So amazingly well explained. I knew the basics of all of these metrics prior to watching this but by watching it those basics seem to have so much more clarity now. Amazing amazing way of simplifying and explaining everything Eric. God bless!
Questions? Let me know in the comments happy to discuss. 🚀 Also, if you want to learn which finance frameworks the top 1% of founders use to scale their startups to massive outcomes, check out my free webinar ⇒ www.ericandrewsstartups.com/financeforstartups
@@1966rama You'd want to include the full lifetime if you have historical data. But if you're starting out (meaning you are making an estimate) you want to be relatively conservative. SaaS businesses can potentially have multi-year customer lifetimes but ecommerce businesses often don't. Anyway, the payback period (to breakeven) on the LTV is probably the most important part. Many SaaS businesses are happy with a 1-2 year payback period (if they are on annual contracts) as then they are profitable on that year 2+ period, but many ecommerce businesses need to breakeven on the first order because customers don't return very much. So the payback profile is the most important part, and it totally depends on the product / sector.
do you know how to calculate: ... if a client wanted to scale their MRR from $50k a month to $75K per month and their currently paying $1,000 per booked call, how many more appointments do they need to book per month to reach that goal assuming the spend increased to $1,200 per booked call.
Eric, thank you for useful metrics. Could you please precise in calculation of CAC, why we number of new customer divided by advertising spend, and not vice versa?
Hi Elena, happy to help. I made a video 100% focused on the CAC calculation here, this will answer all your questions for sure! ua-cam.com/video/8WChmQuTeN0/v-deo.html Quick explanation - we are trying to figure out average marketing spend per NEW customer. So if we spend $500 and we got 10 new customers, then it would be $500 / 10 = $50. But I suggest you check out my other video get get a deeper understanding. Cheers.
Hi Eric, When calculating Average revenue per user for example do you use the total operating revenue (Includes GMV) or do you use the normal revenue (commissions)?
Yep these are the classic metrics, I'd still use them. Only thing is that since all the privacy tracking has been rolled out the paid vs. blended CAC is a bit harder to differentiate. But CAC is still key to understand.
Hi ! Great job very detailed and well explained ! I just have one question, these are usually for SaaS types of startups right ? Regarding ARR/MRR, what should be the recurring revenues for a startups that sells manufactured goods ? Therefore having volatile sales (in my case I'm looking at one that is at very early stage, just forecasts are available). Many thanks in advance, keep up the good work !!
Hey! So, recurring revenue is obviously a big part of subscription businesses, but it is usually a big part of most businesses. For instance, Amazon's retail revenue is probably almost 100% recurring purchases, etc. But yes there are specific businesses that have mostly revenue from first time buyers. In that case I would just call it annual revenue, and of course those businesses get lower valuations because their customers are not very sticky, but they can still make a lot of $$. Cheers!
May you do an example to cover these matrices, sort of a module for an early stage business? i have watched Saas, market place module but to link those matrices would be something great
Thank you for the idea Taleb, I will put it on my list and try to think about a good video for it! Also glad you found my saas and marketplace financial models helpful, cheers!
@kel78v2 Would you consider anything in there to be a CAC? Maybe the comp/commissions of sales team? Anything else? I would more be focusing on contribution margins per unit and sell through rate.
It is much harder than it used to be, nobody has a perfect answer. As one of my marketer friends says "if I had a perfect attribution model I'd be a billionaire", haha. Depends on the channel. Good test is to pause paid campaigns and see what happens. Also a lot of attribution software like Elevar (for FB) that can help. Need to compare all your analytics and try to get as close to attribution as possible.
thanks Eric this was really helpful. Although 1 doubt do we take only advertising cost in CAC coz there a few videos which gives the same formula for CPA and as per my knowledge they are both different right? Some of them include marketing cost + sales exepense + salaries basically everything in CAC... could you help me out with that
Hi Ashkay, great question, there is no rule for 100% of situations. This is how we calculate it for B2B ecommerce businesses. What you include in CPA depends on which specific expenses touch your customers in the sales process. With B2C companies, it is just advertising. We never include salaries of marketing people (for instance a social media manager would not be included). Sales people however, would be included, but B2C companies usually don't have sales teams. However with B2B companies, there is usually an actual sales team that spends all day contacting customers and selling to them directly - we would include them and their bonuses in CAC, as well as advertising spend. I'm actually releasing a video on CAC for B2B companies hopefully tomorrow, so that should be helpful for you. Cheers
Is CMGR a metric that is only applicable to business with a recurring revenue model? or can this be beneficial to business with non-recurring rev as well?
