Metrics and data

High Alpha, in partnership with OpenView, teamed up to explore pricing models, churn, AI adoption, financial performance, and more in the 2024 SaaS Benchmarks report. The team at High Alpha is joining us to dive into the data and share insights to help founders and investors in 2025 and beyond. We'll be joined by High Alpha Partners, Mike Fitzgerald and Blake Koriath. High Alpha is an Indianapolis-based venture firm that creates and funds B2B SaaS businesses. Mike and Blake will join us on November 21st to dive into the report. Save your spot below: Even if you can't make it — register anyway! We'll send the recording to anyone who registers.

Understanding your startup's potential for growth is crucial in determining how to allocate resources, set goals, and attract investors. One of the key metrics to evaluate is your Service Obtainable Market (SOM)—the portion of the market your company can realistically capture. In this article, we will break down what SOM is, how it differs from other market metrics like total addressable market (TAM) and Serviceable Available Market (SAM), and why it is essential for building a focused, sustainable strategy. You'll also learn how to calculate your SOM and how it helps refine your projections and increase investor confidence. Related resource: How to Model Total Addressable Market (Template Included) What is Service Obtainable Market (SOM)? The Service Obtainable Market represents the portion of your total addressable market that your startup can realistically capture based on its current resources, capabilities, and competitive positioning. It is a refined market segment that takes into account the realities of your business—such as sales capacity, distribution channels, and brand recognition. While other metrics like TAM and SAM offer a broader view of market potential, SOM gives a grounded estimate of what’s achievable. For startups, this figure is crucial in shaping strategy, defining target customers, and setting realistic revenue expectations. Factors of Service Obtainable Market Several factors influence your Service Obtainable Market, helping you determine the most realistic portion of the market you can capture. These include: Market Size and Reach The size of the total addressable market (TAM) sets the foundation for calculating Service Obtainable Market. However, your actual reach depends on your geographic footprint, target demographics, and ability to effectively penetrate the market. Related resource: Bottom-Up Market Sizing: What It Is and How to Do It Product The uniqueness and quality of your product will impact how much of the market you can capture. A product that meets specific needs or offers a strong value proposition can help you stand out and gain a larger share of the market. Competition The level of competition in your industry will directly affect your SOM. A highly competitive market may limit your share, while a niche market or one with fewer competitors can increase your potential capture. Historical Performance and Research Your past sales data and market research are valuable in estimating Service Obtainable Market. Trends in customer acquisition, product adoption, and overall performance provide a realistic basis for forecasting future growth within the obtainable market. Understanding SOM, SAM, and TAM To grasp the full scope of your startup’s market opportunity, it’s essential to understand three key metrics: TAM, SAM, and SOM. While TAM represents the total market demand for your product or service, SAM narrows it down to the portion you can serve based on your business model. SOM refines this even further, focusing on the market you can realistically capture given your resources and competitive positioning. Let’s explore these differences in more detail. Related resource: Total Addressable Market: Lessons from Uber’s Initial Estimates Service Available Market (SAM) vs. Service Obtainable Market (SOM) Service Available Market (SAM) refers to the portion of the total market that your business can serve, based on factors such as your product offering, geographic reach, and target audience. It reflects the customers you could potentially access with your current business model. On the other hand, Service Obtainable Market is a smaller, more realistic portion of SAM. It takes into account not only your ability to serve the market but also your competitive landscape, internal resources, and operational constraints. In essence, SOM is the market share you can realistically expect to capture in the short term. Total Addressable Market (TAM) Total Addressable Market (TAM) is the broadest metric of the three. It represents the total market demand for your product or service, assuming no competition or barriers to entry. TAM reflects the largest possible revenue opportunity available, but it often includes customers or segments beyond your reach or interest. While TAM gives you a big-picture view of the entire market, SAM and SOM help you zoom in on the more actionable portions, with SOM being the most precise estimate of what your startup can capture in the near term. Related resources: Total Addressable Market vs Serviceable Addressable Market What Is TAM and How Can You Expand It To Grow Your Business? How to Calculate Your Service Obtainable Market Calculating your Service Obtainable Market (SOM) is essential for setting realistic business goals and crafting an effective market strategy. While TAM and SAM provide a broader view of potential opportunities, SOM focuses on what your startup can actually capture in the market based on your resources and competitive strengths. To calculate Service Obtainable Market, you'll need to break down your market step by step, narrowing from the largest possible market to the portion you can truly serve. Let’s walk through the process of calculating SOM and how each step contributes to a precise understanding of your market opportunity. Step 1: Define Your Total Addressable Market (TAM) The first step in calculating your Service Obtainable Market is to define your Total Addressable Market the largest possible market for your product or service. To identify your TAM, you’ll need to evaluate the full demand for your offering across all potential customer segments, without considering competition or operational limitations. Start by answering these key questions: Who are your potential customers? Identify all possible user groups or industries that would benefit from your product. What is the overall market size? Research the total number of customers or the revenue potential in your market globally or within your target regions. How big is the need or demand for your product? Assess the pain points your product addresses and the number of customers affected by these challenges. By combining industry data, market reports, and demographic insights, you can estimate the maximum revenue potential of your product or service in its ideal conditions—this is your TAM. Step 2: Narrow to Your Serviceable Available Market (SAM) Once you’ve defined your Total Addressable Market (TAM), the next step is to narrow it down to your Serviceable Available Market (SAM)—the portion of the market that you can realistically serve, based on your business model, product offering, and geographic reach. To assess your SAM, consider the following: Business Model: Which customers can you effectively serve with your current sales, distribution, and operational models? Some markets might be out of reach due to logistical or operational constraints. Product Fit: Focus on the customer segments where your product or service directly addresses specific needs or problems. Not every customer in the TAM will find your solution relevant. Geographic Limitations: Evaluate the regions where your business operates or where you plan to expand. Factors like local demand, regulations, and shipping constraints can limit which parts of the TAM are accessible to you. By refining your TAM with these considerations, your SAM represents the subset of customers that you have the capability and infrastructure to reach and serve. Step 3: Identify Your Competitive Edge To determine your Service Obtainable Market (SOM), you need to identify your competitive edge—the unique advantages that set your startup apart from others in the market. This step involves analyzing your differentiators, understanding market barriers, and assessing your competition to pinpoint your realistic market share. Consider the following: Differentiators: What makes your product or service stand out? This could be superior technology, pricing, customer experience, or unique features that competitors lack. Your ability to leverage these differentiators will help capture a larger portion of the market. Market Barriers: Identify any barriers to entry, such as high development costs, regulatory requirements, or brand loyalty to existing competitors. These barriers can limit your market access and must be factored into your SOM calculation. Competitors: Analyze your competitors' market share, customer loyalty, and positioning. Understanding their strengths and weaknesses will help you identify untapped opportunities where your startup can outperform or gain a foothold. By combining these insights, you’ll be able to estimate the portion of the SAM that you can realistically capture, giving you a clear picture of your Service Obtainable Market. Step 4: Calculate SOM Now that you’ve identified your competitive edge and assessed the market, it’s time to calculate your Service Obtainable Market. To do this, you'll need to apply real-world factors such as sales capacity, market penetration, and your ability to reach customers within your Serviceable Available Market. A simple formula to calculate Service Obtainable Market is: SOM = SAM × Market Penetration Rate For example, if your SAM is valued at $10 million and your startup's estimated market penetration rate is 10%, your SOM would be: SOM = $10,000,000 × 0.10 = $1,000,000 This means that, based on your current resources and competitive position, you can realistically expect to capture $1 million of the $10 million available market. The market penetration rate can be influenced by factors like your sales team’s capacity, marketing effectiveness, and brand awareness. By using this formula, you can calculate a more grounded estimate of your startup’s revenue potential within the Serviceable Available Market (SAM). Why Service Obtainable Market Matters for Startups Understanding your Service Obtainable Market is more than just a calculation—it’s a key element in shaping your startup’s strategy and ensuring sustainable growth. For startups, having a clear view of SOM allows for smarter decision-making, from resource allocation to revenue forecasting. By focusing on a realistic portion of the market, founders can set achievable goals, secure investor confidence, and avoid overextending their business too early. In the following sections, we’ll explore the specific ways SOM impacts your startup’s strategy, projections, and long-term success. Focused Strategy Knowing your Service Obtainable Market helps your startup stay focused by clearly defining the portion of the market you can realistically target. Instead of spreading your resources too thin trying to capture an overly broad audience, Service Obtainable Market allows you to concentrate on the most relevant customer segments. This focus ensures that your marketing, sales, and operational efforts are directed toward the right customer base—those who are most likely to convert. By avoiding the trap of overextending into markets where your resources, product fit, or brand presence are lacking, you can optimize your efforts and build sustainable growth more effectively. Realistic Revenue Projections Your Service Obtainable Market provides a solid foundation for creating accurate sales forecasts and revenue models. By focusing on the market you can realistically capture, SOM allows you to project revenues based on achievable goals rather than overly optimistic estimates. This level of precision is critical when presenting your business to potential investors, as they expect realistic financial models backed by data. Accurate revenue projections help ensure that your growth planning is sustainable and aligned with your current resources, making it easier to set clear milestones and secure the funding you need to scale. Resource Allocation Identifying your Service Obtainable Market enables your startup to allocate resources more efficiently across marketing, sales, and operations. By understanding exactly which portion of the market you can realistically capture, you can focus your efforts on the most promising opportunities. This targeted approach ensures that marketing budgets are spent on channels with the highest conversion potential, sales teams can prioritize leads most likely to close, and operational resources are scaled according to actual demand. Instead of spreading your team and resources too thin, SOM helps you streamline efforts to maximize impact and achieve better results with fewer resources. Investor Confidence Having a clear Service Obtainable Market (SOM) is a strong signal to investors that your startup has a realistic and achievable market strategy. Investors are looking for startups that understand their market deeply and have a plan that balances ambition with practicality. By demonstrating that you’ve calculated your SOM based on data-driven insights and realistic assumptions, you show investors that your growth projections are grounded in reality. This boosts their confidence in your ability to execute your business plan, allocate resources wisely, and achieve sustainable growth, making it easier to secure the funding needed to scale your operations. Connect with Investors with Visible Understanding your Service Obtainable Market is essential for shaping your startup’s strategy, creating realistic revenue projections, and efficiently allocating resources. By focusing on the market you can realistically capture, you position your business for sustainable growth and build investor confidence. As you refine your market approach and seek funding, having the right tools to engage with investors is critical. Visible can help you manage your investor relationships and provide the insights you need to stay on top of your fundraising efforts. Track key metrics, send investor Updates, and track the status of your next fundraise with Visible. Give it a free try for 14 days here.

