The metrics you need to create a compelling investor story
When it comes to metrics and data, the whole is greater than the sum of the parts.
We’ve all been victims of death by PowerPoint - a presentation bursting at (and more often than not, over) the slide seams with performance metrics, all displayed in a scattergun approach, with cash metrics next to the churn numbers, followed by revenue per head for good measure.
Yes, each metric is important. Yes, you need the numbers to tell a story.
But, make them work for you. Don’t do yourself a disservice by only including parts of the story.
Bringing all your numbers together to tell your whole story is what you need to do because, yes, we’ve literally just said it but we’ll say it again, the whole is always greater than the sum of the parts.
So, here’s how we suggest you do it.
Create order and flow
To show the strength of your business, group your metrics together for each specific area.
This helps build a clear and easy to understand picture and demonstrates your management team fully understand what they’re presenting.
What people want to see
Here’s an example of metrics investors in SaaS businesses want to see and how you should structure yours when presenting:
First things first. How effective is your business at attracting customers? And what about growing that all important top line?
This is what investors want to see so that they can judge how effective your sales and marketing machine is.
- Pipeline growth: are you growing the number of leads and value of your pipeline?
- Pipeline conversion: how quickly and effectively are deals being moved through the various stages of your pipeline. Is it taking longer to close deals? Are deals getting stuck at the contracting stage?
- Cost per MQL (marketing qualified lead): do you know what it costs to get a new lead? And do these new leads come from organic or paid marketing?
- Revenue growth: often shown as monthly recurring revenue (MRR) or annual recurring revenue (ARR) growth, can you hit that unicorn label most businesses strive for?
- Recurring revenue movement: a powerful way to demonstrate the revenue profile is to show the movement in recurring revenue from one point in time to another. Typically, you would start with opening MRR (or ARR), add in sales to new customers, upsells to existing customers, churned customers and other movements to arrive at the closing MRR (or ARR) – a waterfall chart is one of the best ways to visualise this.
For any SaaS business, this is a key area that investors will focus on and stress test in your commercial model.
The metrics below are at their most valuable when looked at as a group – because this tells investors everything they need to know about the lifecycle of your customer; what it costs to get them, how much they spend, how much it costs to serve them and how long they stay with you.
- Customer acquisition cost (CAC): tells you how much it costs to acquire a customer.
- Average revenue per account/user (ARPA or ARPU): how much does each customer pay? This becomes really important when you have various ‘plans’ customers can choose from.
- Average gross profit per customer: how much contribution do you earn from a customer after allowing for your direct costs?
- Payback period: this shows how quickly you recover your customer acquisition costs (CAC) and is normally shown in months. It's sometimes calculated based on the revenue per customer but a more accurate way is to use gross profit (or contribution). While using gross profit gives a longer timeframe it's a much truer reflection of the actual payback period.
- Churn: the rate at which customers are lost.
- Customer lifetime value (LTV): is the culmination of the above demonstrating the overall value of each customer to the business, incorporating the gross profit from them with how long they are a customer.
- LTV:CAC ratio: this gives you a ratio between the lifetime value of each customer (LTV) and how much it costs to acquire them. Too small a number means you won’t get value from that customer over their lifetime, and too high could mean you’re not investing enough in sales and marketing to drive growth.
Cash is one of the most crucial numbers in any business.
Knowing your cash position is vital to running your business and something potential investors will focus on.
- Cash runway: it sounds simple, but it’s absolutely vital. An investor will want to provide enough capital to enable you to execute your plans without providing too much so the company gets complacent (or you dilute yourself too much).
- Monthly cash burn rate: is how much, on average, you are burning each month. It's important to distinguish the difference between cash burn and EBITDA profit/loss, as accounting treatment can sometimes misalign the two.
- Cash conversion ratio: this is the cash generation over a period divided by EBITDA and demonstrates how efficient a business is at turning profits into cash. A business that sells annual licenses and is paid upfront is clearly going to have a higher score here than one that is paid monthly. This is good leverage for a premium valuation, so certainly, a metric worth highlighting.
Whatever metrics you include, and there are many more than the ones we’ve listed here, make sure they hang together so that your numbers tell a compelling story about your business to your potential investor.