Raising capital is an exciting and challenging time for most organizations. Knowing how to appeal to investors and what they’re looking for is crucial to successfully securing financial backing. In part one of our Financial Executive Series, Andrew Dunst, Managing Director at Sage Group, and Chris Hill, Chief Strategy Officer at Retina AI, answered attendee-submitted questions about how to attract potential investors, including:
- How do you balance fixed costs vs. ad spend as you scale?
- What are the changing metrics that financial leaders and investors measure today vs. five years ago?
- How can brands utilize their customer and product data to make better business decisions?
- What is an omni-channel strategy that stands out to potential investors and decision makers?
Customer relationships & retention
Our experts jumped right in, speaking from both experience and to more general best practices regarding metrics showing growth and profitability for investors.
“The first [thing] I would look at is the customer relationship that the brand has,” said Andrew Dunst. “When I say customer relationship, it’s [referring to] retention, growth and lifetime revenue, and lifetime value, and truly ascertaining if there’s a sticky, loyal customer that the business attracts.
“In terms of customer relationships, there’s two parts. There’s the first order of understanding how much money you get from a customer immediately, and then the question of how many times they come back and how much more money they spend over a lifetime. We typically measure the life of a customer within three years… Within that shorter window, there’s brand loyalty. It’s important to understand the growth during that first order.”
Understanding retention rate and how it reflects a company’s growth is crucial to investors and decision-makers as they compare businesses and choose the recipients of their investment.
“I think three years is a good barometer,” said Andrew. “If you actually look at public companies that have IPO’ed… they’re using anywhere between a three to five year horizon. When they talk about lifetime revenue, when they talk about lifetime value and customer acquisition cost ratio, they’re typically looking [within that range].”
Leverage your data
Direct to consumer brands often collect more consumer data than other types of businesses, and continue to look for all of the ways to leverage the information they collect. Whether they use this data to optimize their ad spend or to better engage and retain customers, the possibilities for its uses are seemingly endless. Knowing how to utilize this veritable goldmine of information is key to landing investors.
“This is important for anyone who wants to entertain any form of investment from a financial group or strategic buyer at some point in the future,” said Andrew. “[It is crucial to] have a very strong grasp on who your customer is… Being able to answer that question, [what does your core customer look like], easily and with data is going to be extremely important.
“And there are lots of ways you can look at that. There’s obviously simple methodologies like going on Google Analytics and going on Facebook Ads Manager…, but those offer somewhat limited views into your customers… I’ve found that… the clients with the best understanding of their customers are the ones that are leveraging other forms of insights. That can be forms of surveys. I highly suggest [that everyone should] not be afraid to just ask your customers about themselves. Customers are surprisingly very open… Those are extremely valuable insights that aren’t always available through these traditional avenues.”
Knowing your customers and how your metrics reflect your relationships with them are crucial components when seeking funding from private investors. Metrics like CLV help give context to brand-customer relationships and provide tangible projections that can be easily understood and shared with key decision-makers.
Retina’s CLV Academy provides you with a crash course in all things Customer Lifetime Value, including how to calculate it for your business and how it can be used to optimize your current marketing and retention strategies. To learn more about how CLV can improve your business, talk to one of our experts today!
Join us for part two of our Financial Executive Series on January 27 at 11:00am PST as Chris Hill speaks with George Wells, CFO of Quip.