So that M in the value equation above can be broken down further:
M = growth rate + % of revenue that is recurring + factor 3, factor 4, etc.
Of course, each factor has a different weight associated with it. How much weight, or if a factor is even considered depends on the investor. As my Dad likes to say, at the end of the day the price of anything is based on what someone is willing to pay for it. This equation simply helps you figure out what the average investor—call it “the market”—is willing to pay for an asset.
Every asset and industry has a different formula. But for technology companies here are some factors investors consider:
Revenue growth rate
Gross margin growth rate
Lifetime value of a customer (LTV)
Customer acquisition cost (CAC)
LTV to CAC ratio
% of revenue that is recurring
% of cash collected upfront
Website traffic and growth rate
Email subscribers and engagement rate
Website conversion rate
Social followings by channel
Brand (difficult to measure)