1. Startups

Understanding the "Customer Lifetime Value" Metric in Startup

Learn from Investree Co-founder & CEO Adrian A Gunadi in the #TuesdayStartup session

Building a startup doesn't just rely on metrics traction for business validation. On his journey, founder also need to think about other metrics to ensure business continuity.

One of the key metrics is Customer Lifetime Value (CLV), which is how customers can make a big impact on a startup business.

This metric is often forgotten. Whereas CLV can help startups to measure revenue and investment spent to acquire customers.

What are the other important things that relate to CLV and how do you calculate this metric? For more, see the explanation of the Co-founder and CEO investree Adrian A Gunadi at the following #TuesdayStartup session:

P2P navigation strategy lending

Adrian emphasized the importance of mapping out a navigation strategy. Because the industry fintech highly regulated and closely monitored by the Financial Services Authority (OJK). When it comes to 'burning money' and regulation, these two things are of course very contradictory.

What needs to be emphasized is how Peer-to-Peer (P2P) players lending able to navigate and maintain a balanced position in a highly regulated industry.

In line with business development, startups must maintain a balance while 'burning money' and keeping revenues up.

"The character and challenge of startups is that they have to grow and stairs quickly. That's why this navigation strategy is important because these two points are often associated with 'burning money' and regulation," he said.

B2B market exploration

For some P2P players lending, Business-to-Business (B2B) market is considered more attractive than Business-to-Consumer (B2C). Of course, looking for traction on the B2C segment easier. However, that's not it.

The importance of determining the target market will be closely related to how a startup burns money. For Adrian, B2B becomes more attractive because the cost of customer acquisition is much lower than B2C.

Based on Roland Berger's research in 2016, as quoted by Adrian, the reason for the majority of players fintech in Europe choosing the B2B segment is able to generate maximum revenue.

"From the beginning Investree did not play in the B2C realm because impact B2B to income will be higher. This should be a consideration for startups. After all, as the startup grows, investors will not only see growth, but also profitability," he explained.

On the other hand, the B2B market can also be further explored, such as e-procurement. As a startup that is also entering this realm, Adrian assesses that: e-procurement great potential for P2P lending, especially can push more borrowers.

He gave an example of how Investree acquiring platforme-procurement Mbiz and approached Telkom and Unilever. They are not being targeted as large corporations, but vendors or third parties who handle advertisements and events for this company.

These vendors are mostly on the SME scale that requires clear. With e-procurement, Investree can help Unilever and Telkom vendors to get paid faster.

"We know the average payout procurement the vendor was 90-120 days. There are even 150 days. By expanding the solution into this realm, this can facilitate vendor payments," explained Adrian.

Calculating CLV and timing right stop 'burn money'

It was mentioned earlier that determining the target market will be closely related to how startups determine their money-burning strategy.

If a startup starts talking about Customer Lifetime Value, the question is how long should it take to 'burn money' strategy to acquire customers?

As a P2P actor lending, Adrian has his own CLV calculation, namely the income earned borrowers as long as borrowers at Investree. If you only borrow funds once, it means that CLV is also only done once.

Then, the costs for customer acquisition. Investree takes into account several cost components, ranging from promotion costs, labor costs used to acquire users, to costs processing. 

"The weight of each component is different. However, cost must be calculated up to borrowers provide income to Investree. Once there Opex and salaries to be paid, startups already have to calculate [CLV] because growth no income no sustain," he said.

Generally after the first year, startups need to calculate metrics to ensure that the use of investment to 'burn money' is not higher than the income received.

More Coverage:

"The calculation is CLV divided by [cost] of customer acquisition. In the B2B industry, that is considered good anything above twice. If Investree, average four times because we have a supportive ecosystem, so the numerator is much bigger," said Adrian.

The importance of collaboration

Basically, exclusivity is no longer the main thing in business. Adrian also emphasized the importance of collaborating with core and supporting ecosystems in the P2P industry lending to create more value.

"Instead of applying for a [certain business] license, for example, it's better for us to work together and create value for each other's businesses," he said.

Adrian again gave an example of how Investree faces the challenge of increasing conversions in retail lenders-his. According to him, retail lenders tend to withdraw their investment funds more quickly, especially for seasonal needs such as holidays and holidays.

"Retail lenders That does not sticky yes. If we want to enter Telkom [for e-procurement], Telkom as anchor partner Of course, we need certainty that Investree can support it," he said.

This makes Investree unable tomeasuring sustainability fund and have to pay more. To overcome this, Investree finally approached the institutional lenders to balance the lender segment with retail lenders.

Are you sure to continue this transaction?
processing your transactions....
Transaction Failed
try Again

Sign up for our

Subscribe Newsletter
Are you sure to continue this transaction?
processing your transactions....
Transaction Failed
try Again