Metrics and data

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.

About Josh & Elle Josh Abulafia & Elle Curran are the Co-founders of ChefPrep. ChefPrep is a marketplace for ready-made meals that are prepared by award-winning restaurants, delivered to your door. Josh and Elle join us to break down their journey as startup founders. Episode Takeaways A few key topics we hit on with Elle and Josh: How ChefPrep validated their core thesis Why ChefPrep decided to focus on the supply side Key marketplace metrics they track Building barriers to entry in marketplaces Why tracking the right data is vital to startup success Building their company operating system Watch the Episode Give episode 5 a listen below (or give it a listen on Spotify, Apple Podcasts, or wherever you normally consume podcasts):

Christoph Janz, a Managing Partner of Point Nine Capital, started his career in 1997 as an entrepreneur and has since invested in many SaaS businesses (like Zendesk, Algolia, Typeform, Contentful, and more). Christoph has made a name for himself by not only investing in top-notch SaaS companies but by being a guide when it comes to all things SaaS metrics, data, and benchmarking. Christoph joined us on March 22nd to discuss all things SaaS metrics and benchmarking. A few topics we discussed: The 5 ways to build $100M business What it takes to raise financing in SaaS How Christoph thinks about portfolio company benchmarking

As eCommerce startups begin to evolve, so do the metrics and KPIs around them. In 2020 alone, eCommerce totaled over $4.2 trillion. With the explosion of Amazon, Shopify, Casper, Warby Parker, and Allbirds, shopping online has become the norm in the United States. As more eCommerce and direct-to-consumer (DTC) companies begin to scale and exit, the funding options and growth plans are scaling as well. In order to best launch, scale, and fund your e-commerce startup you will need to make sure you have the proper metrics and key performance indicators (KPIs) in place to track and improve. Related Resource: Our Google Sheet Template to Track eCommerce Metrics Related Resource: 10+ VCs Investing in E-commerce and Consumer Products Defining Metrics According to eCommerce Tracking and monitoring metrics across the eCommerce sales & marketing funnel is vital. With thinner margins, a larger customer base, and less predictability than a software company, there are countless touchpoints and conversion points that eCommerce leaders need to keep their eye on. Metrics are used to measure the overall health of your business. While some metrics can fall into the “vanity:” category, there are certain metrics that should be monitored and tracked to ensure your business is healthy. We’ll continue to dig into the most vital metrics for eCommerce metrics to track later in this post. Defining Key Performance Indicators or KPIs in eCommerce On the flip side, there are key performance indicators (KPIs) that can be tracked and monitored for an eCommerce startup. KPIs should be used to track individual objectives for your business that you believe are crucial to growth and success. KPIs should be periodically updated and reviewed to make sure they are relevant to your most recent objectives. As the name implies, they should be “key” to the success of your business moving forward. Related Resource: The Startup Guide To Building Successful OKRs (Examples Included) KPI vs. Metrics: What’s the Difference? As we previously mentioned, KPIs and metrics can have slightly different meanings and importance for your business. While metrics are something that naturally evolve and are tracked, they are generally used to measure the overall health of your business. Different metrics will have different levels of importance. Some metrics might be considered “vanity” metrics while others might be crucial to the success of your business. On the flip side, we have KPIs that are intentionally picked and tracked to improve certain aspects of your business. KPIs are generally tied into a specific objective or goal for your business and is something you are focused on improving for periods of time. As the team at BrightGauge puts it, “Let’s start with a basic tenet: metrics support KPIs. KPIs may be made up of a variety of different metrics that give you a full picture of your team’s progress toward a goal. If the business goal is to create 20% more sales qualified leads (SQL) over the next year, original/new website visits alone may not provide you with the data you need. However, understanding how that metric translates into other site interactions, like form completions and downloads, is vital. If the analysis has created a correlation between downloads and SQLs, then website visitors and new downloads become KPIs rather than just metrics.” How is eCommerce Success Measured? Nowadays almost anyone can launch an eCommerce site but the key is to understand your customers and be able to make strategic decisions based on evidence. This evidence and your overall eCommerce success is measured through KPIs and various metrics. Also, it is important to understand that not all metrics are as valuable as others. Identifying the right KPIs to track will help you improve the overall success of your eCommerce business. The Best eCommerce Metrics to Keep Track of There are various metrics you can use to keep track of your success but this may vary based on the company. For most, we have seen these metrics be key and we’ve broken them down by categories: Customer Breakdown Metrics (Impressions, Reach, Engagement), Acquisition Metrics (Email Click-Through Rate, Cost Per Acquisition or CPA, Organic Visitor Acquisition Rate, Social Media Engagement) Customer Behavioral Metrics (Shopping Cart Abandonment Rate, Checkout Abandonment, Micro to Macro Conversion Rates, Micro to Macro Conversion Rates, Average Order Value or AOV, Sales Conversion Rate) Customer Retention Metrics (Customer Retention Rate, Customer Lifetime Value or CLV, Repeat Customer Rate, Refund and Return Rate, Churn Rate) Advocacy Metrics (H4 Net Promoter Score, Subscription Rate, Program Participation Rate) A few years back Dave Ambrose, Managing Partner at Steadfast Ventures, shared a template full of KPIs for eCommerce startups and founders. Since Dave’s original template, we’ve surveyed a few of our customers and friends to make some tweaks and add in new metrics. Special thanks to Dave and the team at Italic for allowing us to share their key KPIs. Italic is an eCommerce company that sells “unbranded luxury goods straight from the source.” With $13M in venture funding and customers across the globe, it is vital for Italic to keep a tab on their metrics across the funnel. Check out our Guide to E-Commerce Metrics (with Google Sheet Template)! 1) Customer Breakdown Metrics Impressions, reach, and engagement track different elements of how your content is coming across to your audience (how many people see it, how often they see it, and how much they engage with it). These metrics are important to track because it allows you to track your return on investment (ROI) and give you a clearer understanding overall of how well your content is performing. Impressions Impressions measures how many times your content showed up in front of someone’s eyes, regardless of whether they interacted with it or not (i.e how many times your ad showed up in their feed). Even if the same person saw it twice it would be recorded as two impressions. Possible tools: Sprout Social, and Google Analytics, (can view total Web impressions). Reach Reach on the other hand tracks how many people saw your content- the qualification here is that the view is unique and every person is recorded only once. So even if the ad in someone’s feed showed up multiple times the reach would still be counted as one. Possible tools: Sprout Social and Hootsuite Engagement This metric reveals how people are interacting with your content. Whether it be through a click, like, comment, or reshare- any and all interactions are recorded. Possible tool: Hootsuite. Acquisition Metrics Acquisition metrics give you insight into how your social channels, content, and ads are performing in terms of customer acquisition. Email Click-Through Rate Click-through rate is a metric that tells you the percentage of people who clicked on a link within the email out of how many people opened it, to begin with. A click rate on the other hand measures this based on how many people were sent the email vs how many people opened it (the CTR). Possible tool: Campaign Monitor Cost