Yeah, you’ve got great traction, an amazing website, and a decent social media presence, but when it’s time to fundraise what are investors looking for on the marketing front?
While not many investors are marketing gurus (ok, most…) what they want to know is how efficient you are with your cash. And as a startup founder (depending if you’re B2B or B2C), many times most of the cash is spent in the marketing department.
So how can you know how efficiently you’re spending in this department?
In this brief post, we’re going to go through some of the most important metrics investors look at when evaluating the effectiveness of your marketing.
1. Customer Acquisition Cost (CAC)
CAC is an important metric because it breaks down the cost to acquire a new customer. Let’s give a quick example; if you run a marketing campaign that costs you $100 to run, and you generate 10 clients, your CAC is $10.
$100 marketing spend / 10 customers = $10 Customer Acquisition Cost (CAC)
2. Monthly Recurring Revenue (MRR)
MRR is a calculation of the total revenue generated by your business from all the active subscriptions. This is important in marketing because it shows how much of your business is coming from predictable revenue vs. one-time purchases. If the ratio of one-time payments to MRR is high, you might want to tailor your marketing for more MRR sales.
3. Serviceable Obtainable Market (SOM)
I’m sure many have heard of market sizing & TAM, but the more important market size in SOM when communicating the effectiveness of marketing. The SOM is a measurement of the portion of revenue that a company can capture in a given market. This is important because if you know your current share of that market, you’re able to know the growth potential of your company.
4. Burn Rate (Burn)
The burn rate is simply the amount of money a company is spending each month. The trick here is to understand what percentage of your burn is in marketing spend and how long you have until you run out of money. ALWAYS make sure you have more than 6 months of reserves when approaching investors to make sure you’re in a good spot to negotiate.
5. Lifetime Value (LTV)
LTV is a calculation of how much money a given customer will spend with you over the span of being a customer of yours. If you have a subscription-based business and the price is $10 per month and the average amount of time a customer spends with you is 5 months, your LTV is $50.
$10 per month subscription * 5 month average customer retainment = $50 Lifetime Value (LTV)
6. Average Revenue per Account/User/Customer (ARPA, ARPU, ARPC)
ARPU is a measurement of the total revenue divided by the number of users. A high ARPU is an indicator that you don’t need a ton of customers to build a sustainable business, while a low ARPU is an indicator that a business isn’t positioned for long-term success.
7. Return on Ad Spend (ROAS)
ROAS is simply a measurement on the revenue generated on every ad dollar spent. A general industry average for “good” ROAS is $3 or 3X.