In the fast-paced world of startups, tracking the right metrics is crucial for success. Among these, Lead Velocity Rate (LVR) stands out as a key indicator of business growth. LVR quantifies the increase in qualified leads over time, offering insights into future revenue potential. Unlike metrics that reflect past performance, LVR provides a forward-looking view, helping startups refine their strategies and predict future sales. By consistently monitoring LVR, startups can gauge their market traction, enhance their marketing efforts, and attract investor confidence, making it an indispensable tool for sustained growth and success. What is Lead Velocity Rate (LVR)? LVR is a metric that measures the growth rate of qualified leads over a specific period, typically month-over-month. It calculates the percentage increase in the number of qualified leads, providing startups with a clear picture of their lead generation efforts and potential future sales. LVR is significant because it acts as a predictive indicator of future revenue. While metrics like Monthly Recurring Revenue (MRR) and overall revenue reflect past performance, LVR offers insights into future growth by highlighting trends in lead generation. By tracking LVR, startups can understand their market traction, evaluate the effectiveness of their marketing strategies, and make informed decisions to drive future growth. For example, if a startup had 200 qualified leads last month and 250 this month, the LVR would be calculated as follows: LVR = (250−200) / 200 x 100 = 25% This 25% increase indicates a positive trend in lead generation, suggesting that the startup’s marketing and sales efforts effectively attract more potential customers. LVR helps startups predict future sales growth, assess their current marketing strategies, and make data-driven decisions to optimize their lead-generation processes. Tracking LVR regularly allows founders to stay ahead of the curve, ensuring sustained growth and success. Lead Velocity Rate vs. Customer Lifetime Value (CLV) LVR and Customer Lifetime Value (CLV) are both critical metrics for startups, but they serve different purposes and provide distinct insights. Lead Velocity Rate (LVR) measures the growth rate of qualified leads over a specific period, typically on a month-over-month basis. It calculates the percentage increase in the number of leads that meet predefined criteria for quality, such as those who have shown a strong interest in the product or service. LVR is a forward-looking metric, offering predictive insights into future revenue potential by indicating how effectively a startup is generating new leads. Essentially, it helps startups understand the momentum of their lead generation efforts and anticipate future sales growth. Customer Lifetime Value (CLV), on the other hand, assesses the total revenue a customer is expected to generate over the entire duration of their relationship with a business. It considers the average purchase value, purchase frequency, and customer lifespan to estimate the overall financial contribution of a customer. CLV is a backward-looking metric that focuses on the value derived from existing customers, providing insights into customer retention, satisfaction, and long-term profitability. It helps startups understand the financial impact of their customer base and make strategic decisions regarding customer acquisition and retention efforts. Why Lead Velocity Rate is an Important Metric for Startups LVR is one of the most important metrics for startups to track because it provides a clear and actionable insight into a company’s growth trajectory. Unlike historical metrics such as MRR and overall revenue, LVR is a forward-looking indicator that measures the growth of qualified leads over time. This makes it a crucial tool for predicting future revenue and assessing the effectiveness of marketing strategies. Lead Velocity Rate is not just a metric; it is a vital tool that enables startups to predict growth, optimize marketing efforts, and secure investor interest. By tracking LVR regularly, startups can ensure they are on the right path to sustained growth and success. Measuring Growth Momentum Lead Velocity Rate provides a clear and quantifiable measure of a startup's growth momentum by tracking the increase in qualified leads over time. This metric allows startups to see how well their lead generation efforts are working, offering a tangible indicator of market traction. By regularly monitoring LVR, startups can identify trends in lead growth, adjust their marketing strategies, and ensure they are continually attracting new potential customers. A rising LVR indicates that the startup’s efforts are translating into more qualified leads, which is a strong sign of growing market interest and business momentum. Predictive Power LVR is a powerful leading indicator of future revenue and business performance. Unlike historical metrics, which only show what has already happened, LVR provides a forward-looking perspective by measuring the growth of new leads. This allows startups to predict future sales more accurately, as an increasing LVR suggests a robust pipeline of potential deals. By understanding and leveraging LVR, startups can forecast their revenue more effectively, align their sales and marketing efforts with anticipated growth, and make proactive decisions to sustain or accelerate their upward trajectory. Financial Health Assessing the financial health of a startup is crucial for long-term success, and LVR plays a key role in this evaluation. A high LVR indicates that a startup is successfully generating a growing number of qualified leads, which is essential for sustaining revenue growth. This metric helps startups understand whether their lead generation strategies are effective and whether they have a strong foundation for future financial stability. By tracking LVR, startups can ensure they are building a healthy pipeline that supports continuous revenue generation and overall business health. Investor Confidence LVR serves as a powerful tool for attracting investors by demonstrating that a startup is on an upward growth trajectory. Investors look for startups with strong growth potential, and a consistently increasing LVR is a clear indicator of this. It shows that the startup is effectively generating new leads and has a promising outlook for future revenue. By presenting a high LVR, startups can enhance their credibility and appeal to investors, showcasing their ability to grow and succeed in a competitive market. This metric can significantly boost investor confidence and increase the likelihood of securing funding. Related resource: Why Revenue Per Lead is Really Important to Track How to Calculate Lead Velocity Rate Calculating LVR is straightforward and provides valuable insights into your startup’s growth potential. Understanding how to measure LVR enables startups to track the effectiveness of their lead-generation strategies and predict future sales. The process involves comparing the number of qualified leads from one month to the next, clearly showing how well your marketing and sales efforts are performing. By consistently calculating LVR, startups can make informed decisions to optimize their growth strategies and ensure sustained success. Lead Velocity Rate Formula The formula for calculating Lead Velocity Rate is simple and easy to apply. Here’s the basic formula: LVR = (Number of Qualified Leads This Month − Number of Qualified Leads Last Month) / Number of Qualified Leads Last Month × 100 To illustrate, if a startup had 200 qualified leads last month and 250 this month, the calculation would be: LVR = (250 − 200) / 200 × 100 = 25% This 25% increase in qualified leads indicates a positive trend in lead generation, suggesting that the startup’s efforts to attract potential customers are effective. By regularly calculating and monitoring LVR, startups can track their growth momentum, anticipate future sales, and refine their marketing strategies to maximize lead generation. Related resource: Developing a Successful SaaS Sales Strategy Challenges and Considerations for Tracking LVR While Lead Velocity Rate is an invaluable metric for startups, accurately tracking and utilizing it involves overcoming several challenges and considerations. Ensuring the reliability of LVR requires a focus on data accuracy, timeliness, and a holistic evaluation of metrics. Understanding these factors is essential for leveraging LVR effectively and making informed strategic decisions. Data Accuracy and Consistency LVR relies heavily on the accuracy and consistency of data. Accurate LVR calculations depend on precise and complete data regarding the number of qualified leads. Any inaccuracies or inconsistencies in data collection can skew LVR results, misrepresenting a startup's growth trajectory. Therefore, startups must implement rigorous data collection and validation processes to ensure that the information used for LVR calculations is reliable and consistent over time. Timeliness of Data Timely data collection and reporting are crucial for accurate LVR measurements. LVR calculations require up-to-date data on qualified leads to accurately reflect the current state of lead generation. Data collection and reporting delays can result in outdated or irrelevant LVR calculations, which may not align with real-time decision-making needs. Startups must establish efficient data collection systems and workflows to ensure LVR calculations are based on the most current available data. Holistic Metrics Evaluation While LVR is a powerful metric, it should not be viewed in isolation. LVR should be considered alongside other KPIs such as Customer Acquisition Cost, Customer Lifetime Value, and Monthly Recurring Revenue for a comprehensive understanding of business performance. A holistic evaluation of these metrics provides a more complete picture of a startup's financial health, growth potential, and overall business performance. Balancing LVR with other KPIs allows startups to make more informed and strategic decisions. Related resource: Your Company’s Most Valuable Metric Secure Investor Interest with Visible Lead Velocity Rate is a critical metric for startups, providing valuable insights into growth momentum, future revenue potential, and overall financial health. By accurately calculating and consistently tracking LVR, startups can measure their lead generation effectiveness, predict business performance, and attract investor confidence. Addressing challenges related to data accuracy, timeliness, and holistic metrics evaluation ensures that LVR serves as a reliable and powerful tool for driving strategic decisions. To maximize the benefits of LVR and other key performance indicators, consider using Visible’s all-in-one platform to track and visualize your startup’s metrics - create your account here! We want to hear from you. What is your Most Valuable Metric? Tell us here and we will share the results with the contributors! Want to be alerted of our new blog posts? Subscribe to our email list. Some more great posts about LVR http://saastr.com/2012/12/12/why-lead-velocity-rate-lvr-is-the-most-important-metric-in-saas http://www.revenify.com/important-metric-saas-lead-momentum-description-lead-velocity http://www.referralsaasquatch.com/how-to-calculate-saas-growth