Per Acquisition or CPA When using a cost per acquisition model you paying for every action that your audience is completing whether that be a form submission, download, or sale. In short, if they click and convert from your ad you pay. Marketers prefer this method since you only need to pay once your customer completes the desired action. When you are able to break down what your cost is per acquisition you are able to most accurately measure whether the content you creating is compelling enough for people to convert/ to what extent your audience wants to engage with it. Possible tools and methods to track: Generate link codes for affiliate marketing or social by utilizing UTM parameters CRM systems such as Hubspot Using AdWords to export PPC campaign data Building custom links using promotional codes for internal campaigns When submitting an action add a form field asking how your customer found the campaign Organic Visitor Acquisition Rate When someone lands on your website from an unpaid source (google/ any search engine) then this is considered organic traffic and results are driven through SEO (search engine optimization). Landing Page Traffic gives you insight into the top pages that people are arriving at your website from. This lets you know what topics people are interested in and how well your pages are performing for SEO. Looking at bounce rates and session durations is also important to understand how engaged people are with your articles. Possible tool: Insider and Google Analytics Social Media Engagement Tracking social shares, followers, comments, and likes is a good way to monitor how engaged your audience is with your social media content. This is why there is a focus on creating quality content. If people like what you’ve created they are more likely to want to engage with your content, brand and eventually share it with their followers. You can keep track of which channels and content are producing the most shares and convert them into leads. Then spend more time on the channels and types of content that your audience is engaging with most. Strong social signals also help you rank higher organically within Google. Possible tools: Sprout Social, Hoosuite, and Falcon.io Customer Behavioral Metrics Customer behavioral metrics can give you some of the best insight into how customers are responding to your UX/ UI experience as well as your brand/ company. Monitoring their behavior and adapting to changes that might need to be made to help influence decision making, keeps you one step ahead and able to repeat mistakes that cause your customers to convert. Shopping Cart Abandonment Rate The shopping cart abandonment rate is the percentage of your customers that added goods to their cart and left before checking out. Possible tools: Google Analytics allows you to set up cart abandonment tracking and Google sheets to set up cart abandonment measurement. Bolt’s article on how to set both of these up Checkout Abandonment Then there is checkout abandonment which is different than shopping cart abandonment because it tracks how far along in the checkout process a customer gets before they decide to leave. If they’re not advancing in the checkout process then they are essentially abandoning their shopping cart. Micro to Macro Conversion Rates Micro and Macro are the two main types of conversions (when a customer follows through with an action that you want them to take). Just as it sounds, a micro conversion is when a customer takes a small step or a macro- big step to converting. A micro conversion could be someone clicking a link or following you on a social channel. Whereas a macro conversion would be a customer taking the biggest step which is completing a purchase or creating an account. Possible tool: Hotjar Average Order Value or AOV The average order value is the average amount that your customer spends each time they place an order. You can calculate this by dividing the total revenue by the total number of orders. Sales Conversion Rate This metric lets you know how many of your visitors or leads you are converting into sales (or any action that you want the user to take). Sales Conversion Rate= Number of Sales (or conversions) / Number of (qualified) Leads(or visitors) *100 Customer Retention Metrics Customer Retention metrics are important to track and always try to improve upon since new customer acquisition is more expensive and harder to obtain than keeping the customers you have happy and ensuring repeat business. Additional resource: Hubspots 10 Customer Retention Metrics & How to Measure Them Customer Retention Rate A companies customer retention rate measures how many of your overall customers are repeat customers (someone who has purchased from you again). Companies often incentivize this through loyalty programs, subscriptions and other incentives. Keeping customers happy also increases this rate which is why customer feedback surveys can be helpful as well. Possible tools: Segment Additional resources: Hubspots 6 Customer Retention Systems (& Why CRM Should Be One of Them) Customer Lifetime Value or CLV CLV indicates how valuable a customer is to you not just on a per purchase basis but over the entire period of your companies relationship with them(the revenue that one customer generates). If a company is able to increase this value is a huge growth driver. Possible tools: ChartMogal and Hubspot (both are integrations that can be found within Visible- check out all our integrations here) Additional resource: Hubspots How to Calculate Customer Lifetime Value Repeat Customer Rate Repeat customer rate gives you the percentage of customers that have made a purchase more than once. How to calculate: Repeat Customer Rate = the # of customers that made a purchase more than once over a given period of time / your total number of customers for that same period of time. Then multiply that by 100 to get the percentage. Possible tools: Shopify and Stripe Refund and Return Rate The refund and return rate can be calculated as a percentage that shows how much was returned or refunded by customers who initially purchased your services or goods versus the total number that was sold within a certain period of time. How to calculate: Refund and Return Rate = total number returned / total number sold x 100 Churn Rate Churn rate is also known as customer churn, is a metric that calculates the rate at which customers stop doing business with a company. Most often this relates to subscribers who discontinue their plans within a given time frame and is represented as a percentage. Possible tool: ChartMogal Additional resource: Our Ultimate Guide to SaaS Metrics Advocacy Metrics Advocacy metrics are important to the companies that want to put their customer first and provide solutions and strategies that fulfill their customer’s needs. Some companies even hire a customer advocate who analyzes the needs of their customers and helps to build a business strategy around that. Tracking the following metrics will also help give you insights into this. Net Promoter Score NPS is used to gauge the loyalty of a firm’s relationships. It can measure a company, employer or another entity. You have likely received an NPS survey yourself. It’s a score of 1 to 10 usually with a question of “How likely are you to recommend X to your friend or colleague?” X could be your company, your customer support experience, an event, etc. If you answer 1 to 6 you are considered a detractor and at risk of customer churn, 7 & 8 are considered passives, and 9 & 10 are considered promoters. To get your score take % Promoters – %, Detractors. This creates a scale ranging from -100 to 100. 0 to 49 is considered good, 50 to 70 is Excellent and 70+ is World Class. Additional resource: Why We Love Net Promoter Score (NPS) Subscription Rate This is the rate at which you are able to convert users into subscribers, usually paid but can also be a measure of email subscribers for instance. This can be measured to reflect different aspects of your business as well. For example, if you are a SaaS company, like ours, you may be measuring how many subscribers you have for your paid plan as well as how many people subscribe to your newsletter. The latter is also very important to us because it signals whether people find value and are interested in the content that we provide. Program Participation Rate The program participation rate refers to how many customers (or participants) you have enrolled in advocacy programs such as loyalty programs, referral reward systems, or take part in review platforms. The higher the number of participants reflects the greater value of the program. Share Your eCommerce Growth with Contact Visible Check out our E-commerce metric template- which all started a few years back when Dave Ambrose, Managing Partner at Steadfast Ventures, shared a template full of KPIs for eCommerce startups and founders. Since Dave’s original template, we’ve surveyed a few of our customers and friends to make some tweaks and add in new metrics The setup of the template should be simple and ready to use and customize to your own liking out of the box. We’ve set the data to monthly but feel free to change to weekly, quarterly, etc. From here the template is broken down into 4 major metric categories — Customer Breakdown, Acquisition, Behavioral, and Operational. Download the template here and also check out Our Guide to E-Commerce Metrics (with Google Sheet Template). Additional Resources From the Visible blog with a video: Shopify Ecommerce Dashboard Sprout Social’s Social Media Metrics Map Hootsuite’s 19 Social Media Metrics That Really Matter—And How to Track Them Hubspot’s Free Download: Monthly Marketing Reporting Templates

