Startup Unit Economics and Financial Model

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

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Startup Unit Economics and Financial Model

  1. 1. Customer Unit Economics & Startup Financial Models Austin Neudecker for EvoStart II
  2. 2. 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)
  3. 3. 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.
  4. 4. 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
  5. 5. How to Calculate CAC • Well, it depends… What is the channel?
  6. 6. How do you acquire a customer? Dave McClure’s Startup Metrics for Pirates EXAMPLE CHANNELS
  7. 7. 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.
  8. 8. Example: Calculate CAC Classic SEM example: CPC cost / Conversion Rate $2 CPC and 5% conversion = ???
  9. 9. What is your CAC & LTV? • Anyone know theirs?? • Anyone have a model? • Everyone quickly scratch up a rough estimate • Discuss publicly
  10. 10. 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
  11. 11. Dave McClure’s Startup Metrics for Pirates Start here, work backwards
  12. 12. 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)
  13. 13. LTV • What is a customer worth to you? (Each company)
  14. 14. Financial Model (focus on revenue) • How many have an up to date… ? – Balance sheet – Cash flows – Income statement • 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
  15. 15. 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
  16. 16. Your Models?
  17. 17. Yealthy Models (in 000s) 2012 (6m) 2013 2014 2015 2016 Rev $10 $218 $1,432 $5,163 $14,590 Cost $206 $1,646 $3,623 $4,855 $7,234

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