Understanding your business's financial health is crucial for making informed decisions and driving growth. Our comprehensive cheat sheet covers essential financial ratios, from profitability to valuation, providing clear formulas, practical examples, and insightful applications. This guide will help you decode complex financial data, compare performance with industry peers, and make strategic adjustments. Whether you're assessing liquidity, efficiency, or profitability, this cheat sheet is your go-to resource for confidently navigating financial analysis. Dive in and empower your business with the insights needed to thrive. Profitability Ratios Profitability ratios are crucial indicators of a company’s ability to generate profit relative to its revenue, assets, and equity. These ratios are widely used by founders, investors, analysts, and creditors to assess a business's financial health and operational efficiency. They help identify how well a company is performing in terms of profit generation and provide insights into areas where improvements can be made. Gross Profit Margin Gross Profit Margin measures how efficiently a company is producing and selling its goods. A higher margin indicates better efficiency and profitability. It is particularly useful for comparing companies within the same industry to gauge operational efficiency. Formula: Gross Profit Margin = Revenue − Cost of Goods Sold (COGS) / Revenue Components: Revenue: Total sales generated by the company. Cost of Goods Sold (COGS): Direct costs attributable to the production of goods sold by the company. How to Solve: Calculate the gross profit by subtracting COGS from revenue. Divide the gross profit by the revenue. Multiply the result by 100 to get the percentage. Operating Profit Margin This ratio indicates the total revenue left after covering operating expenses. It helps assess the core business efficiency, excluding non-operational factors. A higher operating margin suggests better management of operating costs. Formula: Operating Profit Margin = Operating Income / Revenue Components: Operating Income: Revenue minus operating expenses (excluding interest and taxes). How to Solve: Calculate operating income by subtracting operating expenses from revenue. Divide the operating income by the revenue. Multiply the result by 100 to get the percentage. Net Profit Margin Net Profit Margin provides the bottom line profit relative to sales. It is a key indicator of overall profitability and is used to compare performance with competitors. A higher net profit margin indicates a more profitable and financially healthy company. Formula: Net Profit Margin = Net Income \ Revenue Components: Net Income: Total profit after all expenses, including taxes and interest, have been deducted from revenue. How to Solve: Calculate net income by subtracting all expenses from revenue. Divide the net income by the revenue. Multiply the result by 100 to get the percentage. Return on Equity (ROE) ROE measures the return generated on shareholders' investments. It is crucial for investors to evaluate how effectively a company uses equity to generate profits. A higher ROE suggests a more efficient use of equity capital. Formula: ROE = Net Income / Shareholders’ Equity Components: Net Income: Total profit after all expenses. Shareholders’ Equity: Total assets minus total liabilities. How to Solve: Divide the net income by the shareholders’ equity. Multiply the result by 100 to get the percentage. Return on Assets (ROA) ROA indicates how efficiently a company uses its assets to generate profit. It is particularly useful for comparing companies in capital-intensive industries. A higher ROA means better utilization of assets. Formula: ROA = Net Income / Total Assets Components: Net Income: Total profit after all expenses. Total Assets: Sum of all assets owned by the company. How to Solve: Divide the net income by the total assets. Multiply the result by 100 to get the percentage. Return on Capital Employed (ROCE) ROCE assesses the efficiency and profitability of a company's capital investments. It is essential for evaluating long-term profitability and comparing across industries. A higher ROCE indicates more efficient use of capital. Formula: ROCE = Earnings Before Interest and Tax (EBIT) / Capital Employed Components: EBIT: Earnings before interest and taxes. Capital Employed: Total assets minus current liabilities. How to Solve: Divide EBIT by the capital employed. Multiply the result by 100 to get the percentage. Solvency Ratios Solvency ratios are vital for assessing a company's ability to meet its long-term obligations. These ratios provide insights into a business's financial stability and leverage, which are crucial for founders, investors, creditors, and analysts. By evaluating solvency ratios, stakeholders can determine the risk level associated with the company’s financial structure and its capability to sustain operations in the long run. Debt-to-Equity Ratio The Debt-to-Equity Ratio indicates the relative proportion of shareholders' equity and debt used to finance a company's assets. It is an essential measure for assessing financial leverage and risk. A higher ratio suggests that a company is more leveraged and may be at higher risk of financial distress. Conversely, a lower ratio indicates a more stable financial structure with less reliance on debt. Formula: Debt-to-Equity Ratio = Total Liabilities / Shareholders’ Equity Components: Total Liabilities: The sum of all debts and obligations the company owes. Shareholders’ Equity: The net assets of the company, calculated as total assets minus total liabilities. How to Solve: Add up all the company's liabilities to get the total liabilities. Calculate shareholders’ equity by subtracting total liabilities from total assets. Divide total liabilities by shareholders’ equity. Equity Ratio The Equity Ratio measures the proportion of a company's assets financed by shareholders' equity. This ratio provides insights into the financial stability and capitalization structure of the business. A higher equity ratio indicates a more financially stable company with less dependence on debt, making it more attractive to investors and creditors. Formula: Equity Ratio = Shareholders’ Equity / Total Assets Components: Shareholders’ Equity: The net assets of the company, calculated as total assets minus total liabilities. Total Assets: The sum of all assets owned by the company. How to Solve: Calculate shareholders’ equity by subtracting total liabilities from total assets. Divide shareholders’ equity by total assets. Multiply the result by 100 to get the percentage. Debt Ratio The Debt Ratio measures the extent to which a company is financed by debt. It provides insights into the company's leverage and financial risk. A lower debt ratio indicates that the company relies less on debt to finance its assets, reducing financial risk. Conversely, a higher ratio suggests higher leverage and potential vulnerability to financial distress. Formula: Debt Ratio = Total Liabilities / Total Assets Components: Total Liabilities: The sum of all debts and obligations the company owes. Total Assets: The sum of all assets owned by the company. How to Solve: Add up all the company's liabilities to get the total liabilities. Divide total liabilities by total assets. Multiply the result by 100 to get the percentage. Efficiency Ratios Efficiency ratios evaluate how well a company utilizes its assets and liabilities to generate sales and maximize profits. These ratios are critical for founders, managers, and investors as they provide insights into operational efficiency, resource management, and overall business performance. Asset Turnover Asset Turnover measures how efficiently a company uses its assets to generate sales. A higher ratio indicates better utilization of assets. This ratio is particularly useful for comparing companies within the same industry to understand relative efficiency. For instance, a company with a higher asset turnover is considered more efficient in using its assets to produce revenue. Formula: Asset Turnover = Revenue / Total Assets Components: Revenue: Total sales generated by the company. Total Assets: The sum of all assets owned by the company. How to Solve: Identify the total revenue from the company's income statement. Determine the total assets from the balance sheet. Divide the total revenue by the total assets. Inventory Turnover Inventory Turnover measures how often inventory is sold and replaced over a period. A higher turnover indicates efficient inventory management and strong sales, while a lower turnover may suggest overstocking or weak sales. Comparing this ratio to industry benchmarks can provide insights into inventory management practices. Formula: Inventory Turnover = Cost of Goods Sold (COGS) / Average Inventory Components: COGS: Direct costs attributable to the production of goods sold by the company. Average Inventory: (Beginning Inventory + Ending Inventory) / 2. How to Solve: Calculate COGS from the income statement. Determine the average inventory by adding the beginning and ending inventory, then dividing by two. Divide COGS by the average inventory. Accounts Receivable Turnover Accounts Receivable Turnover measures how efficiently a company collects its receivables. A higher ratio indicates effective credit policies and efficient collection processes. This ratio is important for managing cash flow and ensuring liquidity. It also helps identify potential issues with customer payments and credit management. Formula: Accounts Receivable Turnover = Net Credit Sales / Average Accounts Receivable​ Components: Net Credit Sales: Total sales made on credit. Average Accounts Receivable: (Beginning Accounts Receivable + Ending Accounts Receivable) / 2. How to Solve: Identify the net credit sales from the income statement. Calculate the average accounts receivable by adding the beginning and ending accounts receivable, then dividing by two. Divide net credit sales by the average accounts receivable. Days Sales in Inventory Days Sales in Inventory indicates the average number of days inventory is held before being sold. Lower values suggest faster inventory turnover, which can be indicative of efficient inventory management and strong demand for products. It helps businesses understand their inventory cycles and manage stock levels effectively. Formula: Days Sales in Inventory = Ending Inventory / Cost of Goods Sold × 365 Components: Ending Inventory: Inventory at the end of the period. COGS: Direct costs attributable to the production of goods sold by the company. How to Solve: Determine the ending inventory from the balance sheet. Calculate the COGS from the income statement. Divide the ending inventory by the COGS. Multiply the result by 365 to convert it to days. Liquidity Ratios Liquidity ratios assess a company’s ability to meet its short-term obligations. These ratios are crucial for investors, creditors, and company management as they provide insights into the company’s financial health and cash flow management. By analyzing liquidity ratios, stakeholders can determine if a company has enough liquid assets to cover its liabilities, which is essential for maintaining smooth operations and avoiding financial distress. Acid Test (Quick Ratio) The Quick Ratio measures a company's ability to meet its short-term obligations without relying on the sale of inventory. This ratio is a more stringent measure than the current ratio as it excludes inventory, which may not be easily convertible to cash. A higher quick ratio indicates better liquidity and financial health, suggesting the company can promptly cover its short-term liabilities. Formula: Quick Ratio = Current Assets − Inventory / Current Liabilities Components: Current Assets: Assets likely to be converted to cash within a year (excluding inventory). Inventory: Goods available for sale. Current Liabilities: Obligations due within a year. How to Solve: Subtract inventory from current assets to get the quick assets. Divide the quick assets by the current liabilities. Cash Ratio The Cash Ratio provides the most conservative liquidity measure by considering only cash and cash equivalents against current liabilities. This ratio indicates how much cash is available to cover immediate liabilities, reflecting the company’s ability to withstand short-term financial stress. A higher cash ratio signifies stronger liquidity and reduced financial risk. Formula: Cash Ratio = Cash + Cash Equivalents / Current Liabilities Components: Cash: Cash on hand and in bank accounts. Cash Equivalents: Short-term investments easily convertible to cash. Current Liabilities: Obligations due within a year. How to Solve: Add cash and cash equivalents. Divide the sum by the current liabilities. Working Capital (Current Ratio) The Current Ratio measures a company’s ability to pay off its short-term liabilities with its short-term assets. It is a broad measure of liquidity. A higher current ratio indicates that the company is more capable of meeting its short-term obligations, which is reassuring for creditors and investors. However, an excessively high ratio may indicate inefficient use of assets. Formula: Current Ratio = Current Assets / Current Liabilities​ Components: Current Assets: Assets likely to be converted to cash within a year. Current Liabilities: Obligations due within a year. How to Solve: Divide current assets by current liabilities. Earnings Ratio The Earnings Ratio, also known as the Interest Coverage Ratio, measures a company's ability to cover its interest expenses with its earnings. A higher ratio indicates that the company is more capable of meeting its interest obligations, suggesting financial stability and lower default risk. This ratio is crucial for creditors evaluating the creditworthiness of the company. Formula: Earnings Ratio = Earnings Before Interest and Taxes (EBIT) / Total Interest Expenses Components: EBIT: Earnings before interest and taxes. Total Interest Expenses: Total cost of interest on debt. How to Solve: Divide EBIT by total interest expenses. Defensive Interval Ratio The Defensive Interval Ratio measures the number of days a company can operate using only its liquid assets without needing additional revenue. This ratio is essential for understanding how long a company can sustain its operations during a financial downturn. A higher ratio indicates better preparedness for financial disruptions. Formula: Defensive Interval Ratio = Current Assets − Inventory / Daily Operational Expenses Components: Current Assets: Assets likely to be converted to cash within a year (excluding inventory). Daily Operational Expenses: Total operating expenses divided by 365. How to Solve: Subtract inventory from current assets to get the quick assets. Divide quick assets by daily operational expenses. Times Interest Earned Ratio The Times Interest Earned Ratio assesses a company's ability to meet its interest obligations with its earnings. A higher ratio indicates a stronger ability to pay interest expenses, which reduces the risk of default. This ratio is particularly important for lenders and investors assessing the financial health and credit risk of a company. Formula: Times Interest Earned = EBIT / Interest Expenses Components: EBIT: Earnings before interest and taxes. Interest Expenses: Total interest cost on debt. How to Solve: Divide EBIT by interest expenses. Cash Flow from Operations (CFO) Ratio The CFO Ratio measures a company's ability to cover its short-term liabilities with cash generated from its operations. This ratio provides insights into the liquidity and operational efficiency of the company. A higher ratio indicates a better capability to meet short-term obligations, reflecting strong cash flow management. Formula: CFO Ratio = Operating Cash Flow / Current Liabilities​ Components: Operating Cash Flow: Cash generated from core business operations. Current Liabilities: Obligations due within a year. How to Solve: Divide operating cash flow by current liabilities. Valuation Ratios Valuation ratios are essential metrics for assessing the value of a company’s stock relative to its earnings, dividends, and market performance. These ratios are widely used by investors, analysts, and company management to make informed decisions about buying, holding, or selling stock. They provide a snapshot of a company's financial health and its attractiveness as an investment. Earnings Per Share EPS measures the profitability of a company on a per-share basis. It is a crucial metric for investors as it provides insight into the company’s earnings performance. A higher EPS indicates better profitability, making the stock more attractive to investors. Formula: Earnings Per Share (EPS) = Net Income / Number of Outstanding Shares Components: Net Income: Total profit after all expenses have been deducted. Number of Outstanding Shares: Total shares currently held by all shareholders. How to Solve: Determine the net income from the income statement. Divide the net income by the number of outstanding shares. Price to Earnings (P/E Ratio) The P/E ratio helps investors determine the market value of a stock compared to its earnings. A higher P/E ratio may indicate that the market expects future growth, while a lower P/E ratio could suggest that the stock is undervalued or the company is experiencing difficulties. This ratio is widely used to compare companies within the same industry. Formula: P/E Ratio = Market Price per Share / Earnings Per Share (EPS) Components: Market Price per Share: Current trading price of a share. Earnings Per Share (EPS): Net income divided by the number of outstanding shares. How to Solve: Identify the market price per share. Calculate the EPS. Divide the market price per share by the EPS. Dividend Payout Ratio The Dividend Payout Ratio indicates the proportion of earnings distributed as dividends. It provides insights into the company’s dividend policy and its sustainability. A higher ratio suggests a more generous dividend policy, while a lower ratio indicates the company is retaining more earnings for growth and expansion. Formula: Dividend Payout Ratio = Dividends Paid / Net Income Components: Dividends Paid: Total dividends distributed to shareholders. Net Income: Total profit after all expenses. How to Solve: Determine the total dividends paid from the cash flow statement. Divide the dividends paid by the net income. Dividend Yield The Dividend Yield measures the annual dividends received from a stock as a percentage of its market price. It is a key metric for income-focused investors who seek regular dividend payments. A higher yield indicates a better return on investment from dividends. Formula: Dividend Yield = Annual Dividends per Share / Market Price per Share Components: Annual Dividends per Share: Total dividends paid per share in a year. Market Price per Share: Current trading price of a share. How to Solve: Calculate the annual dividends per share. Divide the annual dividends per share by the market price per share. Fixed Charge Coverage Ratio The Fixed Charge Coverage Ratio measures a company's ability to cover fixed financial obligations with its earnings. A higher ratio indicates stronger financial health and a better ability to meet fixed charges. This ratio is particularly important for assessing the risk of default. Formula: Fixed Charge Coverage Ratio = EBIT + Fixed Charges / Fixed Charges + Interest Expenses Components: EBIT: Earnings before interest and taxes. Fixed Charges: Fixed financial obligations, such as lease payments. Interest Expenses: Total interest cost on debt. How to Solve: Add EBIT to fixed charges. Divide the result by the sum of fixed charges and interest expenses. Debt Service Coverage Ratio The DSCR measures a company's ability to service its debt with its operating income. A higher ratio indicates a stronger ability to cover debt obligations, which is crucial for lenders and investors in assessing the company's financial stability. A DSCR below 1 suggests that the company may struggle to meet its debt obligations. Formula: Debt Service Coverage Ratio (DSCR) = Net Operating Income / Total Debt Service​ Components: Net Operating Income: Income from operations minus operating expenses. Total Debt Service: Sum of all debt obligations due within a year. How to Solve: Calculate the net operating income. Divide the net operating income by the total debt service. The Pyramid of Ratios The Pyramid of Ratios is a comprehensive framework used to analyze a company's financial health by organizing various financial ratios into different levels. This pyramid structure starts with basic ratios at the base and moves to more complex and comprehensive ratios at the top. The pyramid's purpose is to provide a systematic approach to financial analysis, enabling stakeholders to assess a company's performance from multiple perspectives. Why It’s Valuable The Pyramid of Ratios is valuable for several reasons: Holistic View: It offers a complete picture of a company's financial condition by considering various aspects such as liquidity, profitability, efficiency, and solvency. Diagnostic Tool: Analyzing ratios at different levels helps identify specific areas of strength and weakness within the company. Comparative Analysis: It allows for comparison with industry benchmarks and competitors, aiding in strategic decision-making. Trend Analysis: It helps track performance over time, identifying trends that can influence future business strategies. Example of a Pyramid of Ratios A typical Pyramid of Ratios is structured as follows: Base Level - Liquidity Ratios Current Ratio: Measures the ability to cover short-term liabilities with short-term assets. Current Ratio = Current Assets / Current Liabilities Quick Ratio: Measures the ability to cover short-term liabilities without relying on inventory. Quick Ratio = Current Assets − Inventory / Current Liabilities Second Level - Efficiency Ratios Inventory Turnover: Indicates how efficiently inventory is managed. Inventory Turnover = Cost of Goods Sold / Average Inventory Asset Turnover: Measures how efficiently assets are used to generate sales. Asset Turnover = Revenue / Total Assets Third Level - Solvency Ratios Debt-to-Equity Ratio: Assesses the financial leverage of the company. Debt-to-Equity Ratio = Total Liabilities / Shareholders’ Equity Interest Coverage Ratio: Measures the ability to cover interest expenses with earnings. Interest Coverage Ratio = EBIT / Interest Expenses Top Level - Profitability Ratios Net Profit Margin: Indicates how much profit is generated from sales. Net Profit Margin = Net Income / Revenue Return on Equity (ROE): Measures the return generated on shareholders' equity. ROE = Net Income / Shareholders’ Equity​ Return on Assets (ROA): Evaluates how effectively assets are used to generate profit. ROA = Net Income / Total Assets Gain Deeper Insight into Your Business’ Performance with Visible Understanding and utilizing financial ratios are essential for evaluating and improving your business's performance. From assessing profitability with ratios like Net Profit Margin and ROE to measuring liquidity with the Current Ratio and Quick Ratio, each metric offers valuable insights into different aspects of your company's financial health. Solvency ratios help gauge long-term stability, while efficiency ratios highlight operational effectiveness. By leveraging these tools, you can make informed decisions and drive strategic growth. For a more streamlined and insightful financial analysis experience, try Visible. Track key metrics, send investor Updates, and track the status of your next fundraise with Visible. Give it a free try for 14 days here. Related resources: How to Calculate Runway & Burn Rate Additional Paid-In Capital: What It Is and How to Calculate It A Complete Breakdown of the Contributed Capital Formula + Examples How to Calculate the Rule of 40 Using Visible

