Building CAUSL - Episode 6: Revenue Targets
Companies usually talk about two types of success targets. "Regular" and "Stretch". As a startup, there is actually one more. I call it survival target.
Pricing and Revenue Targets
Earlier this week, I ran a brief survey asking people what topics they wanted to hear about in this week’s newsletter. The winner was "Pricing and Revenue Targets" followed closely by "Lead Generation Strategy". Both are definitely interesting topics and topics I, myself, would want to hear about as an outsider. I’ll cover lead generation next week.
So… Pricing and Revenue?
How do I talk about pricing and revenue targets without giving away too much information. Revenue targets is not a topic I need to be too secretive about, so I'll start there.
Pricing, on the other hand, is the industry’s most closely guarded secret. I haven’t decided if I’m going to talk about it too openly. Let me see how this post progresses and I’ll decide on the fly.
Revenue Target
Initially this was a finger in the air job and I arbitrarily set my revenue target to £150k. There was no real rhyme or reason to this, it just seemed like a good number and I was trying not to be delusional by setting it to something outrageous like £1m – although that would be nice.
It was during one of my regular calls with David Mannheim, where he made me realise that my target was a bit low and frankly, unambitious and uninspiring. After some calls with a few more founders, I realised that my target should be nearly double that for the first year… at least! So, I reset this target. My new target is £350k. There was still no real maths behind this. Early indications suggest that this is a good target - challenging but achievable.
Stretch Target
The first time I openly talked about my plan to build and scale a company with a goal to exit was with Stephen Kenwright. During our call he told me that defining my long-term goals is an important factor in how I make decisions today. Honestly, this has been one of the single best pieces of advice I’ve been given so far. Saying it aloud made me realise that I should have a stretch target. Something that me pushes me well outside of my comfort zone. So, I set one. My stretch target is £500k. I call it a stretch target, but it’s so much more. It reflects my aspirations of building a profitable company, growing a team, being a CEO and having a lot of happy clients. It's also nice to be able to say "half a million".
Survival Target
If Stephen and David helped me plan for success, Philip Stelter kept me grounded. Phil has become something of an advisor. During one of our calls he advised me to perform a basic maths exercise – I love things that are grounded in maths. The purpose of the exercise was to determine, “what is the minimum amount of revenue we’d need to survive?”. This was the first time we did some proper number crunching.
In hindsight, this exercise should have been a no brainer but I hadn’t done it. I spent so long focusing on the success targets, I didn’t even think about survival targets. I can’t stress enough the importance of this exercise to anyone starting their own company. You might not hit your success targets, but you better hit your survival target. Success targets are not based on anything, especially when you have no historical data, they are an indication of where you WANT to be; survival targets are an indication of where you NEED to be to trade for one more year.
Setting Survival Targets
The way we approached setting our survival target was by looking at our expenditures - bills, mortgages, living costs and so on. The sum of these was the basic income we’d need to survive. This became our survival target. I won’t share what the exact number is as it’s personal to us. I will share the plan for how we intend to hit that number though.
Knowing the survival target and using some preliminary data points and estimated conversions, we worked out how many clients we needed per quarter to hit this target. Below is the simplified unit economic tree of our revenue model. There are a lot more nuances to this, especially around contract value, retainers, project sizes and retention, but you get the idea of what the basic number crunching looked like.
Two Months In
I won't share our exact financial situation (yet) but what I can tell you is that with our first two clients, we’ll be approximately 30% of the way to hitting our survival target. This keeps us in the running for survival. It goes without saying, but obviously we want to smash through this barrier.
I hope this piece along with the others so far helps you put more of the puzzle together and start getting a picture of what it's like building a company like CAUSL. It's fun, but it's definitely not easy. If you liked this episode, please do hit the like button or better yet, leave a comment.
Credits
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Post Credits Scene
Oh... I didn't talk about pricing. You'll just have to stay tuned ;)
CAUSL will be back.