Raise capital, update investors and engage your team from a single platform. Try Visible free for 14 days. As the saying goes, “you can’t improve what you don’t measure.” The most successful startups have a system to track and improve the metrics and financials that are most vital to their business. Before you can set up a system to track your key metrics, you don’t need to understand what specific metrics and financials you should be tracking. At the end of the day, revenue metrics are what makes a business tick. In order to best track your revenue metrics, you need to understand the nuances between different financials and metrics. Related Resource: Startup Metrics You Need to Monitor Learn more about the differences between revenue and EBITDA below: What is the difference between EBITDA and revenue? EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) and revenue are two financial metrics that all startup founders should be familiar with. Simply put, revenue is the topline income a company is bringing in over a period of time. On the other hand, EBITDA is a financial metric used to help measure profitability. Learn more about the intricacies of both EBITDA and revenue below: What is EBITDA? As put by Investopedia, “EBITDA, or earnings before interest, taxes, depreciation, and amortization, is an alternate measure of profitability to net income. By stripping out the non-cash depreciation and amortization expense as well as taxes and debt costs dependent on the capital structure, EBITDA attempts to represent cash profit generated by the company’s operations.” Related resource: What is a Schedule K-1: A Comprehensive Guide How to calculate EBITDA There are 2 common ways to calculate EBITDA. Both will generally use a combination of an income statement and a cash flow statement to pull the relevant metrics. Calculate using operating income The first way to calculate EBITDA is by using operating income. For this way, you can simply take operating income and add depreciation & amortization. It will look like this: EBITDA = Operating Income + Depreciation & Amortization Calculate using net income The other common way to calculate EBITDA is by using net income. For this method, you’ll need a few more financials. Net income takes operating income and subtracts non-operating expenses (like interest and taxes) so you’ll need to add those back into EBITDA. It will look like this: EBITDA = Net Income + Depreciation & Amortization + Net Interest Expense + Income Taxes Why is EBITDA an important metric? Oftentimes, EBITDA is considered one of the most important financial metrics that a company can track. This is because it removes any external forces that are impacting a business’s financials and is solely on its profitability trends. This helps companies determine their true valuation and can be easily used to benchmark against similar companies. A more clear understanding of valuation, also means that the company can be properly priced to potential acquisition partners. Related Resource: Startup Metrics You Need to Monitor Pros and cons of EBITDA Like any startup metric, EBITDA comes with its pros and cons. As we laid out above, EBITDA is important because it removes external forces and demonstrates the true financials of a business. When it comes to cons, EBITDA can sometimes lead to confusion. A typical con is that EBITDA gives an unclear look at cash flow and can lead to a misleading understanding of how much cash is truly coming into the business. What is revenue? As put by the team at Investopedia, “Revenue is the money generated from normal business operations, calculated as the average sales price times the number of units sold. It is the top-line (or gross income) figure from which costs are subtracted to determine net income. Revenue is also known as sales on the income statement.” At the end of the day, revenue is the lifeblood of a business. If a business is not bringing in new customers or expanding existing revenue, its livelihood will be short-lived. Most projections and financials will start with revenue as it determines where the money can be allocated across the business. Related Resource: 6 Metrics Every Startup Founder Should Track Net revenue vs. gross revenue Gross revenue is the total income a business brings in over a certain period of time. For example, if you should $5,000 worth of merchandise over the course of a month, your gross revenue would be $5,000. On the flip side, is net revenue. This starts with gross revenue and subtracts your expenses. For example, in the example above your gross revenue is $5,000 and if you incur $2,000 in expenses over the same period – your net revenue would be $3,000. How to calculate total revenue Calculating revenue is very straightforward. To calculate your total revenue simply take the # of units sold and multiply it by the average price. Why is revenue an important metric As we mentioned above, revenue is the lifeblood of a business. At the end of the day, a business needs to generate revenue to fuel growth and sustain salaries, and develop new product. At the end of the day, without revenue, a business will cease to exist. Related Resource: 6 Metrics Every Startup Founder Should Track EBITDA vs. revenue comparison As we laid out above, EBITDA and revenue are both important financial metrics for every business. However, making sure you are properly tracking and understanding your financial metrics is a must. Learn more about the key differences and similarities between EBITDA and revenue below: Key differences between EBITDA and revenue EBITDA and revenue differ mostly in their purpose. On one hand, you have revenue. This is a true measure of sales and marketing activity and is simply based on the performance of your sales efforts. On the other hand, you have EBITDA. EBITDA uses revenue as one of its functions and tailors it to measure your business’s profitability. This takes into account the performance of your business as a whole, not just your ability to add new revenue. Key similarities between EBITDA and revenue While the 2 metrics differ in what they track and measure, they are similar in the fact that they are valuable metrics that every startup should track. Because of their ability to measure how different aspects of your business, it is important to keep tabs on both. Both metrics hold merit and should be used to evaluate different aspects of your business. Which metric do investors prefer? Like most things in the venture capital world, different investors will have different opinions when it comes to EBITDA. Revenue should be a given when it comes to what investors want to see. Investors, especially early stage and growth stage investors, expect to see solid revenue growth to grow into a massive company. On the other hand, there are instances where investors will want to see EBITDA. As we’ve previously mentioned, EBITDA shows a company’s profitability and can be used when setting valuations so investors can have a better understanding of your company’s financial health. Track and share your metrics effectively with Visible Determining what metrics to track for your business is only half the battle. Having the right systems in place to track and share your key metrics is vital to growth. Raise capital, update investors and engage your team from a single platform. Try Visible free for 14 days.