OpenView Ventures is back with its annual SaaS Benchmarks Survey & Report. Kyle Poyar of OpenView Ventures joined us to breakdown the report and what it means for founders. Check out the recording below: Webinar Overview Kyle Poyar of OpenView Ventures joined us on November 9th to take a deeper look at the 2023 OpenView Ventures SaaS Benchmark Survey with Kyle Poyar. Kyle is an Operating Partner where he helps portfolio companies fuel growth and become market leaders. He specializes in monetization, product-led growth (PLG), and SaaS metrics. A few topics you can expect us to hit on: SaaS Pricing Models Churn benchmarks AI adoption Financial performance

Market penetration can elevate a business to new levels by tapping into existing products in current markets. This article will delve into what market penetration is, how it’s calculated, and the optimal strategies to achieve it. Whether you’re a startup or an established enterprise, understanding market penetration can help enhance market share and drive success. What is Market Penetration? Market penetration is a business growth strategy where companies aim to increase their market share of existing products or services in existing markets. Market penetration is crucial for businesses looking to solidify their presence in an industry and build a robust customer base. This is done by selling more products or services to current customers or by finding new customers within existing markets. It can be achieved through various tactics like pricing strategies, advertising, sales promotions, and product improvements or innovations. The primary goal of this strategy is to increase market share, revenue, and customer loyalty within a market where the products or services are already available. The degree of market penetration can be an indicator of the brand’s popularity, business growth, and the level of risk involved. It’s crucial for evaluating the success of products and services in the market and is also a critical factor in developing effective marketing strategies and plans. Images source How is Market Penetration Calculated? Market Penetration is calculated to understand the existing sales or market share of a company in comparison to the total market potential. It provides insights into how much of the potential market a company has been able to capture. Formula for Market Penetration Rate Actual Market Size is the current market share or sales volume of the company. Total Addressable Market (TAM) represents the total sales revenue opportunity available for all companies in a particular market. Example: Let’s say a company sells 500 units annually in a market where 10,000 units are sold in total by all competitors. The Market Penetration Rate would be: This calculation implies that the company has captured 5% of the total market. Additional resources: Total Addressable Market Template– In order to help calculate your market share and your potential to build a large business, it helps to calculate and understand the total addressable market and sensitivity analysis. Check out our free total addressable market template below When & How to Calculate Market Share (With Formulas) Suggest Market Penetration Rate for Startups Once you’ve calculated the market penetration rate, it’s essential to analyze it in context. A high rate may indicate a strong market presence but may also suggest market saturation, limiting growth. A lower rate can point to significant growth opportunities, but it could also reflect poor market fit or strong competition. Companies often use market penetration metrics alongside other market analysis tools and industry benchmarks to develop effective market strategies and identify growth opportunities. For startups, achieving a market penetration rate of 2-3% is often considered commendable, and it can serve as a strong foundation for further expansion and growth. 8 Best Market Penetration Strategies To achieve greater market penetration, various strategies can be implemented. The selection depends on the business model, industry, and target audience. Below are eight effective market penetration strategies: 1) Dynamic Pricing Dynamic Pricing can be a powerful tool for companies looking to penetrate existing markets more deeply. It is a strategy where companies adjust the prices of their products or services in real-time, or near real-time, in response to market demands, competitor prices, and other external factors. This strategy can be pivotal in achieving higher market share in existing markets as it allows businesses to quickly adapt to market conditions and customer behaviors. By adjusting prices to meet market conditions and consumer expectations, businesses can optimize their sales and profits, attract more customers, and enhance their market share. However, it’s crucial to manage this strategy carefully to maintain customer trust and satisfaction. How It Works: Dynamic Pricing leverages advanced technologies and algorithms to analyze multiple factors that influence demand, including seasonality, competitor prices, inventory levels, and consumer behavior. Based on this analysis, prices are adjusted to optimize sales, revenue, or margins. Pros Maximizes Revenue: Enables businesses to adjust prices to meet demand, maximizing revenue during high demand and possibly stimulating sales during low demand. Competitive Advantage: Allows for real-time response to competitors’ pricing strategies, helping companies stay competitive in the market. Optimizes Inventory: Helps in managing inventory more effectively by increasing prices when stock is low or decreasing prices to move surplus inventory. Customer Segmentation: Offers the possibility to segment customers and offer different prices based on customer willingness to pay, optimizing revenue and customer satisfaction. Market Responsiveness: Provides the flexibility to quickly respond to market conditions like changes in demand or supply, ensuring optimal pricing at all times. Cons Customer Dissatisfaction: Customers may perceive dynamic pricing as unfair, especially if they find out they paid more for the same product or service than others, potentially leading to loss of trust and customer churn. Complex Implementation: Requires sophisticated software, algorithms, and expertise to analyze data and adjust prices accurately and effectively, which can be resource-intensive. Brand Image Risk: Frequent price changes, especially upward revisions, can lead to a negative brand image and accusations of price gouging. Price Wars: Can lead to destructive price wars with competitors, resulting in decreased profit margins for all market players. Legal and Ethical Considerations: In some industries and jurisdictions, there may be legal restrictions and ethical considerations around dynamic pricing, and violating these can lead to fines and reputational damage. 2) Adding Distribution Channels Adding distribution channels refers to the strategy of increasing the number of ways or locations through which customers can access and purchase a company’s products or services. By making products or services available through a variety of channels, companies can reach a broader audience, adapt to customer purchasing preferences, and ultimately increase sales and market share within existing markets. This strategy requires careful planning and management to ensure consistency in brand image and customer experience across all channels. Pros Increased Sales: Access to more customers through varied channels can lead to higher sales and subsequently, increased market share. Enhanced Market Coverage: More channels mean broader market coverage, enabling the business to reach different customer segments and geographic locations within the existing market. Customer Convenience: Providing multiple purchasing options caters to diverse customer preferences, potentially improving customer satisfaction and loyalty. Risk Diversification: Distributing through various channels reduces dependency on one, mitigating risks associated with the underperformance of a single channel. Brand Visibility: Presence across multiple channels enhances brand visibility and awareness, contributing to brand equity. Cons Complex Management: Managing multiple channels can be logistically complex and administratively challenging, requiring additional resources and efforts. Inconsistent Brand Image: Maintaining a consistent brand image and customer experience across varied channels can be challenging, potentially affecting brand perception. Channel Conflict: Different channels might compete against each other for the same customers, leading to potential conflicts and affecting relationships with channel partners. Reduced Profit Margins: Some channels might require price reductions or additional expenditures, such as commissions for third-party sellers, impacting profit margins. Customer Confusion: Offering products through too many channels, especially with varied pricing or promotional offers, can confuse customers and dilute the brand value. When adding distribution channels, companies need to strategically assess the potential impact on the brand, customer experience, and overall business operations. Proper integration, management, and consistent monitoring of all channels are crucial to addressing the challenges and reaping the benefits of this strategy. Balancing the added complexity with the potential advantages is key to successful implementation and sustainable growth in market penetration. 3) Geo-Targeting Specific Locations Geo-targeting specific locations involves tailoring your marketing and sales efforts to target customers in a specific geographical area or region. This technique is often utilized by businesses to focus resources on areas where they are likely to gain the most traction, allowing them to reach and serve customers more effectively and efficiently. Geo-targeting can be implemented using various tools and platforms like online advertising services, SEO, and social media, which allow businesses to specify the geographic locations they want to target. Additionally, analytics and data analysis can help in identifying the most lucrative regions to focus on. Pros Enhanced Personalization: Allows for more personalized and locally relevant marketing campaigns, improving engagement and conversion rates. Resource Optimization: Focuses resources and efforts on high-potential or high-performing regions, ensuring better utilization and improved ROI. Improved Customer Experience: Offering localized content, deals, and products caters to regional preferences and needs, leading to higher customer satisfaction and loyalty. Market Insight: Provides valuable insights into regional market trends, consumer behavior, and preferences, aiding in better decision-making and strategy formulation. Competitive Edge: Establishing a strong presence in specific locations can provide a competitive advantage, especially in areas with less competition. Cons Limited Reach: Focusing on specific locations might limit the overall reach of the business, potentially missing out on opportunities in other regions. Resource Intensity: Developing localized strategies and content can be resource-intensive and might require significant investment in research and adaptation. Market Variability: Different regions may exhibit varying demand patterns, requiring constant adjustments and refinements to the targeting strategy. Cultural Sensitivity: There’s a risk of misunderstanding local cultures and preferences, which might lead to ineffective or even offensive campaigns. Data Privacy Concerns: The use of location data can raise privacy concerns and regulatory issues, potentially leading to legal challenges and reputational damage. 4) Continuous Improvements of Products Continuous improvements of products refer to the ongoing effort to refine and enhance products based on customer feedback, market demands, technological advancements, or competitive dynamics. This strategy is crucial in market penetration as it helps in maintaining and enhancing the appeal of the products, addressing evolving customer needs, and staying competitive in the market. Pros Increased Customer Satisfaction: Addressing customer needs and resolving issues lead to higher satisfaction and loyalty. Enhanced Market Position: Ongoing improvements help in maintaining a competitive edge and solidifying market presence. Revenue Growth: Enhanced features and quality can justify higher pricing, leading to increased revenue. Brand Strengthening: Demonstrating commitment to excellence and innovation enhances brand reputation and equity. Cons High Costs: Constant refinement and development can be resource-intensive and costly. Overcomplication: Adding too many features or making too many changes can complicate the product, potentially alienating users. Customer Overwhelm: Frequent changes and updates can overwhelm and frustrate customers, especially if they are not well-communicated. Market Misalignment: Without proper market research, improvements may not align with actual customer needs, leading to wasted resources and missed opportunities. 5) Launch a New Product or Rebrand Launching a new product or rebranding refers to the introduction of a novel product or a significant transformation of existing brand elements, respectively, to appeal to the current market. This can be a pivotal market penetration strategy, aiming to renew consumer interest and address evolving market demands, preferences, and competition. Pros Increased Market Share: New or revitalized offerings can attract a wider audience and capture additional market segments. Enhanced Brand Image: A successful rebrand can modernize and elevate the brand’s image, improving perceptions and attractiveness. Revenue Growth: New products and improved brand image can drive sales and potentially allow for premium pricing. Adaptation to Market Changes: Enables the business to stay relevant and responsive to evolving market trends, demands, and consumer expectations. Cons High Risk and Uncertainty: The success of a new product or a rebrand is not guaranteed and may not resonate with consumers, leading to financial losses. Substantial Investment: Development, launch, and rebranding processes can be costly, involving substantial investment in research, marketing, and implementation. Potential Customer Alienation: Existing customers may react negatively to significant changes in products or brand identity, potentially leading to loss of loyalty. Implementation Challenges: Executing a rebrand or launching a new product involves logistical, operational, and strategic challenges, requiring meticulous planning and coordination. 6) Build Relationships With Business Partners Building relationships with business partners involves creating and nurturing mutually beneficial connections with other businesses, suppliers, distributors, or stakeholders in your industry. This strategy is crucial in market penetration as it can open up new avenues for growth, co-development, and expansion, allowing businesses to leverage collective resources, networks, and expertise to enhance market presence. Pros Expanded Reach: Access to partners’ networks and resources can significantly extend market reach and presence. Increased Innovation: Collaborative efforts can lead to innovative solutions and offerings, enhancing competitive advantage. Cost Efficiency: Sharing resources and responsibilities can lead to reduced operational costs and increased efficiency. Enhanced Learning: Exposure to partners’ expertise and insights can lead to valuable learning and growth opportunities. Cons Potential Conflicts: Divergent goals, values, or management styles can lead to conflicts and strains in partnerships. Dependence Risks: Reliance on partners can pose risks in case of disagreements, underperformance, or termination of partnerships. Loss of Control: Collaborations may require concessions and shared decision-making, potentially leading to loss of control over certain aspects of the business. Resource Diversion: Managing partnerships can be resource-intensive and might divert focus and resources from core activities. 7) Buy a Smaller Competitor in Your Industry Buying a smaller competitor, also known as acquisition, refers to purchasing another company to control its assets and operations. This market penetration strategy can be powerful, as it allows a company to quickly increase its market share, expand its product or service offerings, and eliminate competition. When considering acquiring a smaller competitor, thorough due diligence is paramount to assess the compatibility, valuation, and potential synergies accurately. A well-planned integration strategy, clear communication, and cultural alignment are crucial for realizing the full benefits of the acquisition and ensuring smooth transition and consolidation, thus enhancing market penetration and long-term success. Pros Rapid Market Expansion: Provides immediate access to new market segments, geographic areas, and customer groups. Enhanced Resources and Technologies: Acquisition brings in additional resources, technologies, and intellectual properties, enhancing overall capabilities. Cost and Revenue Synergies: Merging operations can lead to cost savings and additional revenue opportunities, increasing profitability. Strategic Positioning: Reducing competition and leveraging combined strengths can strengthen market positioning and dominance. Cons Integration Challenges: Merging different corporate cultures, systems, and operations can be complex and challenging. High Costs and Risks: Acquisition involves significant financial investment and carries risks of overvaluation and unanticipated complications. Potential Culture Clash: Differences in organizational cultures and management styles can lead to conflicts and employee dissatisfaction. Regulatory Hurdles: Acquisitions may be subject to stringent regulatory scrutiny and approval, potentially impacting the feasibility and timelines. 8) Provide a Rewards Program or Promotional Program Providing a Rewards or Promotional Program refers to offering incentives like discounts, points, or special offers to customers to encourage loyalty, repeat business, and attract new customers. These programs are instrumental in market penetration as they help in increasing product or service usage among existing customers and drawing in new clientele. When implementing rewards or promotional programs, it is important to balance the incentives with the overall business strategy and ensure that the programs are sustainable, beneficial, and aligned with brand values. A well-crafted and managed rewards program can be a powerful tool for market penetration, building long-lasting relationships with customers, and creating a competitive advantage in the market. Pros Increased Sales: By incentivizing purchases, such programs can drive up sales volumes and revenues. Customer Data Collection: These programs often involve collecting customer data, which can be analyzed to gain insights into consumer behavior and preferences. Enhanced Customer Satisfaction: Customers receiving rewards or benefits are likely to be more satisfied and have a positive perception of the brand. Effective Word-of-Mouth Marketing: Satisfied customers, especially those benefiting from rewards, are more likely to recommend the brand to others. Cons Cost Implications: Implementing and maintaining rewards programs can be costly, impacting profit margins. Customer Expectation Management: Customers may come to expect regular promotions, potentially impacting perceived value and full-price sales. Complexity in Management: Designing, managing, and optimizing rewards or promotional programs can be complex and resource-intensive. Risk of Decreased Perceived Value: Regular and extensive promotions can lead to a devaluation of the product or service in the eyes of consumers. Raise Funds and Penetrate Your Market With Visible Market penetration is a pivotal strategy for businesses aiming to enhance their market share in existing markets with existing or innovative products. Whether it’s through employing dynamic pricing, adding distribution channels, geo-targeting, continually improving products, launching new products or rebranding, forging business partnerships, acquiring smaller competitors, or providing compelling rewards or promotional programs, each strategy carries its unique set of advantages and challenges. The key is to meticulously analyze and integrate these strategies, aligning them with the overarching business objectives, customer needs, and market dynamics, to drive sustainable growth and success. Leveraging such multifaceted approaches can aid in navigating the competitive landscape, fostering customer loyalty, and achieving a robust market presence, propelling your business to new heights. And, to successfully penetrate the market, raising funds effectively is crucial—discover how Visible can assist in making your fundraising journey seamless and successful. Related resource: What is Internal Rate of Return (IRR) in Venture Capital

