Do you want to attract investors or simply improve the financial health of your business? Whether you’re a small business owner or working on a startup company, you need to be well versed in the numbers of your business. Today on the Legalpreneur Podcast, I break down what data you need to know to confidently assess the financial health of your company.
Having a grasp on your profit and revenue is essential but investors are looking for a deeper analysis of your company’s spending habits. That means, you need to be acquainted with how much you spend to get your clients, how much they spend and what you can reliably make each month!
The more you understand the financial patterns of your business the faster you can improve your business as a whole. Knowledge is power and even knowing where your business is thriving informs you, the business owner or your investors, on what to further cultivate! If you find that you’re losing money, having the information allows you to take action and turn your loss into a profit!
If you want to learn how to track and manage the finances of your business, listen now!
Key Takeaways:
[1:20] Thank you for supporting the Legalprenur book!
[1:55] Transitioning from a law firm to The Legalpreneur
[2:18] If you aren’t tracking your numbers, you cannot grow your business
[3:30] Monthly recurring revenue is reliable income like subscriptions and memberships
[4:34] To improve your budget, divide annual recurring revenue by 12 for a monthly breakdown
[4:50] Your total contract value is the spending valuation of your each customers
[5:37] The lifetime value of your customer grows every month as you stay in business
[6:15] Knowing your CAC or Customer Acquisition Costs is vital if you’re seeking out investors
[7:52] CHURN rate: Be aware of how many recurring customers you lose in a month
[8:30] Investors want to know WHY you’re losing customers not just that you are losing them
[9:00] The moment you tap into why you’re losing clients you can work towards retaining them
[9:20] The Burn Rate is simply your monthly and annual expenses
[9:40] If you have an app, it’s important to track your active users
[9:55] Month over Month growth rate: Separately tracking revenue versus membership dollars
[10:15] Profit and Revenue are vital to tracking the financial health of your business
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Disclaimer:
The Legalpreneur Podcast is advertising/marketing material. It is not legal advice. Please consult with your attorney on these topics. Copyright Legalpreneur Inc 2022
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Legalpreneur transcript:
Andrea Sager 00:03
Welcome to the Legalpreneur podcast. I’m your host Andrea Sager founder and CEO of Legalpreneur Inc. As a serial entrepreneur and someone that works exclusively with small business owners legally protecting their business. I’m dedicated to covering common legal issues faced by business owners, providing you with the business knowledge you need to catapult your business’s growth, and showing you just how some of the world’s most elite entrepreneurs have handled these legal and business issues themselves. In true attorney fashion, the information in this episode is not legal advice. This is for informational purposes only. And you should always consult with your attorney before implementing any of the information in the show. Hello there, welcome back. Happy Friday. I am so excited for today’s episode. I’ve been just traveling all week long. And so I’m excited to share this episode with you. Because I know I mentioned this, but we’re like hitting it hard this week where we are really raising money. So we officially opened or started pitching investors. I mentioned previously that we’re in an accelerator, and we had our deal day this week. And so all of that has on my mind numbers and numbers that you need to know in the business.
Andrea Sager 01:23
So that’s what today’s episode is about. Before we get into it. If you have not purchased the Legalpreneur book, please go do that I would be so forever grateful. If you went to Amazon, Barnes and Noble online, anywhere you buy books online, you can get the Legalpreneur book. And when you purchase the book in the book, there’s some links in there for you to go check out free resources, additional resources to the book. And that does get you a lot of really cool stuff. So go buy the book, please, please, please. And if you could leave a review whether you buy it on Amazon or Barnes Noble, that would mean the absolute world to me, I actually looked up the statistic that oh, well, it was part of the our investor pitch deck. And so self published authors average 250 book sales, like through the entire lifetime of the book. Well, we already have over 1100 books sold in a little over three weeks, which is incredible. And I’m so freaking grateful to you all for purchasing, supporting, like everything, I’m just so incredibly grateful. Okay, now numbers that you need to know in the business. So whenever we switched in transition from law firm to Legalpreneur, we were a hot mess. And I knew we were a hot mess, I just didn’t know how much of a hot mess. But basically, we weren’t tracking a lot of numbers that we needed to. And that’s why I want to share this with you because I want to make sure that you’re in a position to always be growing. And because if you’re not tracking your numbers, you’re not growing, because if attract numbers, the only thing that can grow, because if you’re not tracking it, how’s it gonna grow. So I want to share some important metrics that you need to know in your business.
Andrea Sager 03:02
Even if you’re just a small business, if you are wanting to go the startup route, either way, whether you just want to stay small, or you want to go the startup route. Either way, you need to be tracking these numbers. So get your pen and paper out or check the show notes. If you’re driving, definitely don’t get your pen and paper out right now. But just come back and listen to this again. That way you can make sure you know what numbers you should be tracking. And these will probably change, I would suggest keeping up with as many of these as possible. But depending on what type of business you have, some of these may or may not apply. And even right now, if you think oh, I just want to stay as a small business, you still need to track your numbers. Because again, unless it’s tracked, it’s never going to grow. Okay, number one is monthly recurring revenue. This is the revenue that you know is coming in every single month, month after month. So subscriptions, memberships This is why a lot of investors or people just love memberships and subscriptions because it’s predictable revenue. You’re not just always hustling for the next one that and that’s honestly part of the reason why I wanted to leave the law firm behind because I was doing trademarks and it was great money don’t get me wrong, but it was always hustling for the next client the next client and we had great word of mouth like we always have a steady stream of clients, but there’s no predictable revenue because it wasn’t recurring. Now the Legalpreneur membership completely different story and that’s why when that started to take off and grow we knew okay, we really have something here and now we need to really go build this out and make this be the next big thing in the legal industry.
