EBITDA Margin

EBITDA Margin is a measurement of a startup’s operating profitability as a percentage of its total revenue. Calculating a startup’s EBITDA Margin is done by equalling the total EBITDA (earnings before interest, tax, depreciation and amortization) divided by the total revenue. The higher the EBITDA Margin of a startup, the smaller the startup’s operating expenses are in relation to the total revenue of the company. This is a strong tool used by investors to show how profitable the company is as well as how lean the venture operates in comparison to their revenue. Keep in mind, the average product based company has an EBITDA Margin of roughly 12%, while the average service based company has an EBITDA Margin of roughly 18%.

Monthly Recurring Revenue (MRR)

Monthly Recurring Revenue is the proof of the pudding in your business model. While not all business models have recurring revenue on a monthly basis, it does show potential investors how profitable the company can becomes overtime for subscription based businesses. Once a client is subscribed to the service or software, that revenue can be relied upon each month. It should be noted there are secondary metrics which accompany MRR, such as customer retention and churn, using this metric can show how strong the company can be from a financial standpoint each month. This metric is very predictable and reliable, which investors take comfort in.

Customer Acquisition Cost (CAC)

Customer Acquisition Cost refers to the resources a business must spend in order to acquire more customers. Whether it be financial spending or otherwise, this metric includes every effort necessary to introduce your products and services to potential customers. Common expenses in this metric may include: staffing salaries of sales and marketing employees, CRM software, marketing automation, paid advertisements, sponsorships, events and many other items which may have direct contact with the targeted individuals. Investors look at the ‘Customer Acquistion Cost’ of the startup to better judge the overall expenses of the startup overtime. As the business grows, the cost this metric shows should reduce in size. If this cost increases, it shows an investor the startup is unprofitable in the long run.

Customer Lifetime Value (CLV)

Customer Lifetime Value is a metric used to measure the revenue your business or startup receives from any given customer. The purpose is to see the overall amount of financial assets spent using your service or purchasing your product on a customer by customer level. When used properly, it can help businesses define the correct amount of CAC needed for the service or product. When calculated, it may also improve the overall accuracy of allocating funds in terms of customer retention and sales. Investors use the CLV metric in a variety of ways, however, the majority of them refer to the total addressable market of the startup and the CAC.

Month-Over-Month Growth (MOM)

Month-Over-Month Growth is a metric used to express changes in levels in respect the previous month. While this metric can be used to define growth in many different aspects of the company. Generally it is used to define the growth of the startup financially, and from a market viewpoint. In many service based companies, the MOM metric is for the total amount of customers. With product based companies, the MOM metric is used for the total amount of products purchased. Investors use this metric to judge the overall health of the startup and growth trends.

The post Top 5 Startup Metrics to Show Traction (2019) first appeared on Five23.

Can you name a company that has gone out of business? There is a plethora of failed companies to choose from and we’re sure you will have no problem finding one. Companies like Blockbuster, Radio Shack and Pan Am have all closed their doors for good. Five23 investigated the top three reasons why companies big and small fail, and you might be surprised as to why.

Market Knowledge

All companies start to fill a gap in the market. Whether it be a boat repair shop or an accounting office, they are finding needs in their communities and fulfilling them. This sense of market knowledge is strong when an entrepreneur starts their business, although, overtime it may wear off. Analyzing the micro and macro levels of the direct and indirect market is important to understand trends and the needs of your customers. The data you can extract from this type of analysis can help your team develop strong products that your customers want. This will also allow you to track trends in the market.
Imagine if Blockbuster had the foresight to acquire Netflix when they started noticing their market share shrinking. Or what if they started their own dvd home delivery and online streaming service just weeks after Netflix did. Maybe we would be saying “Blockbuster and Chill”.

Financing

It may come as no surprise that one of the top reasons startups fail is due to lack of financing. Only 20% of all companies raising money actually receive the funding they are looking for. This means the other 80% never acquire the capital required to get off of the ground or continue developing their idea. Many hopes and dreams of companies are stopped short for this reason, and they don’t have to be.

There are two options to obtain the necessary financing for the company to advance: Investment and Profitability. Investment can be hard to obtain but possible (Five23 covers it heavily in our blog post “here” & “here”). The second option, to become profitable, is generally difficult for young companies, but is the easiest way to establish stability. Being profitable is the goal for all companies and the quicker entrepreneurs discover how to become profitable the better. Bringing in solid revenue is the best way to ensure a strong future for the company.

Stubbornness

A common weakness in entrepreneurs is stubbornness. In some cases it may help, but in most, it is an Achilles heel that will cause even the best businesses to fail. All companies need to adapt to the ever changing market (as we discussed before), and while some don’t always see change coming, the ones that do have to acclimate.

There comes a time when an entrepreneur sees a change that he / she doesn’t want to make. Although there are valid reasons for not completely changing a product or service, making small pivots is essential. The majority of the time, the reasons business changing decisions are not made, is because of an entrepreneur’s emotions and unwillingness to change the business they spent so much time growing. However, in many cases, if the change never occurs, the business may be passed up for a product or service that is more accurate to what is wanted by the market.

To summarize, paying attention to the ever changing market is one of the best ways to stay ahead of the competition. It may allow you to have a strong and profitable product that will lead to many years as a successful company, so long as you are willing to change to stay up to date with the needs and wants of your customers. Failing to do either of these items greatly increases the chances of the business going under.

The post Top 3 Reasons Companies Fail first appeared on Five23.