Webinar Recap Throughout a fundraise, founders are expected to share the data and financials that fuel their business. Jonah Midanik of Forum Ventures joined us on March 21st to discuss all things SaaS metrics and fundraising. Watch Recording A few things you can expect us to cover: The SaaS metrics every founder should know What metrics a founder should expect to share with potential investors What metrics and financials a founder should expect to have prepared for due diligence How early-stage founders should think about more “advanced” SaaS metrics About Jonah Jonah has spent the last twenty years at the intersection of marketing and technology as a serial entrepreneur in Canada. He has experienced several different lenses on the founder’s journey from bootstrapping his own startup, to launching new corporate divisions, and raising 8 figures of venture capital. At Forum, in supporting hundreds of founders’ growth, Jonah has carved out a niche in the market of teaching founders how to build and deliver pitch decks and which metrics to include to convey traction to raise capital successfully.

Accounting and finance are skills that every founder should hone. While you don’t need to be an expert, you should be comfortable with different financial statements and be able to answer questions from current and potential investors. Check out our quick breakdown of startup financials below: What are startup financials? Startup financials are the vitals behind how a company operates. Financials are the metrics and data that drive the different financial statements for a startup — income statement, balance sheet, cash flow, changes in equity, etc. As we wrote in our post, Building A Startup Financial Model That Works, “The goal of a financial model is not to be exactly right with every projection. The more important focus is to show that you, as a founding or executive team, have a handle on the things that will directly impact the success or failure of your business and a cogent plan for executing successfully.” Why are startup financials important for pitch decks? An investor’s job is to generate returns for their investors (AKA limited partners or LPs). In order to invest in the best companies, investors need to leverage data and their own insights to fund companies they believe have the opportunity to generate returns for their investors. Related Resource: How To Build a Pitch Deck, Step by Step Part of this process involves collecting financials and data. Different investors might look for different things when it comes to a company’s financials and metrics — inevitably, an investor will need to take a look under the hood to see how a company operates. Learn more about the financials that VCs look for in a pitch deck below: Essential startup financials to include in pitch decks As we previously mentioned, different investors will look for different metrics and data when it comes to a pitch deck. In order to best help you prepare the metrics and data you need, we laid out the following common metrics that VCs might look for in a pitch deck below (as always, we recommend sharing what you believe is best for your business): Related Resource: Tips for Creating an Investor Pitch Deck Gross revenue Gross revenue is the sum of all money generated by a company. This is important for a pitch deck because investors will want to understand how much revenue a business is generating. For companies that are pre-revenue, make sure you are targeting investors that invest in pre-revenue companies. Cost of goods sold As put by the team at Investopedia, “Cost of goods sold (COGS) refers to the direct costs of producing the goods sold by a company. This amount includes the cost of the materials and labor directly used to create the goods. It excludes indirect expenses, such as distribution costs and sales force costs.” Gross profit As put by the team at Investopedia, “Gross profit is the profit a company makes after deducting the costs associated with making and selling its products, or the costs associated with providing its services.” This is important because investors want to understand how your business efficiently turns revenue into profit. Operating expenses Operating expenses are exactly what they sound like — the expenses a business incurs from normally operating. Operating expenses help investors understand how and where your business is spending money. Net income As put by the team at Investopedia, “Net income (NI), also called net earnings, is calculated as sales minus cost of goods sold, selling, general and administrative expenses, operating expenses, depreciation, interest, taxes, and other expenses.” Net income truly reflects the profitability of a company as it takes into account all of the expenses a business will face. Related Resource: 18 Pitch Deck Examples for Any Startup Understanding forecasting vs accounting Over the course of building a startup, founders will inevitably have to understand different basic accounting, forecasting, and budgeting principles. Learn more about forecasting vs. accounting for your startup below: Related Resource: 7 Essential Business Startup Resources Financial forecasting A financial forecast and financial model is a tool that founders can use to tell their startup’s story. As we wrote in our post, Building A Startup Financial Model That Works, “The goal of a financial model is not to be exactly right with every projection. The more important focus is to show that you, as a founding or executive team, have a handle on the things that will directly impact the success or failure of your business and a cogent plan for executing successfully.” Accounting Basic accounting is a skill that every founder should be familiar with. Accounting is a realistic look at the financial performance of your business. It’s critical to have a grasp on all elements of your company’s books to ensure your company can grow and scale in an effective way and avoid costly financial errors down the line. Related Resource: A User-Friendly Guide to Startup Accounting Financial statements: your startup’s report cards Having a grasp on your financials is a surefire way to clearly articulate your needs for capital and how you plan to spend any additional funding. Learn more about common financial statements for startups below: Related Resource: 4 Types of Financial Statements Founders Need to Understand Income statement As put by the team at Harvard Business School, “An income statement is one of the most common, and critical, of the financial statements you’re likely to encounter. Also known as profit and loss (P&L) statements, income statements summarize all income and expenses over a given period, including the cumulative impact of revenue, gain, expense, and loss transactions. Income statements are often shared as quarterly and annual reports, showing financial trends and comparisons over time.” Balance sheet As put by the team at ProjectionHub, “A startup balance sheet or projected balance sheet is a financial statement highlighting a business startup’s assets, liabilities, and owner’s equity. In other words, a balance sheet shows what a business owns, the amount that it owes, and the amount that the business owner may claim.” Statement of cash flows As put by the team at Accountancy Cloud, “A cash flow statement, or CFS, is a financial statement that accurately summarizes the total amount of cash that goes into and eventually leaves a startup business. Cash flow statements are designed to accurately measure if a startup is managing its cash wisely.” Impress potential investors with Visible With our suite of fundraising tools, you can easily find investors, share your pitch deck, and track your fundraising funnel. Learn more about our pitch deck sharing tool and give it a free try here. Related resource: What is Internal Rate of Return (IRR) in Venture Capital