Can definitely be applied to all businesses. Just gives you a better idea of growth over a longer period, might even be more useful for non-subscription businesses as their revenue tends to be lumpier
I hope you don't mind me answering this. It will be 9. Here's why. Let's assume revenues in the months from January to October to be: R1, R2, R3, R4, R5, R6, R7, R8, R9 and R10. Say the CMGR is r%. Then, R2 = R1 (1+r%) R3 = R2 (1+r%) R4 = R3 (1+r%) R5 = R4 (1+r%) R6 = R5 (1+r%) R7 = R6 (1+r%) R8 = R7 (1+r%) R9 = R8 (1+r%) R10 = R9 (1+r%) If you multiply all the 9 equations above, you will be left with, > R10 = R1 (1+r%)^9 > (R10/R1) = (1+r%)^9 > (R10/R1)^(1/9) = 1 + r% > r% = [(R10/R1)^(1/9)] - 1 And so by generalisation, CMGR (or r%) = [{Revenue in the nth month/Revenue in the 1st month}^{1/(n-1)}] - 1 Hope this helps.
Generally, someone needs to take the database data and create these reports based on the initial customer purchase date and subsequent buying behavior (often a data scientist). If you worked at a startup, they should be creating these reports internally to track retention, but it is very unlikely that any company would publically report these numbers on their website (maybe during an IPO). These are more of an operational report that the marketing team would create.
So amazingly well explained. I knew the basics of all of these metrics prior to watching this but by watching it those basics seem to have so much more clarity now. Amazing amazing way of simplifying and explaining everything Eric. God bless!
Glad to hear it Shakir, good luck 💪💪💪
Your videos are amazing, keep the good stuff.
Cheers i really appreciate the comment 🙏
Thanks Eric for keeping us learning and Excelling! Great stuff as always 🙌
Thanks for checking it out Keyspan! Love your DJ sets on your channel as well, I listen to them while I'm financial modeling sometimes 😎😎
Questions? Let me know in the comments happy to discuss.
🚀 Also, if you want to learn which finance frameworks the top 1% of founders use to scale their startups to massive outcomes, check out my free webinar ⇒ www.ericandrewsstartups.com/financeforstartups
I learnt a lot here . Love to buy coffee 4 u bro
Thank you brother
you are very welcome Gil!
Every metric clearly explained. To the point. Awesome video!
My pleasure Arun, glad you thought so! Cheers
Any metrics I didn't cover which you think are important? Please share them below 👇👇 !!
Contribution margin
@@ruthcdsilva that's a good one too! If i made the video again I would include....cheers 😎
For LTV , what duration of time typically is considered? IS it five years or three years or beyond that ?
@@1966rama You'd want to include the full lifetime if you have historical data. But if you're starting out (meaning you are making an estimate) you want to be relatively conservative. SaaS businesses can potentially have multi-year customer lifetimes but ecommerce businesses often don't. Anyway, the payback period (to breakeven) on the LTV is probably the most important part. Many SaaS businesses are happy with a 1-2 year payback period (if they are on annual contracts) as then they are profitable on that year 2+ period, but many ecommerce businesses need to breakeven on the first order because customers don't return very much. So the payback profile is the most important part, and it totally depends on the product / sector.
do you know how to calculate: ... if a client wanted to scale their MRR from $50k a month to $75K per month and their currently paying $1,000 per booked call, how many more appointments do they need to book per month to reach that goal assuming the spend increased to $1,200 per booked call.
