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How many customers do you need to break even? – Customers translate into profit
Here’s what they mean…
We have covered break even before.
The investor means this quite literally. How many customers do you need to break even? assuming an average ARPU and your cost base.
The exact number is not really the point, it’s the order of magnitude. Is it a million customers or is it 100?
If you need a massive, unrealistic number than you may have issues. VCs will do an analysis of what it takes you to be viable. I know this to be true.
The scale of business you need to build to break even has implications on how much you need to fundraise. If you need a million customers and your acquisition cost is $10, then you need to raise $10m just for paid channels! So you are talking $30m easy to break even. Also, how large is the market and how fast is it growing? If you need a million customers and the market size is currently 500k, then the market better be growing really fast or you simply don’t have a big enough market.
So when you are reviewing your model, run this analysis and learn the number. It’s called doing a break even analysis.
What you need to say
“According to our base case, we break even in January 2019. At that point, we will have 1200 customers, and be doing $1.2 million ARR. Of course, if we are more aggressive this will change as our cost base will be front-loaded to facilitate the growth.”
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