Knowing your Metrics
Investors look for the metrics in your business so it’s important to know them. There are three levels of metrics you can use.
- Activity metrics show the basic activity of the business
- Unit economic metrics show the unit economic model including cost of customer acquisition and revenue.
- Growth metrics show the growth in the user base and usage of the product.
Activity metrics can include things like the number of users, downloads, or subscribers. While they fall short of business results such as closed sales, activity metrics can show your level of customer engagement.
If your company is pre-revenue, you can show the potential profitability of your business model using unit economic metrics. Ultimately, you want to show the cost and process to generate leads, qualify them, and close them for revenue. In the early days of a business, the revenue is small. Luckily, most investors know that and don’t expect large revenue. Instead, they want to see an accurate forecast of repeatable and predictable revenue. Showing unit economics demonstrates that you have a core business model that is working, and with time and funding, can improve.
Growth metrics can demonstrate several things, such as an increase in the number of users, or an increase in the frequency in which customers are using the product. Active users should be going up and to the right. If your business has seasons or cycles, then you can use a six-month moving average to show your growth rate.
Knowing your metrics is vital when you are looking for funding, so be prepared and potential investors will take note. If you can only show activity metrics, then do so. Better yet, validate your business model with unit economic metrics. Ultimately, the best metrics show growth in users and usage. Whatever you do, don’t show up empty-handed.