Andrea Sager 04:47
So monthly recurring revenue, you always want to track that and then annual recurring revenue which is basically the same thing just annual and if you have annual payments, what I do is just split that up over 12 months that way you know monthly but then you also do you know in The next number is total contract value, or basically, total customer lifetime value, these can be different. But total contract value is knowing the total value of a one time purchase if somebody purchases, and this can be different for every business, of course, depending on what you sell what you do, but the total contract value, it’s no matter if it is a one time charge plus recurring charges. So let’s say you have a recurring membership or a subscription, but there’s a one time fee or a setup fee that goes into that total value. Now, lifetime value, this is the lifetime value of the customer, this should, this number is always changing for us. Because the Legalpreneur membership, the first iterations that started in 2019, I mean, not a lot of people, I mean less than, like 10 people. But we still have some of those people in the legal premium membership today. And so the lifetime value of those customers grows every single month, every single year. So the total lifetime value of all of our customers grows, as we keep saying in business.
Andrea Sager 06:12
The next big one is CAC client acquisition costs CAC, this is going to be really important if you do want to potentially have investors, because they want to know what’s your cost to acquire a new customer, are you and you may have as $0 acquisition cost, which if you want to grow and scale, eventually you will have a cost because word of mouth only goes so far. And with your client acquisition costs, of course, you want that to be as low as possible. But ours has definitely changed over the years, we haven’t spent much on ad dollars. Lately, back in 2021, we were spending a lot but last year 2022 We didn’t spend a lot with the transition. Now we are about to start spending more money. So it’s always changing. And that’s perfectly fine. Investors just want to know, hey, what is your cost to acquire a customer because if it costs you $100 To acquire a customer and their lifetime value is $4,000, that investor is going to be throwing money at you.
Andrea Sager 07:12
Because they’re like, Wow, yeah, let’s spend $500 and get 20,000 in clients. So these are where all the numbers are really helpful. It helps you to know okay, if it cost me $5 To acquire a customer, I know how much I need to spend to start bringing in a million dollars a month cost will obviously change to hit that high. But it’s so gives you a good place to get started. churn. Churn is how many people are you losing month after month. So again, this is for recurring subscriptions. Churn rate is, the lower the churn rate, the better right now I think for the past six months, we’ve been under 5% of our churn rate, which is really good. At one point, we were at, like 80, or 90%. Because with the transition, we just we knew we were going to lose people. But now we’ve stabilized it again. And the thing is, I was really scared going into fundraising when we were at that higher percent. And some investors were like, That’s okay. Like, number one, they want to know that you know, your numbers. And number two, if you know why they’re cool, like they’re fine with it, they just want to know, like, Okay, why is it high? Okay, that’s a good explanation. Like, that’s totally understandable.
Andrea Sager 08:28
You can get it stabilized, and we didn’t get it stabilized. So don’t feel bad if it is a high number. And the thing is what’s so weird will like I mentioned at the beginning, if it’s not tracked, it’s not going to grow. We weren’t tracking our churn. And then investors started asking like, Hey, what’s your churn? And I was like, oh, no, like, we can figure it out. And I was like, Oh, shit, like, this is really high. And so once we realized it was really high, we started working on okay, how can we actually retain these people? How can we keep them on longer? So that’s what I mean. Like, if it’s not tracked, it’s not going to get better. Now, your burn rate, your burn rate is your expenses. You they’ll they’ll ask for your monthly burn rate, your annual burn rate that they just want to know, like, how much are you spending every month? Are you profitable? Are you spending more than you’re bringing in what’s going on? And then if you have an app, they will want to know, like active users. So daily active users, monthly active users, because if you have an app, like if early days of Facebook, tick tock investors wanted to know, Okay, how many people are actually using this every day, every month, month over month growth rate, kind of self explainable, and you’ll want to track this in members or users versus revenue dollars as well. So you want to track that a couple of different ways. And then definitely profits and revenue.
Andrea Sager 09:42
Those are two other big ones. So those are pretty self explainable. There’s more numbers, but those are the big ones that I want to make sure that you’re aware of and that you’re actually addressing and if you have questions you you’re thinking, hey, actually, I do want to think about going the startup route. One thing that you got to figure out is Is do you? Does your company have the market a potential market for it because investors, they really won’t talk to you unless the total addressable market share is over a billion dollars. The legal industry is like a $350 billion industry. So we knew we were okay. But there’s some people that are like, Oh, we want to do this very defined thing in this market, and there’s no market for it. So even though you may have the greatest idea for a project for a startup, if there’s not a market, investors may not even talk to you. So there’s a lot of things you got to consider. And if you have questions, don’t hesitate to reach out. I I’ve learned now being in the startup space, investors are so happy to help. Because some, they realize some people have great ideas, but have no idea how to bring it to market. So reach out, I can always connect you with somebody that is able to help and get you the resources you need to figure out hey, do you really have something here? So I hope this was helpful.
Andrea Sager 10:58
Let me know now that we’re going through the fundraising process again, I am like deep in this stuff. So if you want to hear more of this, let me know if not, we can go back to just regular old small business stuff. Okay, I will see you all Monday. I hope you all have a beautiful weekend. Here at Legalpreneur, we’re committed to providing a supportive legal community. For all business owners. I know how scary the legal stuff can be. If you found this information helpful, I would be so grateful if you could share it with a fellow business owner. And quite frankly, it doesn’t cost anything to rate review or subscribe to the show. Your support helps me reach more listeners, which allows me to support more business owners in their entrepreneurial journey. Have any questions or comments about the show? Feel free to drop me a line on Instagram. I promise I read all of the messages and comments. And if you want to be a guest on the show or know someone that would make a great guest simply fill out our application form and a team member will reach out if we think it’s a good fit. I’ll see you in the next episode.
