Congratulations, you have your first VC meeting! However preparing for these conversations can be stressful and the last thing you want is to not be able to answer their questions. In order to help you with your preparations, we have listed some of the important Jargon metrics that may come up during your pitch.
- CAC – Cost of Acquiring a Customer: CAC is the cost of acquiring a paying customer and is calculated by taking your total marketing costs over a certain period divided by the total number of new customers acquired during that period. CAC is one of the most important metrics when assessing the unit economics (see below) of a business and every founder should be on top of the CAC, ideally by each channel.
- CLV – Customer Lifetime Value: CLV is the total value a customer will bring to the business. In its simplest form, the CLV is the total amount of revenue generated by the customer until he churns away (e.g. a customer spending USD 20 per month for 18 months will have a USD 360 CLV). Sometimes the lifetime value can also be the gross or net profit after subtracting the actual costs to serve the customer.
- GMV – Gross merchandise value: GMV is the total value of merchandise sold over a given period of time for an online business. It is often used as a measure of the growth of the business or use of the site to sell merchandise owned by others. It is different from revenue as the goods or services sold are not necessarily owned by the online platform.
- Unit economics: When looking at unit economics, one looks at what it costs to produce one unit of revenue (e.g. booking one car ride, buying one meal) and thus figure out the variable margin generated by this one unit of revenue, ignoring all the fixed costs. Even if the company is heavily loss making overall, strong unit economics mean that once you get to scale, the business could do very well. At the same time, many start-ups that don’t understand their unit economics may eventually find out that the business was built on loss making assumptions (e.g. selling goods cheaper than what they cost the business).
- Cohort: A cohort is a group of users with similar characteristics grouped together. A common metric is to look at monthly user cohorts (users acquired in the same month). For each month, the cohort will show how these users interact with your company (e.g. sales, app usage, etc…) over time. Cohorts are an important tool to assess user retention and to predict how the user base will evolve over time.
- Conversion funnel: Conversion funnels measure how well a user moves from one stage to the next in your digital sales process. This could be from seeing an online youtube video ad, to installing the app, registering and eventually making a purchase. Knowing your conversion funnels and metrics are key to understanding user behaviour and to identify areas for improvement.
- NPS: NPS stands for Net Promoter Score which is a metric used in customer experience programs. NPS measures the loyalty of customers to a company. NPS scores are measured with a single-question survey and reported with a number from the range -100 to +100, a higher score is desirable. NPS is often used to assess how happy customers are with the services of a new start-up and therefore help assess the long term viability of the business.