According to the New Startup Index by Beauhurst and supported by NatWest, 468,000 new UK firms have started up in the first half of 2024.
While this significant statistic suggests an uplift in new businesses, it’s been reported that 20% of small businesses fail in their first year, and around 60% of small businesses don’t make it past their third year.
With either a lack of capital or a lack of knowledge being the driving force behind the failure of small businesses, getting to grips withhow you can get investors interested in your business is key.
Within a previous piece of content, James Disney-May highlighted nine ways that you can increase your chances of success during your SaaS investment pitch – one of which included focusing on the metrics that matter.
While you may be tempted to grab the attention of investors with metrics like Monthly Active Users (MAU) or Lifetime Value (LTV), there’s other metrics such as Customer Acquisition Costs (CAC), retention rate, and churn that can better convey customer satisfaction and the sustainability of your business.
Here, the entrepreneur outlines five key metrics that are most likely to signal growth and customer value, and therefore appeal to potential investors and help keep your business alive past the all-important three-year mark.
Customer Acquisition Costs (CAC)
The total cost of your sales and marketing efforts, CAC is an important metric to keep an eye on for any business.Investors often place a high value on CAC asit offers a clear insight into a company’s operational efficiency and potential for growth.
Dependent on a number of factors, you can optimise your CAC using a variety of methods including targeted marketing, customer segmentation, and data analytics tools. Once your CAC has been determined, investors will have a clearer understanding of the funds and resources required to scale your startup.
Customer retention rate
Investors understand that returning customers are the most valuable customers for any business. With customer retention being a far more affordable avenue than acquisition for driving the sale of your products or services, a high retention rate often equates to improved advertising efficiency and a lower CAC.
Repeat customers are also a strong sign to investors that you’ve built a trustworthy business that delivers on customer satisfaction with quality offerings. If you want to build confidence in your small business in the eyes of investors, start by emphasising your customer retention rate.
Churn rate
If your customers and employees don’t have confidence in your business, then why should investors? A company’s churn rate is crucial to the success of a business and a metric that investors will analyse to determine whether scalability is possible.
A key part of the due diligence phase for investors, a high churn rate can indicate a low growth trajectory, regardless of how many new customers your business is attracting.
Bounce rate
For pre-revenue companies, a high bounce rate can be off-putting for investors, regardless of whether it’s caused by poor website design or low product value. A core engagement metric, issues with your bounce rate can indicate that your business has a significant engagement problem.
Conversely, a low bounce rate signals customer demand and potential for long-term retention – two elements that investors are always looking for.
Conversion rate
Investors can learn a lot about your company’s overall performance and the likelihood of receiving a good return on their investment from your conversion rate. With a higher conversion rate, investors can have greater confidence in the efficacy of your marketing strategies, understanding of website design and user experience, and sales processes.