Since the start of 2022, there have been major macroeconomic changes taking the startup world by storm. Rising inflation, paired with the tumultuous public markets (especially in the technology sector), has made its way downstream to startup fundraising. As the team at OpenView Ventures put it, “For operators, this has led to whiplash from grow at all costs to cut at all costs.” We partnered with OpenView Ventures for the 2022 SaaS Benchmarks Survey. The main takeaway? Nearly every company is cutting spend, regardless of how much cash they have in the bank. Valuations are also changing. In 2021, valuations were largely based on growth rates for the next 12 months. However, there has been a transition to public valuations being based on the “Rule of 40.” Put simply, the rule of 40 means a company’s YoY revenue growth % + profit margin % should exceed 40. As the team at OpenView points out, “For companies with ARR below $10M, Rule of 40 can vary widely from quarter to quarter. Achieving 40 each quarter is not required. But, it is required to have a grasp on what caused a drop or spike, and what can be done to get to 40 long term.” Learn how you can calculate, and automate, the rule of 40 using Visible below: 1. Track Revenue First things first, to calculate the rule of 40 you need to know your revenue for multiple years (or periods). You can enter this into Visible manually or using 1 of our integrations (likely Google Sheets, Xero, or QuickBooks). Once you have your revenue # in Visible, we’ll automatically calculate your growth % (more on this in step 3). 2. Track or Calculate Profit Margin % Next, you’ll want to make sure you have the necessary metrics in Visible to track your profit margin %. If you are using one of our accounting integrations (like Xero or QBO), or tracking this in a Google Sheet, you’ll be able to automatically bring this in. If you’re starting from scratch, you’ll simply need your revenue and COGs (or Gross Profit). Once you have your Revenue + COGs metrics in Visible, you’ll be able to calculate it using our formula builder. The formula for Profit Margin % is = Profit Margin % = ((Revenue – COGs)/Revenue) x 100 Which will look like the following in Visible: 3. Calculate Rule of 40 Now that we have Revenue and our Profit Margin %, we just need to add the two together. We’ll create a new formula shown below (Note: we’ll want to make sure we are using the annual change % insight for Revenue — this is automatically calculated): 4. Chart & Share Once your formula is set up, it will automatically be calculated as new data enters Visible. From here, you can chart and share your Rule of 40 using Updates and Dashboards — check out an example below: Track your key metrics, update investors, and raise capital all from one platform. Give Visible a free try for 14 days here. Related resource: The Only Financial Ratios Cheat Sheet You’ll Ever Need

Founders are tasked with hundreds of responsibilities when starting a business. On top of hiring, financing, and building their product, early-stage founders are generally responsible for developing initial strategies — this includes the earliest sales and market strategies. In this article, we will look to help you craft a successful SaaS sales strategy. We’ll highlight the elements you will want to think of when you start to build your sales motion. This will help your team to understand how to measure the number of potential customers in your pipeline and the growth potential you might see in your revenue numbers. How are SaaS sales different from other types of sales? Like any sales strategy, it is important to start with the basics when looking at a SaaS sales strategy. At the top of your funnel, you have marketing leads that likely find your brand via content, word of mouth, paid ads, your own product, etc. From here, leads are moved through the funnel. In the middle, SaaS companies can leverage email campaigns, events, product demos, etc. to move leads to the bottom of their funnel. However, as the SaaS buying experience takes place fully online — sales and marketing organizations can be creative with their approach. The online experience allows companies to track more robust data than ever before. Additionally, SaaS products have turned into their own growth levers as well — the ability to manipulate pricing and plans has led to the ability for companies to leverage their own product for growth. Related Resource: How SaaS Companies Can Best Leverage a Product-led Growth Strategy The online presence and emergence of product-led growth have led to new sales strategies unique to SaaS companies. Learn more below: 3 Popular SaaS sales models There are countless ways to structure your Saas sales strategy. For the sake of this post, we’ll focus on 3 of the most popular strategies. Learn more about the self-service model, transactional model, and enterprise sales model below: Related Resource: The SaaS Business Model: How and Why it Works Self-service model The self-service model allows prospects to become customers without communicating with your team. As put by the team at ProductLed, “A SaaS self-serve model is exactly what it sounds like. Rather than rely on a dedicated Sales team to prospect, educate, and close sales, you design a system that allows customers to serve themselves. The quality of the product itself does all the selling.” This strategy is typically best for a strong and simple product that typically has a lower contract size. Transactional sales model The transactional model allows you to create income-generating actions where prospects have to become a customer at that point in time. This requires transactional sales models to have high-volume sales that can be supported by a strong sales and customer support team. Enterprise sales model The enterprise model is a strategy to sell more robust software packages to corporations – you will need baked-in features in a prepackaged manner to sell to a fellow business. Enterprise sales is the model that shares the most similarities with a traditional B2B sales funnel. Inbound vs outbound sales In a Saas sales funnel, you are constantly looking to consistently fill your sales funnel with fresh prospects. Once you have prospects you will look to find which prospects are worthy of being qualified and have a high likelihood of converting so you can spend your time communicating with those high-quality prospects. There are two popular strategies for creating fresh prospects that would be defined as inbound and outbound sales strategies. Inbound sales is when you invest in marketing to create prospects reaching out to you – fresh prospects reaching out to your business to ask about your software product. As put by the team at HubSpot: “Inbound sales organizations use a sales process that is personalized, helpful, and directly focused on prospects’ pain points throughout their buyer’s journey. During inbound sales, buyers move through three key phases: awareness, consideration, and decision (which we’ll discuss further below). While buyers go through these three phases, sales teams go through four different actions that will help them support qualified leads into becoming opportunities and eventually customers: identify, connect, explore, and advise.” An inbound strategy typically works best for SaaS companies that need a greater volume of customers and can nurture them and move them through their funnel at scale (e.g. self-service model) Outbound sales on the other hand are having members of your organization reach out to potential prospects to see if they would be interested in using your service. Outbound sales require highly targeted and proactive pushing of your messaging to customers. Generally, outbound sales require dedicated team members to manually prospect and reach out to potential customers. This means that outbound sales organizations do not naturally scale as well as an inbound sales organizations and will likely require a higher contract value. An enterprise model would rely heavily on Outbound sales, while a self-service business model will rely heavily on Inbound sales. The SaaS Sales Process The best Saas sales strategy will be a hybrid of inbound and outbound sales, but all of them should include a sales funnel. This funnel should have stages that help to qualify your prospects. These stages should be: Step 1: Lead generation This activity is often times a marketing activity that gives you contact or business information to explore the fit further Step 2: Prospecting This is where you develop the bio of who is the contact you are reaching out to within the organization. It is always helpful to prospect for someone who can make a buying decision Step 3: Qualifying In this step, you need to understand whether the prospect has the resources to pay for your product and the problem that your product can solve. This step is often the time for you to ask questions of your prospects Step 4: Demos and presenting This is when you will share the features and capabilities of your product with the qualified prospect. You want to show them the different features and where they can get the most value. Step 5: Closing the deal After your demo or a presenting call, the prospect should be pushed to a point where they need to make a decision on whether to buy your product. Step 6: Nurturing Once someone becomes a customer, you need to make sure to nurture them and grow your product offering with their business. This is the most difficult stage. Make sure to share your new product releases, stay in tune with how they are using your product, and build relationships with your customers. Cultivating a robust sales team To create a sustaining sales team, it is important to hire talented and tenacious people to own your sales funnel. They will need to track conversion numbers, stay organized with their outreach to prospects, and grow your funnel over time. There are three key roles within a Saas sales funnel. Those positions within your organization are: Sales development representatives (also known as business development representatives) These members of your team own lead generation, prospecting, and qualifying potential customers on your sales team. They get paid 40-60k/year depending on geographical location and experience. They should be tasked with outreach and drumming up new business. Account executives Account executives should focus on giving product demos, closing deals, and nurturing existing customers. They should be a bit more buttoned up in their approach and have a commission incentive associated with the # of accounts they manage. Sales managers/VPs Sales managers and Vice presidents of sales should take ownership of the data within your sales pipelines. Numbers like # of new leads, # of new qualified leads, # of new customers, # of churned customers, amount of new revenue, and lead to customer conversion %. Growing these sales numbers each quarter. Measuring these numbers weekly, monthly, and quarterly. Making them visible to the rest of the company regularly. 8 Key Elements of a successful SaaS sales strategy One of the most important elements of building a successful business is having a like-minded team around you to support and work with you. Make sure to align with all your team members and hire people with good work ethics and similar values of your company. A good sales team should be competitive, goal-oriented, and metric-driven. The sales managers and VPs will be really crucial in shaping the team dynamics and culture of your business. Hire great people and the numbers will take care of themselves! We’ve identified 8 elements of a successful sales strategy that every Saas sales strategy should include 1. Solidify your value proposition It is so important to understand thoroughly and communicate your product’s core value proposition. If someone decides to buy your product, they should know how to use the product and how to get the most out of it. 2. Superb communication with prospects Communication is of the utmost importance. Make sure your prospects understand your product and how it will help their business. Inform them of new product updates 3. Strategic trial periods An effective strategy is to give potential customers a free trial of your product to understand your value proposition. You want to make sure not to make this trial period too short or too long. Make it strategic so the prospect will understand the value prop but also be encouraged to make a buying decision. 4. Track the right SaaS metrics Tracking your core metrics is vital to success. See a few of those below: Customer Acquisition Cost – the amount of money it takes to acquire a new customer Customer Lifetime Value – the amount of value a customer provides your company over the course of their relationship with you as a customer. Lead velocity rate – the growth percentage of qualified leads month over month. This will help you understand how quickly you are qualifying your leads Related Resources: Our Ultimate Guide to SaaS Metrics & How To Calculate and Interpret Your SaaS Magic Number 5. Develop a sales playbook Every successful sales management team should develop a playbook on how to deploy their resources and where each team member should spend their time. Playbooks are often thought of in sports terms, but they also work wonders in the business world. They will help you do things efficiently and effectively. 6. Set effective sales goals How many new customers does your business hope to bring in next month? This is an important question and one your whole sales team should understand and work towards! 7. Utilize the right tools to enhance the process Your team should have all the resources at their disposal to communicate effectively and track their metrics. As you build out your strategy and team, be sure to give them all possible resources at their disposal. There are tons of great tools out there for teams to make the most out of their time and have direct methods of communication with customers and one another. 8. Establish an effective customer support program A huge part of an effective sales strategy is welcoming potential customers and making sure your existing customers are not forgotten about. When customers reach out, it is important to talk and listen to their issues. Understand what they are needing so your product can continue to evolve. Make sure anyone getting introduced to your product will also have the information they need to use your product successfully. It might be helpful to include this member of your team in your sales meetings and keep them informed as to messaging and efforts for growth! Generate support for your startup with Visible Developing a successful SaaS sales strategy is not an easy task. It will take a hybrid approach of many of the elements listed in this article and will need attentive members of your team to nurture it and test new things. We created Visible to help founders have a better chance for success. Stay in the loop with the best resources to build and scale your startup with our newsletter, the Visible Weekly — subscribe here. Related resource: Lead Velocity Rate: A Key Metric in the Startup Landscape

