Market Penetration
Market penetration describes the the percentage of a given market that uses a startup’s product or service, which can be calculated by dividing current customers by total potential customers. This metric helps evaluate both current market position and growth potential, often analyzed alongside market share. Go-to-market strategies aimed at growing market penetration typically focus on expanding usage within existing market segments (as opposed to pursuing new markets).
Market Share
Market share is the percentage of total market revenue or unit sales captured by a company. Simply put, market share describes how big of a slice of the market that a company has acquired. This metric can be measured in terms of revenue, unit sales, or user base, depending on industry and business model. In pitch decks for Series A and B startups, market share analysis typically considers both current position and trends over time (ie. see LinkedIn’s pitch deck for an example of this), providing insights into how effective growth strategies have been.
Customer Acquisition Cost (CAC)
Customer Acquisition Cost is the total / average cost associated with acquiring a new customer, including marketing, sales, and related overhead cost. In practice, CAC describes how much a company spends to get one new customer. The simplest / easiest way to calculate CAC is by dividing total acquisition spend (ie. advertising, marketing, and sales expenditures) by the number of new customers acquired in a given period. This metric is typically analyzed alongside Customer Lifetime Value (LTV) to evaluate the efficiency of marketing campaigns or channels and the sustainability of the overall business model. Sophisticated CAC analysis often includes channel-specific metrics and payback period calculations.
Lifetime Value (LTV)
Lifetime Value represents the total revenue expected from a customer over the entire “lifetime” of their relationship with a business. Think of it as the total sales value of an average customer for a given business. LTV is typically calculated by considering factors like average revenue per user, churn rate, and gross margins. In particular, the LTV/CAC ratio is a crucial metric for investors, with a ratio of 3:1 or higher generally considered healthy for software & SaaS businesses. More sophisticated LTV models may factor in additional variables such as expansion revenue and referral value.
Product-Market Fit
Product-Market Fit (PMF), in the simplest terms, describes when you’ve built something that people want and are willing to pay for. More accurately, PMF represents the degree to which a product satisfies strong market demand. PMF is typically measured via customer satisfaction metrics, net revenue retention, and organic growth rates. Achieving PMF is a crucial milestone before scaling go-to-market efforts — typically Series A investors are looking for startups with proven product-market fit.
Competitive Analysis
No pitch deck or data room is complete without including competitive analysis. Investors are looking for founders with an in-depth understanding of competitors’ strengths, weaknesses, strategies, and positioning (and how their startup will stand out and thrive in said competitive landscape). Competitive analysis typically includes direct and indirect competitors, market positioning, product capabilities, pricing strategies, and competitive moats. Every startup has competitors: even “category creator” products that pioneer new markets are competing against the existing ‘patchwork’ solutions or manual alternatives that prospective customers are currently using to meet their needs. Competitive analysis can be supplemented by incorporating data-driven insights about customer preferences, technological trends, and potential market disruptions.
Market Segmentation
Market segmentation is the process of dividing a broad market into distinct groups of customers with similar needs, behaviors, or characteristics. In practice, it’s how companies identify and target specific customer groups (often referred to as “verticals”). Characterizing market segmentation typically considers factors like customer demographics, buying behavior and patterns, as well as common preferences and pain points. Analyzing market segmentation informs product development, pricing strategies, and go-to-market approaches to help early-stage startups optimize messaging for different customer segments.
