Here's a good article from Eoghan Jennings, formerly CFO at Xing and now a practicing VC.
He proposes that, to answer this tricky question from an angel or VC, instead of pulling out an excel spreadsheet with projections to year 5, you should focus on 3 key points:
- Revenue per customer: How much money you will get from each customer and for what.
- Cost to acquire a customer: How much will it cost you to acquire a customer.
- Cost to serve a customer: How much it will cost you to provide the service to the customer.
This is a great point. Many startups ignore all three points. Most of the rest focus on the first point and think they have it all answered ("we will charge $40/month, therefore we will make $4000/month from just 100 customers!"). Very few have answers to all three points, particularly the second one.
It is very tempting to suggest that the CAC (Cost to Acquire a Customer) will be zero somehow, but it rarely is. Scalable customer acquisition processes cost money.
