Last week I spoke with a startup founder who was looking for investment for his new company.
During the call, one thing became painfully clear: this founder didn’t have a basic understanding of his metrics.
He didn't know how much traffic he got each month, or at what rate his customers converted. He didn't know how many of his purchases were from returning customers, or what it cost to convert a visitor into a paying customer.
Spoiler alert: we didn't invest in this founder.
But the reason we didn't invest had nothing to do with what his actual numbers were. It came down to the fact that this founder didn't understand what was happening in his business.
If the founder had a firm grip on his metrics -- even if the numbers were terrible in the early days of his business -- it would have shown us two important things:
1) He has thought critically about his funnel
2) He knows what's happening in the business and can iterate quickly.
It bears repeating so I'll say it again: the actual numbers meant far less to us than the founder's understanding of those numbers.
Because without that knowledge, how can the founder know where to focus his time and resources? How will he know what's driving the business, and what changes should be made to improve it?
Now, there are a ton of metrics that you could memorize. But for the sake of this email, I asked my colleagues at Hustle Fund this question:
What metrics should founders know inside and out to demonstrate their understanding of the business?*
*keep in mind that this list reflects the practices of Hustle Fund – other firms may have their own recommendations.
1. Revenue Numbers
- How much revenue did you earn this month? Last month? The month before?
- Which acquisition channels drove revenue?
- What is the cost of your product (or subscription)?
- How much of your revenue is attributed to the product vs. your consulting services?
- Excluding marketing, what are your margins?
Tip: margins are especially relevant for companies with a high cost of goods, like expensive items, or e-commerce companies with delivery expenses.
2. Acquisition Numbers
- What is your cost per acquisition?
- What is your website conversion rate?
- How many daily active users do you have? How many monthly?
- What is your retention rate?
- What is your monthly churn?
Tip: churn is especially important for subscription-based companies
3. Fundraising Numbers
- How much have you raised to date?
- How much are you raising now?
- What were the terms in your last round?
- What are the terms in this round?
4. Milestone Numbers
- What milestones do you expect to hit with this raise?
- What metrics do you care about when measuring the health of your business? Why?
5. Slicing and Dicing
- How have your conversion rates changed over time? Have they increased, decreased, or stayed the same?
- How have different customer acquisition channels performed? For example, what is the difference in conversion rate between Facebook ads versus LinkedIn ads?
Tip: understanding how to slice and dice your numbers over time and through different channels helps you understand two things: Are your numbers are getting better over time? And which channels are working or not working?
Keep in mind that these are not the only questions you’ll be asked in an interview with an investor. And other number-related questions might come up that we haven't listed here.
But the numbers listed above are ones you should absolutely know.
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