We are back with another season of the Founders Forward Podcast! This season is all about founders in our community. Our goal is to sit down with startup founders and break down 3 things that have transformed their career or company. About Nick We’ll try to keep the episodes to 10 minutes or less so you can get back to what matters most — building your business. For the first episode, we welcomed Nick Loui, CEO and Founder of PeakMetrics. PeakMetrics uses machine learning to spot trends & predict message resonance across news, social, and TV/radio. In this episode, we break down: Episode Takeaways Getting over the cold start problem Creating value through aggregation Narrowing down your target audience Watch the Episode Give episode 1 with Nick Loui a listen below (or give it a listen on Spotify, Apple Podcasts, or wherever you normally consume podcasts) The Founders Forward is Produced by Visible Our platforms helps thousands of founders update investors, track key metrics, and raise capital. Try Visible free for 14 days.

Introduction ARR, or Annual Recurring Revenue, is a key metric for SaaS startups to understand and track. At a high level, ARR is the annual revenue a startup can expect to make. Zooming in, there are a few more layers that define what ARR really is. Understanding ARR and how to calculate it is critical as you build a successful SaaS startup. Related Resource: Our Ultimate Guide to SaaS Metrics What is ARR (Annual Recurring Revenue) for a Startup? For a startup, ARR, or Annual Recurring Revenue is the profit that they can expect to make in any fiscal year period. However, there are a few requirements that need to be considered for a profit number to truly be ARR. For starters, the revenue model for the startup should be subscription-based, meaning that the product sold is not a one-time purchase but rather a recurring cost. This subscription should be an annual one but can be fulfilled via a variety of billing structures such as monthly billing, bi-annually, or annual payments. The cost of the subscription should be in a dollar amount and always converted into an annual amount. One-off transactions for your products do not count towards ARR. For a startup, ARR is so important because it contributes to their overall valuation. Investors, no matter what stage of startup you are at, will expect founders to know, understand, and track their startup’s ARR. Additionally, because it’s only a number made up of annualized subscription-based profit, ARR will be a distinct, different number than accountings revenue. Why do startups like ARR? Not only is ARR a metric that all investors expect startup founders to know and track, it’s also a favorable metric for founders beyond just pleasing investors. A few reasons why startups like ARR as a metric include: Forecasting and Growth Planning: Company planning is typically done on an annual basis so when revenue is measured with ARR, it makes company planning that much easier. ARR can help inform not only the annual budget but ARR growth predictions as well. A clear forecast can allow leadership to make smarter, more tactical growth moves around hiring, raising rounds of funding, and eventually, exiting or going public with their business. Related Resource: Building A Startup Financial Model That Works Customer Payments: With annual subscriptions, customers are only responsible for a single bill every year. This makes the headache of billing, potential delays in customers’ paying, and chasing down revenue that much easier. When the bill is 1x a year for each customer, it’s a huge time saver and allows for more on-time payments by customers and more predictable work for the finance teams at startups. Related Resource: Customer Acquisition Cost (CAC): A Critical Metrics for Founders Standardized Subscription Terms: Naturally, with software sales, there may be some negotiations around term length for various customers. Most companies have a standard term they prefer (2 years, 18 months, 12 months). With ARR, regardless of term length, each customer’s payments are standardized to one year. This means that payments will always be billed in 12-month increments so all customers produce annual revenue for the business and all billing and contracts are treated the same. Startups love this again for the simplicity for finance teams but also for predictability of growth. Why do investors like ARR? As noted earlier, investors value ARR as a key metric when evaluating startups and their founders as potential investments. A few reasons why investors like ARR as a metric are: Revenue Predictability: This is a big factor for investors to feel confident about an investment. If a product comes with a monthly commitment instead of yearly or a business operates solely on 1-time purchases, this can be a red flag for investors in the business-to-business space. With annualized revenue, there is no risk for seasonality to a product or slow months where monthly or 1-time revenue can not be relied on. With ARR, investors can be ensured that there is clear profitability on an annual basis which provides more security for their investment. Competitive Landscape Insight: In competitive spaces, investors want to align themselves with the company and product that will ultimately come out on top. It can be hard for investors to evaluate the true best investment in a crowded space where all companies are growing their customer base and employee base and seemingly showing positive growth every year. ARR can help investors understand who the true rocket ships are in a space by understanding the annual revenue growth over time. A dip in ARR year over year can be a red flag but growing ARR even when bringing on new investors that change valuations are a huge positive for investors in evaluating a competitive space. Related Resource: How to Model Total Addressable Market (Template Included) Ease of Business Valuation: At the end of the day, a steady increase in recurring revenue reassures investors that they will most likely see a return on an investment in your business. ARR is critical because just as it allows founders to plan for the predictable growth for their business, it allows investors to more easily and accurately predict what the value of a business will be based on its ARR growth in 5, 10, 20 years post their investment. A multiple of ARR is a clear way for investors to predict an accurate valuation of a startup’s business and make smart investment decisions. Related Resource: The Understandable Guide to Startup Funding Stages How to Calculate ARR Knowing ARR is the annual recurring revenue for your business over a 12 month period, it may seem like a straightforward metric to calculate. That’s not necessarily the case. ARR can look differently depending on the company. There is nuance to how it is calculated for every business. Traditional ARR Calculation Traditionally ARR is calculated for standard annual contracts where a client commits for a 1-year term. The ARR is the total cost of the recurring product or services (what would be billed again after 1 year if the customer chooses to subscribe for another year of product). So if your product is $10,000 dollars annually but you also charge a $3,000 onboarding fee. The ARR on that customer deal would just be $10,000. The 3k is not included as it is not recurring and is only a 1-time fee. Multi-Year Contract ARR Calculation If you have a customer that opts in upfront for a multi-year contract, meaning they won’t be up for renewal or re-subscription until that first multi-year contract is complete, this gets factored into the ARR calculation. Sticking with our example, the recurring fee of your product is 10k a year. If a customer signs up for a 3-year contract, the ARR is found out by multiplying the annual cost by the number of years (10k x 3) and then dividing that total by the number of years (30k / 3) leaving the ARR at $10,000. This only gets tricky when the contract is not a straightforward multi-year contract but rather a contract length with a number of months that doesn’t quite add up to exact years. If your client has signed up for an 18-month term at 10k a year. The total cost of the product will be multiplied by the result of 12 divided by 18. $15,000 x (12/18) =$10,000 ARR. For a 15 month contract it would read: $12,500 x (12/15) = $10,000 