Several person tries to start an small business, but it is not important that it will be successful. Every year almost 90% fails. So, in the end of the day, business dies because of flop business modals. How, though, can you ensure that your business model is sound. That it will allow your startup to expand over time? This is where measurement comes into play. So it is important to know important financial metrices for a successful startup.
Contents
Main Financial Metrices for Startups
Fixed and Variable Costs
Fixed Cost- Costs that do not vary with a company’s volume of production, i.e., costs that remain steady. Regardless of the amount of goods or services that a company produces.
Variable Cost- costs that do vary with a company’s volume of production, i.e., costs that change in accordance with how much of a good or service a company produces.
Breakeven Analysis
Breakeven analysis is use to determine when your business will be able to cover all its expenses and begin to make a profit. It is important to identify your startup costs in order to determine your sales revenue needed to pay ongoing business expenses. our company’s “breakeven point” is the point at which your revenues i.e., the amount of money you’re bringing in from sales exactly match your expenses.
CAC
The total cost of convincing a potential customer to buy a product or service. Calculated by dividing the costs spent acquiring new customers (marketing, advertising, etc.) by the number of new customers acquired during the period in which the funds were spent. Example: if you spend $5,000 a month on promotion and you acquire 20 customers then your CAC is $250.
LTV
The projected revenue that a customer is expect to generate during his/her lifetime. In the simplest of cases, calculate by multiplying the yearly cost of your service by the number of years for which a person is expected to remain a customer of your company. Example: if your service costs $100 per year and your average customer stays 5 years then your LTV is $500.
Cashflow Forecast in Financial Metrices
Positive cash flow refers to a situation in which your business takes in more funds than it spends whereas negative cash flow refers to the opposite, i.e., when the amount of money coming into your business falls short of the amount going out.
Cash flow is the blood of every startup organization.