Hi, welcome back. When I talk about financial statements or financial analysis, when I'm talking about corporate entrepreneurship, I like to talk most about financial metrics. And the reason I like to talk about financial metrics is because, they are more meaningful, I think, to a corporate entrepreneur put into an investment decision than having a balance sheet, which really doesn't make a lot of sense from a corporate entrepreneurship perspective. Okay so let's talk about what are the key metrics that you should be prepared to first of all calculate and talk about in your pitching your idea to your corporate funding source. Well, a key one is revenue right, revenue growth, I mean let's face it, everybody's looking for ways to increase revenue. And hopefully if they're investing money, you can demonstrate there's a growth of revenue involved. And then the next part of that would be the net contribution of that revenue to the bottom line, that I said earlier. Revenue less the cost of goods sold is essentially your contribution to the margin and that kind of shows the investor, the internal investor, what is the minimum capital you need to be self sustaining, that contribution to revenue. Those are key metrics. Okay, and then the contribution margin is what's the per unit profitability of your product or service, okay, the total revenues less the variable cost of the production of that product. That's a key metric, okay? And then the question is How am I going to get customers? Okay, how am I going to acquire customers? Am I going to up sell my current customers and will that be relatively incentive? Am I developing a new product? Am I going to a new market], so I would probably have to go assimilate new customers? And you want to figure out if you can What is my cost of acquiring a new customer? And how long does it take to pay back? How long does it take for my project to pay back the cost of acquiring new customers? That'll be the key metric. Then finally, if you look at what we call customer acquisition cost. And then you look at the value, the long term value, in this slide it says CAC is customer acquisition cost, LTV is the long-term value. That means, what's the total long-term value of the product that you're developing, okay? Obviously, the long term value of the product better be bigger than That will be larger than the customer acquisition cost. And time will not one or two, a rule of thumb is that the long term value of your product should be in the range of three times The customer acquisition cost to be kind of an interesting product from an investment standpoint, interesting from an investment standpoint. Now, let's look at another metric. If you're selling customers, people are signing up for a service online. Okay? One of the things you're going to want to understand is what's your churn rate? And the churn rate means that, a churn basically means how many people, how many customers that sign up for the product you drop off the products every month. Okay? And that happens to every company, it happens to everybody, the big companies and the small companies. So you have to determine what that is. The data suggests that if you're talking about a typical SaaS company, SaaS meaning software as a service. The average churn is 3%. That's basically the churn rate, the monthly churn rate, okay, the monthly churn rate. So if you figure that out, what that means is if the churn rate is 3% a month and 12 months of the year it's 36%. That means that the average customer turnover is every two and a half to three years. It may be meaningful to you, based upon your long term value of the company, of the product. And then you want to know what additional headcount costs if any are required for this project okay. As I have said in earlier lectures, particularly technology companies, their headcount cost of most companies Technology companies can be anywhere from 50% to 80% of the total spend. So it's almost always the largest single expense in most quote, unquote, startup companies. Whether that startup company is a separate company outside the corporation or it's inside the corporation and you as a corporate entrepreneur are building. So, that number may be less significant because you're a corporation, you have a lot of resources at your disposal. But it's still important to know. So, again, the sale people that are going to be selling a product, will not understand how does this impact on my quota And how easy will it be for me to achieve the incremental quota that required, we're going to put another quota on the sales teams related to this new product or service. So they want to understand what is the impact and How does it impact on my ability to sell? That could be two different things. If it's a new product it's going to be a much more difficult process. Because you're going to be going out for... well not necessarily a new product, but if you don't have the ability to up sell the current customer base it's much more difficult To achieve a new quota because you are kind of starting from 0 and if you've acquired a certain amount of marketing strength to promote your product and market awareness you want to know what that is ok. Again in the corporate environment they may have A flat marginal budget where they advertise on behalf of all the organizations so it may not be as quite as important, but it's important. And then finally, revenue employee, revenue per employee is more of a metric used by early stage technology companies that are not supported by a corporate group. It's useful for you to be able to determine, here's the team of people I have developed, this new project and here's the revenue that I've created for it, how much revenue am I generating per employee that you're investing in. How does that compare to the corporation over all of revenue growth. That'd be useful information to have at your daily business. So e-metrics are important. They probably are the most important aspect of talking to a corporate funding source about getting your project approved. Much more important than a more traditional balance sheet, income statement, cashflow statement.