Raise capital, update investors and engage your team from a single platform. Try Visible free for 14 days. Whether a venture-backed startup looking to attack a massive market or a bootstrapped business, startups are generally in pursuit of growth. One of the main competitive advantages of a startup is the ability to test new growth strategies and move quickly compared to its predecessors. Related Resource: The Understandable Guide to Startup Funding Stages Finding a growth strategy or channel can make or break a company. In order to best help you find and develop the growth channels that work best for your business, we’ve laid out a few key strategies below: 1. Develop a strong value proposition First things first, you need to develop a strong value proposition. As put by the team at Investopedia, “A value proposition refers to the value a company promises to deliver to customers should they choose to buy their product. A value proposition is part of a company’s overall marketing strategy. The value proposition provides a declaration of intent or a statement that introduces a company’s brand to consumers by telling them what the company stands for, how it operates, and why it deserves their business.” This should be used at the backbone of your growth strategies and can be used to define your channels, messaging, and overall growth strategy. It is important to be thoughtful when laying out your value proposition — talk to customers, potential customers, and other stakeholders to help construct your value proposition. Related Resource: How to Easily Achieve Product-Market Fit 2. Understand and embrace your target audience After you’ve laid out your value proposition, you need to define the market and audience you would like to target. This is similar to creating your ideal customer profile. As put by the team at Gartner, “The ideal customer profile (ICP) defines the firmographic, environmental and behavioral attributes of accounts that are expected to become a company’s most valuable customers. It is developed through both qualitative and quantitative analyses, and may optionally be informed by predictive analytics software.” Related Resource: How to Write a Business Plan For Your Startup Identify why a customer wants your product or service If you’ve properly laid out your value proposition, this should be fairly easy. If you understand the value you are offering your customer, it should be straightforward why they would want to purchase your product or service. Segment your overall market For modeling purposes, you will likely start with your market as a whole. From here, it is important to narrow down your target and hone in on your specific segment in a market. For example, if you are selling snowboards your total addressable market might be every outdoors person but you’d likely want to hone in your market to just anyone that has snowboarded in the last X years. Related Resource: Total Addressable Market vs Serviceable Addressable Market Research the market Once you’ve honed in on your market, you need to make sure you are an expert in all things related to the market. When reaching out to potential customers, chances are they will turn to you for best practices on the market and space. To go above and beyond, come equipped with the right knowledge. Choose the segmented market After researching and analyzing the different markets, make the choice. Pick your segmented market and make sure you have the messaging and product in place to win the market. 3. Research and analyze your top competitors Inevitably, when speaking and targeting potential customers you will be compared to your competitors. In order to best combat any pushback, you need to come prepared. In order to best grow you need to understand how your product or service compares to competitors. If you can understand your strong points (and weak points) in comparison to competitors you’ll be able to better tailor your messaging and campaigns. 4. Establish smart key performance indicators As the old adage goes, “you can’t improve what you don’t measure.” When testing and finding growth strategies, it is important to have the right KPIs in place to track your performance. Related Resource: Startup Metrics You Need to Monitor Depending on the growth strategy or campaign will dictate what metric you should track. Check out a few examples below: Return on investment (ROI) One of the most common KPIs to track in relation to a growth strategy is return on investment. In order to continue investing in a growth strategy, you need to make sure it is generating returns. As put by the team at Investopedia, “Return on investment (ROI) is a performance measure used to evaluate the efficiency or profitability of an investment or compare the efficiency of a number of different investments. ROI tries to directly measure the amount of return on a particular investment, relative to the investment’s cost.” Churn rate On the flip side, growth can be fueled by improving your churn rate. If you’d like to grow your current customer base, focusing on churn rate is a surefire way. Learn more about tracking and improving your churn rate below: Related Resource: Our Ultimate Guide to SaaS Metrics Customer acquisition cost As we wrote in our post, “Customer Acquisition Cost: A Critical Metrics for Founders,” customer acquisition cost is “The sum of the amount that it takes your business to acquire a customer, including time from your sales representatives and marketing and advertising expenses.” By monitoring your customer acquisition costs, you’ll be able to determine what channels make the most sense for your business. A surefire way to fuel growth is by improving your CAC. For example, if you are running ads at a high cost that do not convert to customers, chances are you’d be better suited to reallocate those costs to a better converting channel with lower acquisition costs. Customer lifetime value As put by the team at NetSuite, “Customer lifetime value (CLV) is a measure of the total income a business can expect to bring in from a typical customer for as long as that person or account remains a client.” By monitoring your customer lifetime value, you’ll be able to boost margins and warrant spending more on acquisition costs. Learn more about customer lifetime value below: Related Resource: Defining Customer Lifetime Value for Startups: A Critical Metric 5. Scale wisely and effectively In the early days of building a business, the old adage goes, “do things that don’t scale.” However, as you find your rhythm and have a valuable product with growth strategies that work, it is time to scale. During uncertain times, it is especially important to scale efficiently to work towards profitability. Scaling involves taking your existing channels and growing them at scale (and ideally improving margins). This means making smart hires that will take certain areas of your business to the next level. Related Resource: Scaling != Growth 6. Continuously review your business model As you find the growth strategies and channels that work best, it is important to be consistently evaluating your business model. Markets and customer needs change quickly so it is important to make sure you are staying ahead of them. This means that you are likely evaluating your different acquisition channels, your product, and your hiring plans. If you find your business is most capable of executing in a certain area (for example, product-led growth), you might want to consider hiring and building your product around product-led growth. Related Resource: How to Write a Business Plan For Your Startup 7. Engage your investors to build relationships Once you have found the growth strategies that work best for your business, you’ll need to make sure you have the resources in place to grow and scale. This is capital and talent. One of the most common ways to source capital for a startup growth strategy is by raising venture capital. You’ll want to make sure that you are engaging with current and potential investors along the way to improve your odds of raising venture capital. Related Resource: How To Write the Perfect Investor Update (Tips and Templates) Related Resource: Top VCs Investing in the $100 Billion Creator Economy Grow your startup with Visible Finding the right growth strategies for your business is only half the battle. Having the resources in place to track your key growth metrics will help you make informed decisions along the way. Raise capital, update investors and engage your team from a single platform. Try Visible free for 14 days.

Building a venture-backed startup is difficult. On top of building a useful product, hiring a great team, and attracting qualified customers, founders need to be a 1 person finance team (in the early days). When just starting and scaling a business, founders likely have no dedicated finance team in-house to lean on for insights. Founders need to rely on their own financial savviness (hopefully with the help of an accounting firm) to keep finances in check. In order to efficiently grow your business, you need to have an understanding of your cash position. Learn more about calculating and tracking your startup runway below. Related resource: The Only Financial Ratios Cheat Sheet You’ll Ever Need What is Startup Runway? A startup runway is exactly what it sounds like — it is the amount of time (generally in months) a startup can operate before it runs out of money. For a profitable business, this metric likely means little. However, an early-stage startup that has yet to monetize its product or service will need to pay close attention to its runway. Related Resource: The Understandable Guide to Startup Funding Stages Your startup runway will inform how you hire, develop products, and finance your business in the coming months and years. What is Startup Burn Rate? The first component of your startup runway is your burn rate. According to Investopedia, “The burn rate is typically used to describe the rate at which a new company is spending its venture capital to finance overhead before generating positive cash flow from operations. It is a measure of negative cash flow.” Related Resource: Startup Metrics You Need to Monitor Simply put, the burn rate is the amount of money your business is “burning” every month. For example, if your business is spending $5,000 a month on salary, $1,000 on software, and $500 on office space but has yet to bring in any revenue your burn rate would be $6,500. Your burn rate is generally the input that you can dictate the most when it comes to extending your cash runway. Formula for Startup Runway Calculating your runway is simple and something that every startup founder should hone, especially in the early days. To calculate your runway, simply take your beginning cash balance and divide it by your monthly net burn rate as shown below: Related Resource: 6 Metrics Every Startup Founder Should Track Real-Life Example of Startup Runway For a real-life example of calculating a startup’s runway — let’s take an early-stage venture-backed company that raised a few million dollars in VC money and has been at it developing its product. At the beginning of the most recent period, their cash balance is $320,000 and their monthly burn rate is $20,000. You’d simply divide $320,000 by $20,000 to get a runway of 16 months. How Much Startup Runway Should You Have? There is no right or wrong answer when it comes to determining how long your cash runway should be. Your company’s stage, current market, and business model might impact how long your runway should be. As a general rule of thumb, it is suggested that seed and series A companies have a runway of 12-18 months Formula for Burn Rate Like startup runway, burn rate is a straightforward formula — especially for founders who have their cash statements and metrics in place. To calculate your burn rate, simply take your beginning cash balance, subtract your ending cash balance and divide that by the # of months over the given period. Typically it is better to calculate your burn rate over a longer period of time as a single month could be lumpy as expenses vary from month to month. Related Resource: What is a Startup’s Annual Run Rate? (Definition + Formula) Real-Life Example of Startup Burn Rate For a real-life example of calculating a startup, let’s take a startup that raised $3M and already had $200k in the bank bringing its cash balance to $3.2M. Fast forward 6 months and their cash balance is now $2.6M. Using the burn rate formula that would mean their monthly burn rate is $100K ($3.2M – $2.6M = $600K / 6 months = $100K) as shown below: Ways to Extend Startup Runway and Reduce Burn Rate As we mentioned earlier, the easiest way to manipulate your runway and extend your runway is by controlling your monthly burn rate. Learn more about how to extend your runway below: Drive More Sales First and foremost, the best way to extend your runway is by driving more sales. Of course, this is likely already a goal of your business (unless your business is not ready to monetize your product or service). By driving more sales you’ll be able to increase your cash balance and in turn, extend your startup’s runway. Cut Non-Essential Expenses The most straightforward way to extend your startup’s runway is by cutting non-essential expenses. This can feel difficult as it can impact your team’s day-to-day operations — however, this can be done in a thoughtful manner that extends your runway. For example, consolidating software or removing marketing channels that might not be performing well is a good way to extend the runway. Utilize Corporate Credit Cards and other Funding Sources You can also get creative with the financing options that your business leverages. While venture financing might take months to get cash into your bank account, new funding options could be of interest. Learn more about alternative ways to fund your business below: Related Resource: Checking Out Venture Capital Funding Alternatives Track Runway With Visible Runway is a vital metric for early-stage startups. Every startup founder should be in tune with their runway and use it to inform spending decisions and strategy for the coming months and years. Tools and software are a great way to keep tabs on your finances. Track key metrics, send investor Updates, and track the status of your next fundraise with Visible. Give it a free try for 14 days here. Related resource: What is Internal Rate of Return (IRR) in Venture Capital

About Trey Trey Closson is the CEO and Founder of Amplio — a platform for proactively identifying the risks of tomorrow’s supply chain. Prior to starting Amplio, Trey spent time at Flexport and Georgia Pacific. Trey joins us to break down his first year as a founder and what he has learned from transitioning from operator to founder. Episode Takeaways A couple of key topics we hit on: The current state of the global supply chain issues How Amplio found their first customers How Amplio is using pilot programs to scale their customer base The importance of relentless focus Why founders should invest in community Why building a startup is a marathon, not a sprint Watch the Episode Give episode 6 a listen below (or give it a listen on Spotify, Apple Podcasts, or wherever you normally consume podcasts)

