According to DocSend only 58% of successful raising pitches included a slide on financials – this is because the detail required depends upon the current stage of the company. For example, a company that has yet to sell any product will find it challenging to produce any robust financials beyond the cost of building the product and a test sales price. While a company that has had over a thousand sales will be able to produce real data and projections demonstrating the impact the investment will have on the company. Match your financial slide to the current position of your company.
If you have no sales…
So if you have nothing yet, what key metrics are you aiming to be able to provide? Different investors will have different expectations but a good common set of KPIs will include:
- Conversion Rates. There are a range of conversion rates that you can consider and these depend upon the business model – typically one for each stage in the sales funnel. For example, in a freemium model, the target is to ensure that enough users become customers to cover all the costs of supporting all the users. This can be a challenge if the conversion rate is 1-3% while there is a significant cost to providing the service to users (who are not paying) since failing to provide service to the users may result in fewer of them converting to customers.
- The Customer Acquisition Cost is the total cost of getting a customer to part with their first payment. This includes any marketing, advertising, sales time, etc. required. Fixed costs are divided by the number of customers gained during the period in question.
- Viral Rate. This is the number of paying customers introduced by a current customer. For example, if you have five customers and they introduce seven new customers (who all purchase your product) then your viral rate is 7/5 = 1.4. A viral rate greater than 1 is a company that could grow exponentially.
- The Life Time Value of a customer is the income your company will receive from the first to last purchase that the average customer makes. For example, for a Gym the average customer may pay $100 to join the service and then 9 monthly payments of $75 before they cancel membership. That’s a life time of $775. To be successful, the Customer Acquisition Cost + product/service cost must be lower than the Life Time Value. If this is not the case, you’ll need a plan to get to this point as soon as possible.
If you have some sales…
If you do have enough sales to project the future, then provide a summary of the past and future cash with the following rows makes sense: Number of Customers, Income, Gross Profit, & Net Profit. These can be presented as a table or (graphically) on a timeline.
How to project the future
Using a timeline is a great way of demonstrating what will happen because of the investment. Having peaks and troughs in the income line gives you the potential to highlight events you have planned that will impact your success. Examples include:
- Next version of the product released
- Start selling in a new market sector
- Start selling in a new geographic area
- New partner agreement completed
- Sales as the result of a conference / exhibition
- Viral rate increases as a result of..
- Round A/B/C… completed
The last thing you’ll have on the financial slide is the “Ask” – what you are looking for and what you are providing in return. Your aim is to demonstrate to an investor that they are about to lose out on a fantastic investment which has an amazing return on investment.
This blog completes the series of ten articles delving into what Investors are looking for in a pitch deck. What next? Send me yours for a free review…