignoring churn rate. Churn rate is the percentage of customers who stop doing business with a company over a given period of time, usually a month or a year. A high churn rate indicates that a start-up is not retaining its customers or providing enough value to them. A start-up should monitor and understand its churn rate, with the goal of reducing churn in order to increase recurring revenues.
- Failing to validate assumptions. A start-up pitch often relies on assumptions about the market size, customer demand, competitive advantage, and revenue potential of the business idea. However, if not appropriately researched, these assumptions could be inaccurate, unrealistic, or misleading when used in the wrong context. It's important to validate all assumptions when preparing to pitch by conducting market research, customer interviews, surveys and experiments, and adjusting revenue projections accordingly.
By using the right metrics and avoiding some of the above pitfalls, you can present a more credible and convincing pitch to potential investors.
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For more information on this topic, please contact a member of Withum’s Technology and Emerging Growth Services Team.
