7 Financial Metrics for Planning Your Exit Strategy, Part 2
In Part 1, we looked at how operational and free cash flow, net profit margins, and your debt-to-equity ratio ratio can change the impression buyers have on your business and its long-term stability.
To follow that up, we’ll cover three additional considerations: revenue growth rate, customer acquisition cost (CAC) with lifetime value (LTV), and earnings before interest, tax, depreciation, and amortization (EBITDA)
Together, these financial metrics for planning your exit strategy will present a transparent, holistic picture of your business’s fiscal circumstances.
Revenue Growth Rate
Revenue growth rate measures the percentage increase in your company’s revenue over a specific period, serving as a barometer of market positioning and business momentum. Buyers use it as a forecasting tool to evaluate whether past growth will be sustainable in the future.
Why Revenue Growth Rate Matters to Buyers
A strong, steady growth rate signals that your business has found a way to capture demand and scale even in competitive markets.
However, be prepared for buyers to also dig deeper into what drives that growth. Is it fueled by sustainable strategies like expanding into new markets or optimizing pricing? Or is it the result of short-term tactics such as heavy discounting or one-time events? If you want to indicate the former rather than the latter, it’ll be important to demonstrate a history of consistent revenue growth, rather than short term examples that could work against you.
Revenue Growth Rate Formula
Revenue Growth Rate (%) = ((Previous Period Revenue Current Period Revenue−Previous Period Revenue) ÷ (Previous Period Revenue)) x 100
When comparing the requested periods, you find that your business earned:
- $600,000 in revenue in the current year
- $500,000 in revenue the previous year
Revenue Growth Rate (%) = ((600,000 − 500,0000) ÷ (500,000)) x 100 = 20%
Buyers will then compare this number to the revenue growth rate industry benchmarks, but, in general, 15-45% is considered normal for the year-over-year calculation.
Customer Acquisition Cost (CAC) and Lifetime Value (LTV)
CAC measures how much you’re spending to turn potential customers into paying customers, accounting for the entire acquisition process—from lead-generating marketing campaigns to the final sale.
However, buyers won’t look at the CAC out of context. They’ll compare it to the LTV, or the total revenue a customer generates over the lifetime of their relationship with your business.
Why Customer Acquisition Cost and Lifetime Value Matter to Buyers
Buyers have to look at both of these metrics because, when presented together, are proof of a profitable, sustainable business model or of a growth strategy that just isn’t working. A high LTV relative to CAC suggests your business has streamlined the entire sales process, and has a product or service that retains customers or generates significant profit from a single purchase.
On the other hand, if CAC edges too close to LTV—or even exceeds it—buyers will interpret this as a sign that you’ve relied on expensive, short-term tactics to drive growth rather than building long-term customer relationships. That means more work for the buyer to start growing a loyal customer base upon the sale.
Formula for Customer Acquisition Cost
CAC = Number of New Customers Acquired ÷ Total Sales and Marketing Expenses
Your business reports:
- $100,000 in sales and marketing expenses
- 500 new customers acquired
CAC = 500 ÷ 100,000 = $200
Your business spends $200 to acquire each new customer.
Formula for CAC to LTV Ratio
CAC-to-LTV Ratio = (LTV ÷ CAC)
Let’s compare two scenarios to show why you can’t look at either metric alone without missing out on important context:
Example 1: High CAC, High LTV
- Your business spends heavily on acquiring new customers, with a CAC of $800.
- Your customers generate an average LTV of $8,000:
CAC-to-LTV Ratio = 8,000 ÷ 800 = 10:1
In this case, the seemingly high CAC is well-justified because it brings in high returns.
Example 2: Low CAC, Low LTV
- Your business spends just $50 to acquire a customer
- Your customers generate an average LTV of $120
CAC-to-LTV Ratio = 120 ÷ 50 = 2.4:1
Despite the low acquisition cost, the return on investment is relatively weak. Buyers would interpret this as a business that needs improvements in customer retention or cross-selling to make customer relationships more valuable.
Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA)
One of the most widely used measures of business profitability is EBITDA, which strips away the effects of financing and accounting decisions, instead focusing solely on core operations. A simpler definition is that it explains how efficiently your business generates earnings.
In business valuation, EBITDA is used to determine the enterprise value multiples based on several factors:
- Industry standards: Different industries naturally command different EBITDA multiples– The average for advertising and marketing is currently 12.62, compared to life and health insurance at 6.93.
- Market conditions: During economic booms, multiples tend to rise because buyers are competing for the highest value assets. Downturns cause the opposite effect, with conservative buyers pushing for lower multiples.
- The business for sale: When a business has a particular value-added characteristic, like a unique competitive advantage with proprietary technology or recurring revenue streams, they’re often able to attract higher multiples than industry peers with a similar EBITDA.
Why EBITDA Matters to Buyers
EBITDA brings your finances back to basics. The higher the calculation, the more reassured the buyer feels that your business can generate consistent earnings, even in a volatile economy. It signals stability and scalability, qualities that make your company a safer, more appealing investment.
Conversely, a low EBITDA raises red flags about potential risks from inefficiencies, which calls into question the buyer’s ability to sustain long-term profitability.
Formula for EBITDA
EBITDA= Net Income + Interest + Taxes + Depreciation + Amortization
Your business reports:
- Net income of $250,000
- Interest expense of $20,000
- Taxes of $30,000
- Depreciation of $10,000
- Amortization of $15,000
EBITDA = 250,000 + 20,000 + 30,000 + 10,000 + 15,000 = $325,000
You can determine your business’s potential sale value by multiplying that number by industry-standard multiples. So, the aforementioned advertising and marketing business with this EBITDA would have an enterprise value of $4,101,500, while the life and health insurance company would be valued at $2,252,250.
Evaluating Your Metrics for a Stronger Exit
We’re only two steps away from wrapping up our series on updating your business exit strategy in 2025! Next, we’ll explore strategies for increasing your business value and planning for the unexpected.
Take a closer look at your financial metrics. Do they reflect a strong, scalable business, or is there work to be done? Certified Exit Planning Advisor Lori Moen can help you identify opportunities to strengthen your metrics and position your business for a successful transition. Schedule your consultation today!