ARR and so on. MRR Based ARR Calculation Monthly Recurring Revenue or MRR is income a business can count on receiving every single month. Similar to ARR, it is on a recurring basis however the outcome is a 30 day period vs. an annual period. In some cases, MRR can be used as a basis for ARR calculation. If your company operates a subscription business where the standard term is monthly (maybe with an upfront commitment of 6 months for example) your MRR can be used to estimate ARR for forecasting purposes. Simply take your total MRR (found the same way you would find traditional MRR, just looking at it month over month) and multiply by 12. So if a customer is paying for a product that is $100 a month, the ARR on that contract would be $100 x 12 = $1,200 ARR. Common Mistakes Calculating ARR While overall ARR might seem like a pretty straightforward metric to calculate, many startup leaders make a few common mistakes early on when pulling together ARR calculations. A few of the most common mistakes seen when calculating ARR include: Including Free Trials Time granted to a customer to use a product for free or at a temporary trial-period discount, regardless of how long, should not be included in ARR calculations. These should be treated as one-off payments. When the trial converts to an annual subscription, that cost can be used to calculate ARR but only if it is converted to a recurring subscription. Not Factoring in Discounts Often, discounts are offered for a portion of a contract to incentive partnership, however, discounts can affect your final ARR. If a customer has a discount for their first year or for any duration of their contract, it needs to be reflected in the ARR. So if the discount is 25% off for the first year bringing a cost down to $750 from a 1k list price, that needs to be reflected in the ARR and $750 should be used as the calculating number. If the discount is only for a set year, upon renewal, the full price can be used for ARR but not before then. Treating Late Payments like Churn If a customer is late on a payment, they haven’t churned so their contract should still be included towards ARR. The only difference the company might see here is when the payment hits the bank account but the commitment to a yearly contract is still in place so deals with late payments should be included in ARR calculations. Other common nuances that should be included in ARR calculations include lost payments from churned customers, upsells on current customer subscriptions, downgraded subscriptions. Common nuances that should not be included in ARR calculations include set-up fees, account adjustments, or any other non-recurring charge. Track ARR and other KPIs with Visible ARR is a crucial metric for any successful startup founder and team to master. Calculating ARR can help founders and executives plan for growth, make accurate forecasts, showcase more predictable revenue for investors, standardize their subscription terms, and increase the valuation of their business. An accurate calculation of ARR can be tricky but is a critical skill to learn. Visible can help founders and investors alike keep track of ARR and a handful of other metrics in a clean, painless, and delightful way. Check out how Visible helps with metric tracking for SaaS businesses here.

Customers are the lifeblood of a business. At the end of the day, a business needs customers and revenue to survive. In order to better help companies understand how customers are interacting and spending with your business, you need to have a set of metrics in place. Customer lifetime value (CLV) (also referred to as the lifetime value of a customer) is a popular marketing metric to help you understand how much a single customer spends with your business of the lifetime of your relationship. As the team at Shopify puts it, “The lifetime value of a customer, or customer lifetime value (CLV), represents the total amount of money a customer is expected to spend in your business, or on your products, during their lifetime.” Understanding your CLV is useful because it can help inform your acquisition and go-to-market efforts. It can help you answer questions like: What is the most money our company can spend on marketing/sales for customer acquisition What is the most we can spend on customer service to retain an existing customer Who are the most valuable customers and how can we better target them for future sales? Related Reading: Startup Metrics You Need to Monitor Related Resource: Customer Acquisition Cost: A Critical Metrics for Founders How to Calculate Customer Lifetime Value For Startups Determining your customer lifetime value is pretty straightforward but can vary depending on the business model and product. In the simplest form, a formula for customer lifetime value is: CLV = Avg. value of one purchase X number of expected purchases in a given year X length of relationship (in years) For example, let’s say you sell snowboards. It might look like: CLV = $500 average order for a customer X 1 snowboard purchased by a customer in a year X 7 years = $500x1x7 = $3500 CLV If you have a subscription-based or SaaS model, your CLV might look something like this (at a very simple level): CLV = Avg. Revenue Per Account (ARPA) / Churn Rate Let’s say you have $100,000 in ARR and 1,000 customers, your ARPA would be $100 a year. And let’s say you have a churn rate of 5%. Your CLV would be $2,000 ($100/.05). However, things can get a bit more complicated when you add in things like the expansion and contraction of different accounts. Why Determining Your Customer Lifetime Value is Important The formula for customer lifetime value might seem simple enough but you might want to understand why you should be tracking it for your business. Learn more about the advantages of tracking your CLV below: Advantages of CLV The biggest advantages of calculating and tracking your CLV are the insights you can uncover. These insights will help you understand your best acquisition channels (more on this below) and how to improve your customer retention rates. By understanding the value of a customer over the lifetime of your relationship, you’ll be able to better allocate capital and headcount towards different initiatives, channels, and product development. Historic CLV Vs Predictive CLV When it comes to calculating and analyzing your CLV there are 2 further formulas and decisions to make. On one hand, you have historic CLV, which is based on existing data that you’ve already collected. On the other sid,e you have predictive CLV which is based on predictions (using data you already have) for how much a customer will spend over their lifetime. How to calculate historic CLV Calculating your historic CLV is often more difficult and can be a lagging indicator for success. Simply put, historic CLV calculates all of the transactions and is multiplied by gross margin % over the course of a relationship with a customer. So it looks like something like: Historical CLV = (Transaction 1 + Transaction 2 + Transaction 3…) X Gross Margin % How to calculate predictive CLV Predictive CLV tends to be a better option for most businesses and can be a better interpretation of your CLV. Predictive CLV is more in line with the formulas we shared above and takes a holistic look a the business so you are multiplying your average customer spend by the amount of time they are a customer. Put Your CLV Calculations to Work If you’re going to take the time to calculate and track your customer lifetime value, you want to make sure you are getting the most out of it as possible. Check out some of our favorite ways to leverage CLV for growth below: Prioritize your marketing spend Arguably the biggest benefit of tracking your CLV is understanding how to better acquire new customers. A higher CLV means you can spend more to acquire new customers. A lower CLV obviously means you can spend less. This means different channels might be more fruitful or economical for different models. If you have a low CLV, you will need to find more organic and cheaper acquisition channels. If you have a huge CLV, you can use more robust and hands-on channels. As a general rule of thumb in the SaaS world you want to make sure your CLV:CAC (customer acquisition cost) ratio is at least 3:1. This means that your customer lifetime value is 3x what you are