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