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Detailing Your Financial Model: A Plan for Pitching Investors

By Nick Epson on November 20, 2020

Getting your app off the ground requires a few things to come together and finances arguably top the list – without the funds, hiring an app development agency or team of internal developers and designers simply isn’t possible so you need a solid plan for pitching investors.

As the business plan has fallen out of favor in recent years, most investors are more interested in your pitch deck. Within the pitch deck for investors, you need a detailed outline of several elements if you’re planning on building an app. Here, we’re going to look at the specific financial essentials that your business needs to convey as part of your plan for pitching investors.

Your pitch deck for investors and financial model

A business plan is an important planning asset that used to be a paradigm tool in a pitch for investors. While this is still something entrepreneurs still need to assemble, it’s fallen out of favor where the pitch deck for investors is the preferred way to express information.

Within your pitch deck, you need to pay close attention to how and what you reveal as part of your financial planning strategy. Investors are looking for several KPIs that detail your app’s revenue stream which is instrumental in convincing them to fund your project.

Financial KPIs to include in your pitch deck

Your plan for pitching investors needs to include a handful of indicators that showcase how the app will generate revenue. Make sure you have the following detailed in your pitch deck for investors.

1. LTV and CAC (K factor)

Your K factor is a relation between the lifetime customer value (LTV) and the customer acquisition cost (CAC) – this indicator is critical in conveying how much it costs to procure a paying user versus the projected income they will produce. Some customers will join organically which can be factored against the cost of paid campaigns which is great as this helps reduce the expected CAC though it’s a bit difficult to calculate before an app hits the market. The key here is projecting an understanding of how your costs go down with each acquired customer then factoring the dynamic change against the value each customer produces for your platform.

2. Maintaining the K factor

There is a slight challenge in maintaining the K factor as the CAC drops with every successful conversion of a paying customer. As such, you need to come up with a kind of average at several points of your app’s lifecycle that shows this relation on a timeline. Because this value changes substantially (or should) in the first several months of an app’s launch, you’ll want to clearly detail these costs against the revenue you expect to earn over this time frame then ultimately show where it begins to balance out. In time, you should be able to pinpoint a more static value for the K factor once growth becomes more steady, typically several months after launch.

3. TAM

The total addressable market (TAM) coincides with your K factor and shows the opportunity available for your app. Your TAM should realistically reflect the total audience size that you hope to convert into paying customers.

4. ARPDAU

The average revenue per daily active user (ARPDAU) is the baseline for how much you expect to earn each day from paying customers. When calculated over time, this is what gives you’re the LTV for each paying customer.

5. Type of monetization

There are several ways to monetize your app but one of the most popular is via in-app purchases (IAP) and in-app subscriptions (IAS.) Too, businesses can expect to earn some income by using mobile ads which is a common tactic when offering a freemium model. Just keep in mind, using ads typically doesn’t yield much income. Even though there is a 30% fee for using IAP or IAS on either the App Store or Google Play, this is often the safest and most accessible way to earn income in your app.

6. Long term product vision

Your MVP will almost certainly produce much less income when compared to a fully developed application. You’ll need to have some kind of understanding as to what it will cost to augment your app with new features at which point you can factor this against your earning projections. Generally, your app will increase in potential earnings as it is scaled to do more. Investors want to see growth so make sure that your future developments will serve to improve the app and not set it back.

7. How competitive forces will affect your app

Commonly called Porter’s Five Forces, these elements combine to reveal how competitive forces will influence the adoption of your app. It’s crucial to describe how your product can compete among competitors, both to investors in your audience.

Blue Label Labs can help you attract investors

At Blue Label Labs, we employ the best-of-the-best to build software for everyone from the sole entrepreneur to the Fortune 500 company. We know how to disseminate all the financial nuances to help you make your product appeal to investors. Get in touch with us to learn more about how we can not only build your digital product but help you refine your plan for pitching investors.

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