spending to acquire them. Related Reading: Customer Acquisition Cost (CAC): A Critical Metrics for Founders Reduce customer churn and hammer loyalty One of the highest leverage activities to increase CLV is by lowering churn. If you take our example from the beginning — a SaaS company with CLV of $2,000 ($100 ARPA / 5% churn rate) — and change their churn to 1% you’ll see their CLV goes to $10,000 ($100 ARPRA / 1% churn rate). By tracking CLV you’ll be able to better understand how you can properly service your current customers to decrease churn and increase loyalty. You might find that if they spend $10,000 over the course of a few years, you can run additional campaigns or offer them a dedicated account manager so they stick around. Related Reading: What’s an Acceptable Churn Rate? Design new enterprises that grow the business If you find a certain segment of your customers or particular product has a particularly high CLV, you can double down. You can find and design new enterprises that could have a higher CLV. Tips for Enhancing CLV Tracking your CLV is a small part of the battle. Constantly drawing insights and enhancing your CLV is where the real fun begins. There are a few key areas where you can focus to improve your CLV. Learn more below: Make Improvements to the onboarding process A surefire way to increase your CLV is by improving your onboarding process for new customers. This helps in a few different ways. An improved onboarding process helps to make sure your customers are engaged with your product. In turn, this reduces churn and increases your CLV. A more engaging onboarding experience is a great way to build a relationship with customers. This can help you expand their account size in the future as they are familiar with your product and team. Provide high-quality content to your customers Another great way to increase your CLV is by focusing on high-end content for your customers. This is especially true for SaaS businesses that might rely on a customer to use the product themselves. By having great and engaging content for your customers they will understand how to use and leverage your product best and will be less likely to churn. A couple of examples: A knowledge base or support articles that are well written and easy to understand for users. Videos and tutorials that demonstrate exactly how things can be accomplished in the product. Stories and insights from other customers that show how the best customers and companies are using your product. Offer the best high-end customer services Going hand-in-hand with the points above is offering a superior customer experience. Offering incredible customer service will assure customers they want to stick with your business and will churn at a lower rate. Build relationships with customers You might be noticing a trend here — the best way to improve your CLV is by having an incredible customer experience that reduces churn. Building relationships takes a series of approaches. It doesn’t happen overnight but by implementing a few of the ideas from above you’ll be able to strengthen your relationship and build trust with customers — the key to reducing churn and increasing your average revenue per customer. Track your CLV with Visible Customer lifetime value (CLV) is an important metric for any business to track. Having a calculated approach to your acquisition and customer support efforts is a surefire way to grow your business and bring in new capital from investors when needed. Need a place to track your CLV (and other key metrics) and share it with your key stakeholders (like team members, investors, board members, etc.)? Check out Visible. Track key metrics, raise capital, send updates and engage your team from a single platform. Try Visible free for 14 days.

Annual Contract Value (ACV) Defined Annual contract value (ACV) is the average revenue per customer over a given year. ACV tends to be best for companies with recurring revenue. For example, if you have 200 customers on average paying $1,000 a month, the ACV is $12,000 ($1,000 x 12 months). Learn more about how to calculate, track, and make decisions using ACV below. Calculating Annual Contract Value One of the tricky aspects of calculating and tracking ACV is that there is no hard-set rule or formula. Different businesses will calculate ACV in different ways. The main differences are between what is and is not included. For example, let’s use our example from above — a company has an ACV of $12,000. This is straightforward and easy to get to with customers paying $1,000 a month on average. However, let’s say that they also include a $2,000 setup fee (or any one-time fee). Some companies might include this in their ACV, while others don’t. It all comes down to the business and what they believe is best for them. All in all, find the calculation that works best for your business and stick with it from month to month. Plus, make sure that your investors and team members are aware of how it is calculated and tracked. Annual Contract Value Formula At the core, annual contract value can be calculated by taking the sum of all customer contracts for 1 year and dividing it by the # of customers under contract. As we mentioned before, this is generally best suited for SaaS businesses. ACV = Sum of all customer contracts for 1 year / # of customers Under Contract For example, let’s say we have $120,000 in customer contracts for a year and 100 customers under contract. Our ACV would be $1,200 ($120,000/100 customer). Learn more about why you should track your annual contract value below: Why is Annual Contract Value Important? For SaaS companies, tracking annual contract value is vital to understanding your acquisition efforts and go-to-market strategy. Better decision making on Acquisitions At the end of the day, your business needs to generate revenue and a profit. Understanding your ACV will better help you determine your acquisition and pricing strategy. Are you going to search for higher contract customers but less volume? Or lower contract customers at high volume? Determining your pricing and acquisition strategy will have ultimately touch every decision you make when it comes to building products, hiring, fundraising, etc. For example, a lower contract product might require a more self-service product whereas a higher contract product might require a more hands-on approach from sales and team members. Calculating ACV can help with sales and marketing As we mentioned before, your ACV will determine your sales and marketing strategy. For a product with lower ACV, your strategy will require scale and volume. You need to make sure that your sales and marketing motions are repeatable as you are adding on a higher volume of customers. Buyers will likely have little to no interaction with the sales team. Instead, you might have a more robust marketing organization that can bring in new leads at scale. On the flip side, a higher ACV might warrant spending more to acquire a single customer. Because the volume is lower you can take a more tailored and custom approach to new customers. You might have a more robust sales organization that warrants spending more to acquire a single customer. Determining Your ACV Strategy Determining your ACV strategy will impact every aspect of your business. We break down 2 different examples below to show how ACV will impact your customer makeup if you want to achieve $1M in ARR. Small ACV Strategy To start, let’s say we want to land at $1M in annual recurring revenue (ARR). There are quite a few different ways to get there. For our first example, let’s say that we have a small ACV — companies are paying us on average $500 a year. That means that we’ll need roughly 2,000 customers ($1,000,000 in revenue / $500 ACV). 