One thing that is important, as a startup founder, is to track your financial metrics each month to measure the health of your business. At Visible, we help you curate and send investor updates. We recommend you send these monthly. With our mission being to improve a founder’s chance of success, monthly updates are a huge part of staying on that path to success. Monthly investor updates help you keep your investors in the loop. They help to keep investors engaged and provide you a time to reflect on what work was done over the course of the month. Monthly updates are a great tool for accountability and gaining perspective on whether your startup is growing or not We strongly recommend you send monthly updates. Especially once you have raised venture capital Part of these updates should be an inclusion of charts/metrics that help you measure the health of your business. Your investors will enjoy getting updates and seeing your core metrics grow over time. You should also allow metrics to help you to understand what to prioritize within your startup. Your investors will care about seeing these because it shows how fast you are spending their money, but will also give you insights into a few different things. It will give you insight as to when you might need to raise money again. It will give you insight as to how much time you have to run the business while keeping your current expenses constant. It might signal you to hire more to get over key humps in the business, like developing your product or spending more resources on sales. It might show you need to be more efficient when allocating your marketing dollars. It might be the case that you should ignore these metrics altogether and just focus on what’s in front of you each day. Every startup is unique and we understand it’s not a one size fits all approach. Related Resource: What Should be in an Investor Data Room? The financial metrics we recommend tracking are: Cash on hand Burn Rate Run rate Revenue Revenue Growth Engagement metrics (churn, user growth, retention, this one varies) Cash on Hand Cash on hand is the amount of cash you had at the end of the month last month. This can be found on your Balance Sheet. How to track in Visible: Connect accounting integration (Quickbooks, Xero, etc.) Create chart with Total Bank Accounts as Metric Chart Period → Custom period: Custom period: Last 6 months & Previous Period Monthly Cash Burn Monthly burn rate is defined as the cash on hand at the end of this month minus the cash on hand at the end of the previous month. This will give you the difference of cash between the two amounts. Allowing you to know how much cash exited your account! How to track in Visible: Add an insight to chart Previous period change Chart on Separate Y-Axis Months of Runway Run Rate is a bit more complicated. Run rate calculates the amount of months you have left to run the company given your current cash on hand and monthly burn. This number depends on your burn rate staying constant. More than likely your burn rate will not remain constant (it will increase. Run rate is calculated by taking Cash on hand/(Monthly Burn Rate). This will yield you the number of months you have left to operate your business with expenses staying constant. How to track in Visible: Export Monthly Balance Sheets from accounting software into google sheets Manually calculate Monthly Burn (ex. Feb Cash – Jan Cash) Calculate Months of Runway Cash on hand/ Monthly Burn Rate Integrate sheet into Visible Add Months of runway to Total Bank Accounts Chart Save Chart Related resource: Strategic Pivots in Startups: Deciding When, Understanding Why, and Executing How Revenue Revenue is the amount of cash that you received in payments from your customers (over the course of the past month). How to track in Visible: Pull Revenue from your accounting integration Revenue is the top line of your income statement Create a chart Measure previous 6 months Related Resource: EBITDA vs Revenue: Understanding the Difference Revenue Growth Revenue growth is a true barometer for success for your startup. It shows how much your revenue has increased over the prior period. If you have revenue growth, it should signal to you that you are on the right track and continue to execute at a high level. How to track in Visible: Add an insight to chart Previous period change % Chart on Separate Y-Axis Engagement Metrics An engagement metric is something that is unique to your individual business. The manner of it would relate to the type of business your run (marketplace app, Saas product, or physical product). It should directly relate to your revenue growth. Things like churn/retention could be your engagement metric. For Airbnb, it could be the number of nights booked. For Uber, it could be # of rides completed per week. Having healthy engagement metrics should drive your revenue and allow you to feel good that you are building something people love. Tracking is Visible will vary based on your metric. Early on, just track it manually! Cash on hand, burn rate, and runway are very much metrics for your own sanity. These relate to the lifeblood of the business and how long you can be certain your company will be in existence. We recommend maintaining a conservative level of spend for the first few months after raising a seed round. It is much easier to increase spend than it is to decrease. By starting conservatively, you will have good context as to how much you can increase your burn rate to find the sweet spot for growth and trimming your runway. Revenue, revenue growth, and engagement metrics are really ways for you to measure how well you have done in the latest period. It is really important to decide as a team what your North star metric is and work towards that goal together. These sort of standard metrics will help align your team and work to accomplish your goals together. The goal with Visible as a product is to help you as a founder measure these metrics and update your investors. That way you can measure these core financial metrics (Cash on hand, Burn Rate, Runway) right off the bat when starting your trial with Visible. Setting you up for success after raising a Seed round. you will be set up for success to measure the proper metrics and keep your investors filled in. This way you can spend the majority of your time building a great product that people love. Related Resource: A Guide to Building Successful OKRs for Startups In conclusion, measuring the core financials of your startup (or business) is really good practice. It will help you maintain accountability and measure growth. We recommend you track the core 6 metrics each month of Cash on hand, Burn Rate, Run rate, Revenue, Revenue Growth, and market-specific Engagement metrics. These will help you to get the most out of your fundraising dollars and to maximize growth!

In a startup, there are a million things going on at all times. The last thing on a founder’s mind is most likely not balancing the books and managing the daily ins and outs of company finance – other than ensuring there is a cash runway to work with. But as your business grows, it’s critical to have a grasp on all elements of your company’s books to ensure your company can grow and scale in an effective way and avoid costly financial errors down the line. Why Does Accounting Matter to Startups? In a startup, typically cash is always tight and you’re operating on a short runway. This makes accounting even more critical for your business. Measuring, processing, and communicating the source and destination of every dollar is crucial to ensure smart business decisions can be made. After your startup raises a round of funding and takes on outside investors, accurate accounting is, even more, a crucial element to have under control in your startup. With outside eyes monitoring every way, you’re spending their investment, ensuring you have a tight grip on and understanding of your company’s accounting will make or break your business. Related Resource: Building A Startup Financial Model That Works What is Your Business Structure? What is Your Business Structure? Depending on how your organization is formally classified, the accounting required will be slightly different. All formal, for-profit businesses are classified as 1 of 5 different business entity types. The 5 different business entities are: Business Entities Types Sole Proprietorship is an enterprise that is owned and run by a single person. Specifically, there is no legal distinction between the owner of the business and the business entity. A sole proprietorship does not always work alone as it is possible for the sole proprietorship to employ other people. Sole proprietorships are also known as sole tradership, individual entrepreneurship, or simply as a proprietorship. Partnership – When two or more individuals operate a business based on an oral or written agreement, that is legally considered a partnership. An agreement on the protocols and terms of the partnership is not required to consider a business entity to be considered a formal partnership, it’s best practice for one to be in place. Similar to a sole proprietorship, a partnership entity business has no legal distinction between the owners of said business. C Corporation – in the United States, under federal income tax law, a C Corporation is any business entity or enterprise corporation that is taxed separately from its owners. Unless the corporate elects otherwise, most for-profit corporate businesses in the United States are automatically considered a C Corporation. S Corporation – An S Corporation is a privately held company that makes the decision to be taxed under the Subchapter S of Chapter 1 of the Internal Revenue Code, or IRS, federal income tax law. By making a valid election, the S-corporation’s income and losses are divided among and passed through its shareholders. The individual shareholders must then report the income or loss on their own individual income tax returns. Limited Liability Company (LLC) – An LLC is a business that’s structure is allowed and dictated by individual state statutes. Each state can adjust and use different regulations to structure an LLC so it’s critical for business entities to check what different regulations are allowed for an LLC state to state. Owners of an LLC are referred to as members and typically, most states do not restrict ownership. So members could be individual owners, corporations, other LLCs, or in some cases even foreign entities. Most states also do not have a maximum number of members restriction in place on LLCs and most also permit “single-member” or sole owner LLCs. The main restriction on LLCs comes into play when considering the types of private businesses that do not qualify to be LLCs such as banks and insurance companies. Understanding the Two Methods of Accounting Now that the 5 primary business entities have been defined, the two methods of accounting need to be understood. Depending on the type of business entity, a different method may be used. Accrual Basis Accounting This specific accounting method allows a company to record its revenue before receiving the physical payment for the product or service that has been sold. Public companies are required to use accrual basis accounting. Most companies making above $5M a year in revenue use accrual basis accounting. This is typically the preferred method of accounting for private companies as it is generally more reflective of a company’s actual revenue. Cash Basis Accounting On the opposite end of the spectrum to accrual basis accounting, cash basis accounting only records the revenue in a company’s book of business when the cash transaction has physically occurred for the product or services sold. C Corporations and Partnerships are not allowed to use cash basis accounting unless they total under 5M a year in revenue for 3 tax years in a row. Related resource: What is a Schedule K-1: A Comprehensive Guide What Types of Financial Records Should Your Startup Keep? Once you’ve determined the type of accounting most appropriate for your startup, it’s critical to have a clear understanding of the broad types of financial materials you should be keeping track of and recording for said accounting practice. A good rule of thumb is to keep everything related to the financial arm of your business, and when possible, make multiple copies as backups for key financial items and hold onto these items for at least 3 to 7 years after their existing date. An overview of the items that your startup should be holding onto and keeping in their financial records includes: Receipts from business expenses Bank statements Bills Tax Forms for both your business and employees Contracts that outline the services or products you are selling Contracts with vendors you are purchasing services from Receipts from any tax-deductible donations or contributions made by your business entity Overall, it’s critical to establish a system early on for maintaining detailed records of every documented transaction or financial movement that occurs within or in relation to your business. Related Resource: How to Calculate Runway & Burn Rate The Relationship Between Recordkeeping and Accounting A big part of the practice of measuring, processing, and communicating about financial information, aka accounting, is the process of recordkeeping. Recordkeeping is the process of keeping track of the history of an organization’s activities, or in some cases a person’s activities, by creating and storing these as consistent formal records. What is Record-Keeping or Bookkeeping? Recordkeeping relates to accounting as a form of recordkeeping specifically for financial activities. A clear recordkeeping process is the backbone and foundation of a good accounting process. Without it, accurate processing and measurement simply cannot occur. Knowing recordkeeping, or bookkeeping as it’s sometimes known, is the backbone of the accounting process, it’s important to establish weekly and monthly recordkeeping tasks to ensure your process is rock solid from the early days of your business. We’ve got some recommendations to get you started. Recommended Weekly Recordkeeping Tasks 1. Record all transactions into your books Decide on a single source of truth to maintain ongoing documentation of your financial records. This single source of truth is often referred to as a “book”. We recommend a digital source of truth as well as a written source of truth or physical copies of each record as a backup barring any issue with the digital book. Set time for yourself every week at the same time to record all financial transactions from that week in your book and ensure the records are saved, backed up, and filed in an organized manner. Doing this on a weekly basis will prevent missed recordings of financial records as they get backed up week over week. 2. Segment Your Transactions In addition to recording each transaction in your books on a weekly basis, take it a step further and segment your transactions into categories. This will provide an additional layer of organization and allow for extra audit and thoroughness on how your finances are flowing into and out of your business. Segments could include items like revenue, bills paid, taxes, etc. 3. Digitize Your Receipts It can’t be emphasized enough – keep a digital record of your receipts. Just as we recommend keeping a physical copy of your books and digital transactions as backup, the same is true for physical receipts – digitize everything and make it a consistent practice to back up each digital record. The more risk you can mitigate in losing financial records, the more accurate your accounting will be in the long run. Recommended Monthly Recordkeeping Tasks 1. Consolidate your bank accounts On a monthly basis, you should be taking a deeper look at your financial records. A big task to accomplish on a monthly basis is consolidation. Take a look at all accounts open and related to your business entity and consolidate said accounts into as few accounts as possible. This will ensure that no accounts get forgotten over time leading to missed transactions or balances in the accounting records. A monthly practice of consolidation is a foundational recordkeeping habit for your business. 2. Pay your bills (on time) It’s a slippery slope when your business gets behind on its bills. Set monthly reminders for all recurring bills and pay them on time. It’s critical to keep an accurate record of all financial transactions and missed or late bills can throw off the overall financial accuracy of your accounting. Additionally, late bills often are additional fees, which for a startup strapped for cash, can be detrimental to your business. 3. Keep Good Records Be as picky as possible. On a monthly basis, go through your records and clean up any sloppy entries. Reevaluate your system often to make sure the information your tracking is as accurate and efficient as possible. Good records are the foundation of your accounting process and ultimately the financial accuracy of your business. Related Resource: 4 Types of Financial Statements Founders Need to Understand The Benefits of a Good Accounting System After you’ve established strong weekly, and monthly record-keeping tasks as the foundation of your accounting system, your measurement, and communication of the financial state of your business via accounting is underway. The benefits of a good accounting system have many ripple effects throughout your business. Smoother Management of the Business Most business decisions are made based on the financial state of the business. A good accounting system will ensure that the decisions being made are based on a clear and accurate process leading to an overall much smoother management of the business as a whole. Reduced Time and Costs of Audits Time is money in business and lost time going back through financial records that are not maintained correctly. Huge errors in your accounting system can even lead to fines from the IRS or expensive consultancy fees needed to bring in external auditors to fix said errors. Establishing a strong accounting system early in your business can prevent this. Your Investors will Thank You Investors are trusting you with their capital. If you have a smooth system in place to record, measure, and communicate all financial details aka an accounting system, you will always be prepared to answer and address all oversight and detailed questions from your investors. If they have a constant, clear picture of the status of their investment, they will be satisfied and can spend their time helping the business grow. Should You Do Accounting In-House or Outsource? Finally, you may be wondering if your accounting process should be something managed within your business or outsourced to a professional accounting firm. While your total revenue is under 100k, or even 500k, you can most likely manage that as a founder or with a singular financial hire in-house. As you start to climb in revenue and take on external investments, consider the cost of an in-house financial team; Under 5M dollars, it may make more sense to outsource to an accounting firm and spare the headcount. However, if you have any special tax circumstances, it may make sense to invest in an in-house team if the cost of external services billed hourly ends up being more than the cost of headcount in-house. In-house accounting can also be beneficial because it ensures you have dedicated staff only working on your books, as opposed to an outside source managing multiple clients. Related Resource: How to Choose the Right Law Firm for Your Startup Related Resource: 7 Essential Business Startup Resources Sign up For Visible Today - Your Startup Hub Accounting is a critical practice all startups should establish early on in their business. When measuring and reporting out metrics to your stakeholders, consider Visible as a central reporting point of your startup hub. Create an account and get started now.