Thanks for this, very well explained.
Prepping for a VC interview. This is super helpful. Thank you!
You're going to crush it! Dropping another VC related video tomorrow fyi hope it helps
Thanks for the amazing content, can you make a video on creating marketing dashboards? That would be really useful!
Actually yes. I'll put that on my list, I do that for lots of startups so I can for sure share that process! Thanks for the idea!
another very well explained video
Cheers! You're on a roll
How about Operations KPI or Metrics for E-commerce? Do you have suggestions for monitoring specifically what VC might look into?
Yep, here is another video I made on the top KPIs for ecommerce ua-cam.com/video/aJzRMoFTdiQ/v-deo.htmlsi=HNiEBt1qdXeCLjtH
Another Excellent Presentation
My pleasure Peter! Thanks for checking it out and glad it was valuable for you.
Eric, thank you for useful metrics.
Could you please precise in calculation of CAC, why we number of new customer divided by advertising spend, and not vice versa?
Hi Elena, happy to help. I made a video 100% focused on the CAC calculation here, this will answer all your questions for sure! ua-cam.com/video/8WChmQuTeN0/v-deo.html
Quick explanation - we are trying to figure out average marketing spend per NEW customer. So if we spend $500 and we got 10 new customers, then it would be $500 / 10 = $50. But I suggest you check out my other video get get a deeper understanding. Cheers.
I really appreciate your informative video.
Glad it was helpful Grace, cheers! More to come
Great Stuff Eric
This video is really useful . Thanks 😊
Awesome, happy to hear it!
Do venture analysts to to analyse past results of a startup or for the business plans of next years ?
Great stuff. Thanks for sharing.
Hey Kay M - appreciate that feedback, hope it was valuable! Cheers
Wish we could easily track paid CAC on our mobile app. With so many media channels we're using it gets difficult to track.
Great video! Shouldn't you divide advertising spend / total customers instead of total customers / advertising spend at 22:16 ? Thanks!
Yes, I hadn't noticed that typo, but you get the idea. Thanks for letting me know!
thanks so much. :)
Hi Eric, When calculating Average revenue per user for example do you use the total operating revenue (Includes GMV) or do you use the normal revenue (commissions)?
Super thank you!
Glad it helped Ilaria!
Awesome 🎉 you'd us this knowledge the same today or has things changed?
Yep these are the classic metrics, I'd still use them. Only thing is that since all the privacy tracking has been rolled out the paid vs. blended CAC is a bit harder to differentiate. But CAC is still key to understand.
Very good
You're very welcome!
Eric, excited to watch this, did you mention a place to download this ?
Yep! There's a link to download in the "resources & links" sections of the description. Thanks for asking Matt
Hi ! Great job very detailed and well explained ! I just have one question, these are usually for SaaS types of startups right ? Regarding ARR/MRR, what should be the recurring revenues for a startups that sells manufactured goods ? Therefore having volatile sales (in my case I'm looking at one that is at very early stage, just forecasts are available).
Many thanks in advance, keep up the good work !!
Hey! So, recurring revenue is obviously a big part of subscription businesses, but it is usually a big part of most businesses. For instance, Amazon's retail revenue is probably almost 100% recurring purchases, etc. But yes there are specific businesses that have mostly revenue from first time buyers. In that case I would just call it annual revenue, and of course those businesses get lower valuations because their customers are not very sticky, but they can still make a lot of $$. Cheers!
May you do an example to cover these matrices, sort of a module for an early stage business? i have watched Saas, market place module but to link those matrices would be something great
Thank you for the idea Taleb, I will put it on my list and try to think about a good video for it! Also glad you found my saas and marketplace financial models helpful, cheers!
@@eric_andrews i try to learns as much as I can from your videos because it’s very very knowledgeable as I did apply it for pervious work😁
@@talebbagazi1435 I'm really glad to hear that! :)
What are your thoughts on CAC specific to b2b e-commerce? How would you calculate it?
