Fri, 3 June 2022
Using Metrics in Your Valuation
Hello, this is Hall T. Martin with the Startup Funding Espresso -- your daily shot of startup funding and investing.
Metrics can help drive the valuation for your startup fundraise.
Here is a list of key metrics to include:
Number of visitors to your website and their conversion to paying customers. The higher the conversion rate, the lower the cost of sales and the greater the valuation.
Average revenue per customer. The higher the average revenue, the easier it will be to achieve scale.
Monthly or annual recurring revenue. This is the key driver for calculating forward multiples of a valuation.
Revenue run rate. If your revenue is still ramping up, consider taking the current monthly revenue and multiplying it by 12 to give you an annualized revenue run rate.
This will make your annualized revenue bigger than a look-back method.
Contribution margin. If you have high gross margins, include this in your valuation calculation as this will translate into more dollars going back into the business.
Customer acquisition vs. lifetime value. This ratio should be at least 1:3, but if it’s 1:5 or better, it can improve your valuation.
Churn rate. This is the rate at which customers stop using your product or service. The lower the rate, the better the valuation.
Viral coefficient. This measures how fast your product moves from one customer to the next through referrals. A highly viral product will garner a much higher valuation.
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