Startups usually run at a deficit while designing and building the product. But companies are designed to make money, and over time, as unit economics and customer acquisition costs improve, you’ll probably tip into the blue. Maybe. Hopefully.
At the very least, that’s what your investors will be betting on. So that means your business model slide needs to paint a picture that shows where you’re at now and how the business can grow over time.
In theory, your “business model” could include every aspect of the business; the Business Model Canvas is one way to explore that, and you could easily spend an hour just talking about the whole end-to-end business model. For the purposes of a funding pitch, however, it’s likely you only need a few crucial elements:
- COGS, or cost of goods sold, is the incremental cost for each unit you deliver. For software, this typically rounds to zero, but for hardware products or more service-driven businesses, the unit cost can be substantial.
- CAC, or customer acquisition cost, is the cost of sales and marketing divided by how many customers you’ve signed up.
- LTV, or lifetime value: How much is each customer worth, on average, once you sign them up?
- R&D cost is what it costs to develop the product. This isn’t usually included in the business model, but if the cost of R&D is astronomical and the cost-to-profit line never intersects, you could have a problem worth exploring.
- The pricing model isn’t usually part of the business model itself (it falls under LTV), but if you’re doing something unusual or creative with your pricing, it’s worth including that, either here or on your go-to-market slide.
Breaking those numbers down and presenting them the right way can greatly benefit how you tell your startup’s story to investors.
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