Payback Period for the Product

Investors look for strong margins on a startup’s product as it’s a positive indicator of customer interest and a profitable business. 

One way to metric this is the payback period for your product. 

It’s the amount of time it takes for a customer to repay the cost of customer acquisition. 

To calculate, use the marginal gross profit and the sales and marketing expenses.

If you take the quarterly or annual numbers, you should be able to smooth out the minor variations that come from discounts.

Many companies start with a low price and, over time, raise the price. This forces the company to create an efficient go-to-market strategy from the get-go.

As you grow your business, you can raise your prices, so the revenue flows to the bottom line. 

Calculate your payback period and use the metric with investors.

This demonstrates you know your numbers and are improving margins and efficiency over time. 

Thank you for joining us for the Startup Funding Espresso where we help startups and investors connect for funding.

Let’s go startup something today.

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Thank you for joining your host Hall T. Martin with the Startup Funding Espresso — your daily shot of startup funding and investing.

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Hall T Martin is the director of Investor Connect, which is a 501(c)(3) nonprofit dedicated to the education of investors for early-stage funding. All opinions expressed by Hall and podcast guests are solely their own opinions and do not reflect the opinion of Investor Connect. This podcast is for informational purposes only and should not be relied upon for the basis of investment decisions.