2,000 customers means you’ll need a scalable marketing playbook to fill your top of funnel. As you’ll need to service 2,000 customers, this means you’re product should be user-friendly and have the resources someone needs to support themselves (knowledge base, videos, guides, etc.). Large ACV Strategy On the flip side, let’s take the example from above ($1M in ARR) but with a higher ACV. Let’s say that we have an ACV of $10,000. That means that we’ll need roughly 100 customers. Because of the higher contract size, there are likely fewer customers that fit the mold so you will need to spend more to find and nurture your ideal customers. Because customers will be spending $10k a year they will expect a more hands-on approach from your team. This means you might need a dedicated account manager, or recurring performance check-ins, etc. Related Reading: Roundup: The Importance of SDRs Tips on Increasing Annual Contract Value Naturally, you might be thinking, “How do I increase our ACV?” Check out a few tips and examples for increasing ACV below: Consider upselling/cross-selling The first place to start is generally with upselling. As the team at BigCommerce puts it, “Upselling is the practice of encouraging customers to purchase a comparable higher-end product than the one in question, while cross-selling invites customers to buy related or complementary items.” For SaaS products, this generally means using paywalls and different pricing plans. For example, one plan might cost $99/mo but if you want additional feature sets you can upgrade to a plan that costs $199/mo. Understanding where the value in your product lies is crucial to determining future product features and pricing plans. Increase current prices Simply put, you can increase your price as a whole. There are considerations to be made when increasing pricing but can be worthy of a test for your business. According to Harry Beckwith, author of Selling the Invisible, 15 to 20 percent of people should resist your pricing. Yes, even in the startup stage. Narrow in on marketing and sales Your marketing and sales efforts can also be a way to increase your ACV. Every interaction someone has with your business matters. The sum of these interactions is ultimately your brand. For companies with a strong brand, they can likely increase ACV based solely on the positive experiences your customers (or potential customers) have had with your brand. Related Reading: How to Determine if Your Channel Partners are Actually Working Put the Customer First Having a strong customer experience is a surefire way to increase your ACV. At the end of the day if a customer is not pleased with your product or service they won’t feel the desire to upgrade or pay more in future years. By putting your customer first, you are giving yourself better odds of future upsells and expansion. How to track your ACV Tracking and taking action on your ACV is vital for a SaaS business to succeed. Give Visible a try to help your track your ACV and other key SaaS Metrics. Give it a try here.

On episode 6, season 2 of the Founders Forward Podcast, we welcome Corinne Riley. Corinne is an investor at the prolific venture capital firm, Greylock, where she primarily invests in B2B companies. About Corinne Over the course of her career, Corinne has built a knack for helping companies build and develop a go-to-market motion. Corinne has extensive knowledge of community-led growth and helping companies grow at the earliest stages of their business. Corinne joins the show to break down community-led companies and the thought process behind her investment decision-making. Our CEO, Mike Preuss, had the opportunity to sit down and chat with Corinne. You can give the full episode a listen below: What You Can Expect to Learn from Corinne What a community-led company is How community-led growth can be a moat What the community commitment curve is What changes between a seed and series A pitch What data she would expect to see in a Series A company What she likes to see in a cold email from a founder Related Resources Corinne’s Twitter Common Room & Uncommon Corinne’s post on Community-Led Growth The Business of Belonging Greylocks’s Visible Connect Profile

As more capital flows into venture as an asset class, investors are increasingly competing for LP dollars and space on the cap table from the best founders they work with. Gone are the days when capital is enough of a differentiator for a VC fund to get on a hot startup’s cap table. Considering the average VC + Founder relationship is 8-10 years (longer than the average marriage in the US) — founders are beginning to look for a true partner out of a VC fund. In order for a VC fund or emerging fund manager to stand out among other funds, they need to have the data and systems in place. LPs have increasingly higher expectations for fund performance while founders have increasingly higher expectations for VC funds. About this Report The goal of this report is to break down the best practices we see hundreds of VC use to collect and share their portfolio data. We outline best practices related to: Market Data Overview Timing of Data Requests Number of Metrics to Collect Most Common Metrics The Founder Experience Qualitative Questions Minimum Viable Data Request Company Success = Fund Success Venture capital funds are only as successful as their portfolio companies. There are few people who have been in a founder’s shoes and can help them navigate the challenges they are facing. However, investors are in a unique position as they’ve likely seen many portfolio companies and potential investments face the same challenges. In order to best help portfolio companies, investors need to have a strategy in place to collect both qualitative and quantitative data from their portfolio companies. Collecting a few KPIs and company asks is a great place to start (more on this later in the report). At the same time, there is a balance between helping and being a burden on a portfolio company. Download our report to learn some simple best practices so you can collect the data you need without burdening your portfolio companies

What is the best way for a SaaS company to grow? According to ProfitWell, “Acquisition is the weakest growth lever. How do we know this? We studied the levers—acquisition, retention, and monetization—of 23.4k SaaS companies. We found that monetization and retention have much higher revenue impacts than acquisition when considering the same level of impact across each growth lever.” In this webinar you’ll learn: How retention can boost your business Best practices to improve retention What ProfitWell has learned from surveying 23k+ companies about retention The new Visible + ProfitWell integration Why you should send an investor update

Keeping tabs on your SaaS metrics, like subscription growth, MRR movements, churn rates, etc., is vital to continued growth and improvement. We are excited to announce our direct integration with ProfitWell to do just that. About ProfitWell ProfitWell is a free tool that provides SaaS metrics insights, helps reduce churn and optimize pricing. Visualize your ProfitWell data directly in Visible, share it with your most important stakeholders, and combine it with other data sources to understand how your subscription growth is impacting your overall business. ProfitWell + Visible Our integration with ProfitWell allows you to sync 39 metrics to your Visible account (learn more about them here). Check out a few examples of different charts and data you can pull into Visible below: With ProfitWell, you can bring in all of your recurring revenue movements — new, upgraded, downgraded, churned. If you’d prefer to not share such granular data with your investors (and potential investors), you can also pull in your current recurring revenue which may look something like this:Alternatively, you can also chart your customer count movements to get a look at how your customer base is growing. How SaaS Metrics Help Fuel Growth ProfitWell has taken an added focus on leveraging your current customer retention to fuel growth. As they put it, “Acquisition is the weakest growth lever. How do we know this? We studied the levers—acquisition, retention, and monetization—of 512 SaaS companies. We found that monetization and retention have much higher revenue impacts than acquisition when considering the same level of impact across each growth lever.” Keep tabs on your retention directly in Visible. If you’d like to learn more, make sure to save a spot in our webinar with Patrick Campbell, CEO of ProfitWell, as we discuss all things churn and retention. Learn more about connecting ProfitWell Don’t forget you can combine your ProfitWell data with any of our other integrations as well. P.S. We are hosting a webinar with Patrick Campbell, the CEO of ProfitWell, on July 7th to discuss all things net revenue retention and churn. Save your spot here.