B2B meaning retail/wholesale?
Yes, wholesale. Can we also say coupons are part of advertising costs?
@kel78v2 Would you consider anything in there to be a CAC? Maybe the comp/commissions of sales team? Anything else? I would more be focusing on contribution margins per unit and sell through rate.
How do you track and separate organic from paid results successfully?😊
It is much harder than it used to be, nobody has a perfect answer. As one of my marketer friends says "if I had a perfect attribution model I'd be a billionaire", haha. Depends on the channel. Good test is to pause paid campaigns and see what happens. Also a lot of attribution software like Elevar (for FB) that can help. Need to compare all your analytics and try to get as close to attribution as possible.
Thankyou
My pleasure Darren!
Muy Bueno!
Gracias Donny!!
thanks Eric this was really helpful. Although 1 doubt do we take only advertising cost in CAC coz there a few videos which gives the same formula for CPA and as per my knowledge they are both different right? Some of them include marketing cost + sales exepense + salaries basically everything in CAC... could you help me out with that
Hi Ashkay, great question, there is no rule for 100% of situations. This is how we calculate it for B2B ecommerce businesses. What you include in CPA depends on which specific expenses touch your customers in the sales process. With B2C companies, it is just advertising. We never include salaries of marketing people (for instance a social media manager would not be included). Sales people however, would be included, but B2C companies usually don't have sales teams. However with B2B companies, there is usually an actual sales team that spends all day contacting customers and selling to them directly - we would include them and their bonuses in CAC, as well as advertising spend. I'm actually releasing a video on CAC for B2B companies hopefully tomorrow, so that should be helpful for you. Cheers
Is CMGR a metric that is only applicable to business with a recurring revenue model? or can this be beneficial to business with non-recurring rev as well?
Can definitely be applied to all businesses. Just gives you a better idea of growth over a longer period, might even be more useful for non-subscription businesses as their revenue tends to be lumpier
Video at 8.24, while calculating CMGR - month shall be 10 or 9?
I hope you don't mind me answering this. It will be 9. Here's why.
Let's assume revenues in the months from January to October to be: R1, R2, R3, R4, R5, R6, R7, R8, R9 and R10. Say the CMGR is r%. Then,
R2 = R1 (1+r%)
R3 = R2 (1+r%)
R4 = R3 (1+r%)
R5 = R4 (1+r%)
R6 = R5 (1+r%)
R7 = R6 (1+r%)
R8 = R7 (1+r%)
R9 = R8 (1+r%)
R10 = R9 (1+r%)
If you multiply all the 9 equations above, you will be left with,
> R10 = R1 (1+r%)^9
> (R10/R1) = (1+r%)^9
> (R10/R1)^(1/9) = 1 + r%
> r% = [(R10/R1)^(1/9)] - 1
And so by generalisation,
CMGR (or r%) = [{Revenue in the nth month/Revenue in the 1st month}^{1/(n-1)}] - 1
Hope this helps.
hi, sir where can we find out these matrices? on the official website of a unicorn or startup, in financial statements, or in any database?
Generally, someone needs to take the database data and create these reports based on the initial customer purchase date and subsequent buying behavior (often a data scientist). If you worked at a startup, they should be creating these reports internally to track retention, but it is very unlikely that any company would publically report these numbers on their website (maybe during an IPO). These are more of an operational report that the marketing team would create.
@@eric_andrews thank you sir, one more question. where can i find the data regarding the valuation methods used in valuation of startup unicorns.
Giveaway results?
Announcing today! Putting the video live shortly....😎
@@eric_andrews 👍👍
@@RankaNikunj Nikunj - did you check the video? You WON the 2 courses! And I also sent an email to your gmail account as well. Talk soon.
@@eric_andrews 😀yes sir i have checked. But sir i have not received your email
@@RankaNikunj weird, I already sent it. Could you try sending me an email then? To ericandrewsbusinessinfo@gmail.com
Slurping the mouth again and again. Why? Seriously, it is soo distracting. I could stand 7 min and thats it.