Master Your Numbers When Pitching to Investors
As a Black woman entrepreneur, it’s crucial to confidently navigate your numbers when pitching to investors. I’ve seen too many talented Black women CEOs lose momentum in their pitch due to a lack of confidence when discussing financial metrics. You might nail the product and customer overview, but when it comes to the numbers, the confidence fades.
The issue often lies in either avoiding the numbers altogether or struggling to make them coherent. If the math isn’t adding up, it’s hard to gain the trust of investors.
Too often, founders think these numbers are just for the accountant to plug into the pitch deck. But that’s the wrong approach. You need to understand these numbers first and foremost to know if you have a strong business case. If you can’t make sense of your own metrics, how can you convince an investor? It’s up to you to learn what these metrics are, how to calculate them, and how they reflect your business’s profitability. It might seem complex, but once you grasp these concepts, your numbers will guide your strategy. Below, I break down the core metrics most commonly discussed in pitch presentations.
Customer Acquisition Cost (CAC)
What This Number Is:
CAC is what it costs you to attract a new customer. So basically it includes marketing expenses, sales expenses, and any other costs incurred to bring in new customers. It can be calculated at the unit level – so for one hypothetical customer, or at the company level (overall).
How It Helps You Make a Business Case:
CAC helps you understand if you’re getting a return on investment for your marketing and sales strategies. A lower CAC means that you’ve figured out a cost-effective way to bring in new customers, which is attractive to investors as it suggests you can scale your business cost-effectively. When CAC is too high, it can mean that you are spending more to get a customer than you actually make from that customer.
What You Want to Be Able to Say About This Number: “I know exactly how much it costs to acquire each customer, and our strategies to reduce CAC are yielding positive results.”
How You Track or Calculate the Number: CAC = (Total Sales and Marketing Expenses) / (Number of New Customers Acquired)
Typical Questions from Investors About This Number:
- How have you been able to lower your CAC over time?
- What strategies are you using to maintain or reduce your CAC?
- How does your CAC compare to industry standards?
Cost of Goods Sold (COGS)
What This Number Is:
COGS is basically how much it costs to produce the goods sold by your company. This is usually going to include ingredients, raw materials, supplies and labor needed to produce the product or service. (Side note: Service based businesses usually use the term COS or Cost of Services).
How It Helps You Make a Business Case:
COGS is essential for calculating gross profit and understanding production costs are reasonable and allow you to profit. For example, it doesn’t matter if you charge $2 for a product if it costs you $4 to produce it. So you want a lower COGS because it can lead to a higher profit margin, it means you are taking home more and your business is more attractive to investors. When COGS is too high, it means production will be expensive – which makes profit, growth and scaling difficult.
What You Want to Be Able to Say About This Number: “Our COGS is optimized, and we have strategies in place to maintain or reduce it while maintaining product quality.”
How You Track or Calculate the Number: COGS = (Beginning Inventory + Direct Labor + Manufacturing Overhead + Purchases During the Period) – Ending Inventory
Typical Questions from Investors About This Number:
- What steps are you taking to reduce your COGS?
- How does your COGS compare to your competitors?
- Are there any risks associated with your current COGS?
Cost Per Unit (CPU)
What This Number Is: CPU is the cost to produce a single unit of your product, including both fixed and variable costs. So it’s basically the same expenses involved in calculating COGS but for one product. (Ex: one jar of pickles, one coat, one cake.)
How It Helps You Make a Business Case: CPU helps you set pricing strategies and understand the scalability of your production process. In other words, once you figure out if just one cake is cost effective to produce, it can tell you a lot about what the company profit will look like when you’re selling thousands of cakes. Lower CPU improves profit margins and competitive pricing.
What You Want to Be Able to Say About This Number: “We have a streamlined production process that keeps our CPU low, allowing us to offer competitive pricing and maintain healthy margins.”
How You Track or Calculate the Number: CPU = Total Production Costs / Number of Units Produced
Typical Questions from Investors About This Number:
- What factors have the most impact on your CPU?
- How do you plan to reduce your CPU as you scale?
- How sensitive is your CPU to changes in production volume?
Profit Margin
What This Number Is:
This margin is what the whole game of business centers around. Profit margin is the percentage of revenue that exceeds the costs of production. It indicates the profitability of your business.
How It Helps You Make a Business Case: A strong profit margin suggests that your business is efficient and profitable, which is crucial for attracting investors.
What You Want to Be Able to Say About This Number: “Our profit margin is strong and improving, indicating our business model is both efficient and scalable.”
How You Track or Calculate the Number: Profit Margin = (Net Income / Revenue) x 100
Typical Questions from Investors About This Number:
- What is your current profit margin, and how has it changed over time?
- What are your strategies for improving your profit margin?
- How does your profit margin compare to industry benchmarks?
Lifetime Value (LTV)
What This Number Is: LTV represents the total revenue you can expect from a customer throughout their relationship with your business.
How It Helps You Make a Business Case: LTV helps you understand the long-term value of your customers, showing whether your customer acquisition strategies are profitable over time.
What You Want to Be Able to Say About This Number: “Our LTV is high, showing that our customers are loyal and generate significant long-term revenue for our business.”
How You Track or Calculate the Number: LTV = (Average Purchase Value x Number of Purchases per Year x Customer Lifespan)
Typical Questions from Investors About This Number:
- What strategies are you using to increase your LTV?
- How do you ensure customer retention and loyalty?
- How does your LTV compare to your CAC?
Monthly Recurring Revenue (MRR)
What This Number Is: MRR is the predictable revenue your business expects to receive every month from active subscriptions or contracts.
How It Helps You Make a Business Case: MRR provides stability and predictability in your revenue stream, which is highly attractive to investors.
What You Want to Be Able to Say About This Number: “Our MRR is steadily increasing, showcasing our ability to attract and retain customers, ensuring a stable and predictable revenue stream.”
How You Track or Calculate the Number: MRR = Total Monthly Revenue from Subscriptions or Contracts
Typical Questions from Investors About This Number:
- What is your current MRR, and how has it changed over time?
- What strategies do you have in place to increase MRR?
- How does your MRR growth compare to industry standards?
Wanna geek out on CAC and LTV with us and get these numbers right? Join our Data Lab or check out the Sistahbiz book study on Growth Units to dive into this work with support and community. It’s crucial to get this business math right if you want to grow and succeed, Sis. You’re not alone. Do the work, and you can build a strong business case and gain investor confidence. Sistahbiz helps Black women CEOs calculate, monitor, and analyze these metrics, so you’re always ready to impress investors and drive your business forward. Try our network for free for 14 days and start being a data-driven boss today.