When setting out to build a company, it is important to understand the potential market size, especially if you plan on raising venture capital. Venture capital funds follow a power-law curve, or simply put, a small % of firms capture a large % of industry returns. Because of this, investors will want to see that your company is capable of a huge exit to help improve its returns. While some investors will tell you that they do not care about an accurate calculation of your addressable market, they will want to understand how your company can turn into a large company. Learn more about calculating your TAM, SAM, and SOM below: What is Total Addressable Market (TAM) As put by the team at Corporate Finance Institute, “The Total Addressable Market (TAM), also referred to as total available market, is the overall revenue opportunity that is available to a product or service if 100% market share was achieved. It helps determine the level of effort and funding that a person or company should put into a new business line.” Related Resource: How to Model Total Addressable Market (Template Included) Real-life Example of TAM For a TAM example, let’s say we are a software company called Adventure App that is helping campers find lesser-known camping spots. Let’s say that we charge customers $10/mo for our application. Using a bottoms-up approach we know that the average consumer would spend $120 a year ($10/mo X 12 months). Next, we’d need to calculate how many customers exist in the space. Using research and our own data, we believe that there are 20,000,000 consumers in our market. That would lead to a total addressable market of $2.4B ($120 X 20M consumers). How to Calculate TAM There are multiple approaches when it comes to calculating your total addressable market. The most common being: Tops Down Approach Bottoms Up Approach Value Theory Approach Learn more about calculating TAM and use our free template to get you started in our post below: Related Resource: Total Addressable Market Template Importance of the TAM One of the more infamous examples of TAM is Uber. Initially, Uber modeled their TAM based on a luxury black cab service in select markets. In reality, Uber has transformed into a global company offering everything from shared rides to food delivery. Uber used both a top-down approach and modeled their future based on the past Related Resource: Total Addressable Market: Lessons from Uber’s Initial Estimates Uber is a case study on the importance of using the correct approach to an addressable market. What is Serviceable Addressable Market (SAM) TAM implies that you capture 100% of your addressable market. Of course, this is not realistic. Serviceable addressable market, or SAM, hones your market sizing one step further. As Steve Blank describes it, “The serviceable available market or served addressable market is more clearly defined as that market opportunity that exists within a firm’s existing core competencies and/or past performance. The biggest consideration when calculating SAM is that a firm most likely can only service markets that are core or directly adjacent to its current customer base.” Related Resource: TAM vs. Sam vs. SOM: What’s the Difference? Real-life Example of SAM Continuing with our Adventure App example from above, we’d want to continue to tweak that number with our serviceable addressable market. As Steve Blank put it above, “…a firm most likely can only service markets that are core or directly adjacent to its current customer base.” Your business will depend on what you define as “core or directly adjacent” to your customer base. For Adventure App, let’s say that we believe that only 5M of the 20M potential consumers are in the geography we can support. That would mean that our SAM would be $600M ($120/yr X 8M). Alternatively, you could calculate this by taking TAM of $2.4B and multiplying it by % of the serviceable market, 25% (5M/20M). How to Calculate SAM SAM requires equal parts art and science. It is on you to determine what % of the TAM you believe is core to your product it can vary how it is calculated. You will need to use publicly available data plus your own internal data to make sure your best assumption for what you can reasonably service. Importance of SAM Serviceable addressable market is important because it will give you a more realistic look at how large your business can be. 100% market penetration is not realistic (as demonstrated in TAM) so it is important to continue to hone in what % of the market you can realistically service. What is Serviceable Obtainable Market (SOM) Serviceable obtainable market, or SOM, dials in your addressable market 1 step further. As we wrote in our blog, Modeling Total Addressable Market, “ SOM is the percentage of the market that you can actually reach with your product, sales, and marketing channels. This should be a realistic view of the customer base your company can pursue.” Real-life Example of SOM While our example above shows that Adventure App has a serviceable market of $600M, we will want to hone that further to give an obtainable view of your market. Using past data and public data, we know that Adventure App can penetrate 20% of our serviceable addressable market. That means that our SOM would be $120M ($600M X 20%). How to Calculate SOM Like a serviceable addressable market, there are a few ways to approach your SOM. Depending on how much data you have available will depend on how you calculate your SOM. For example, if you know your market share % you can use that against your SAM. If you do not know your true market share %, you can use the best data available to model the % of your SAM you believe you can capture. Importance of SOM SOM is important because it is the most realistic view of your business and your place in the market. It should offer a better short-term view and can be leveraged to set realistic goals and forecasts over the coming year or years. The Similarities and Differences Between the Three Markets TAM, SAM, and SOM all serve their own purpose but share many similarities and differences. They are all cut from the same thread. They are all versions of the addressable market but slowly narrowed down to be more realistic. They are all based on roughly the same estimates and slowly add in more restrictions as you hone in on the market. For More Information on Markets Visit Visible Today Want to learn more about calculating and tracking your total addressable market? Check out our free Google Sheet template here.