As a crowd-financing platform that helps entrepreneurs gain access to capital, we regularly receive questions from budding businesses wondering what it takes to attract early-stage investment. The answer isn’t simple—there are a lot of different metrics investors look for in a business, and the criteria vary from investor to investor depending on the type of portfolio they are looking to build. That being said, there are a several key metrics that entrepreneurs should have on-hand for investors when looking to raise funds.
Our friends over at Symbid, a European-based funding network, recently published an article titled “10 Key Metrics Early-Stage Investors Want to Know About Your Startup”. Europe is the world’s leader in crowd financing, with regulations allowing them to do for years what we’ve only just begun in North America. As thought-leaders who have worked in the crowd funding space for quite some time, they’ve hit the nail on the head with this article. While their market is in Europe, when it comes to these 10 key metrics investors look for, borders do not apply. Investors in North America have the same expectations when it comes to having these basics facts and figures on hand when entrepreneurs are looking to raise capital.
Here is Symbid’s list of 10 key metrics early-stage investors want to know about your business. For the full original article, published on May 18 by Louis Emmerson, click here.
1. Gross Margin
This indicates how expensive it is to make your product or offer your service, and is expressed as a percentage. This is calculated either by taking the business’ total sales revenue and subtracting the cost of goods sold (then dividing by the total sales revenue) or the selling price of an item, minus the cost of goods sold.
2. Revenue Growth
Also known as the “top line”, this metric indicates the growth or expansion potential of a business by highlighting increasing or decreasing sales over a period of time. Rather than simply being a snapshot of revenue, it is able to convey trends.
3. Net Income
Also known as the “bottom line”, “profit attributable to shareholders”, or “burn rate”. This shows the business’ total earnings and is calculated by taking all costs incurred (including cost of doing business, depreciation, interest, taxes, and other expenses) away from revenue.
4. Contribution Margin
This metric shows the profitability of individual products. The contribution margin is used to determine whether variable costs for your product can be reduced, or if the price of the end product should be increased. Depending on the sector your business operates in, this margin can range from 5% to 25%.
5. Churn Rate
A metric which shows the revenue potential of each of your individual customers. The larger churn your business experiences, the more difficult you will find revenue growth. In order to expand your customer base, your number of new customers must exceed your churn rate.
6. Customer Acquisition
The cost associated with attracting customers to your business. As you work to engage potential customers, you spend money on producing the product or service, research, and marketing. The objective is to spend as little as possible on customer acquisition, within reason.
7. Sales Quotas
Showing your sales targets to potential investors – and whether you’ve achieved them – indicates how well your product is selling and whether or not your sales team is performing efficiently.
This is the single biggest expense for most start-ups and a lot of established businesses too. Potential investors will be interested to see whether you pay low salaries (which could raise questions about employee retention in the future), or excessive salaries (which could limit your company’s operational future).
A metric which indicates how efficiently your business uses its employees. In general, a relatively high revenue-per-employee rate suggests that your team is producing more sales, which is a positive sign. It’s important to remember that some sectors and products generally require more people in order to generate higher sales.
10. Non-Personnel Marketing Budget
This is perhaps the only variable metric on the list, as it can be controlled and adjusted month-to-month. Typically, it refers to the amount of money spent on advertising and events, which can be increased or decreased as your other marketing efforts progress. It is a good indicator of how well your business understands its market, but also of how responsive your business is to recent sales results.
Ready to start raising funds or still have questions? Visit our Entrepreneur Suite for more information, or get in touch with our team at FrontFundr.