Metrics & Unit Economics
The numbers that say whether the business works and how long you can last.
Tech Entrepreneur
MVP
Ship the smallest thing someone will use or pay for, and set up the company properly.
- Burn RateHow much cash the company loses each month.
- MRR and ARRMonthly and annual recurring revenue, the headline numbers for subscription businesses.
- RunwayHow many months until the money runs out at the current burn rate.
Product-Market Fit
Get users who stay, pay and tell others; raise your first real round.
Core: start here
- Churn RateThe share of customers or revenue lost in a period.
- Unit EconomicsRevenue and cost per customer or per order, which shows whether growth makes or loses money.
- Gross MarginRevenue minus the direct cost of delivering it, as a share of revenue.
- Customer Lifetime ValueThe gross profit you expect from a customer over the whole relationship.
- Default AliveWhether the company reaches profitability on current growth before the money runs out.
- Customer Acquisition CostWhat it costs, all in, to win one new customer.
3 more product-market fit concepts
- GMVGross merchandise value: the total value transacted on a platform, which is not revenue.
- ARPUAverage revenue per user or account.
- Break-EvenThe point where revenue covers all costs.
Growth
Make acquisition and revenue repeatable; hire, raise and build a board.
Core: start here
- CAC Payback PeriodHow many months of a customer's gross profit it takes to earn back their acquisition cost.
- LTV:CAC RatioCustomer lifetime value compared with acquisition cost, a test of whether growth pays off.
- Net Revenue RetentionRevenue kept from existing customers after churn, downgrades and expansion.
4 more growth concepts
- Bookings, Billings and RevenueThree different numbers for "money from customers", and why mixing them up misleads.
- Burn MultipleCash burned for each dollar of new recurring revenue, a measure of growth efficiency.
- Contribution MarginWhat each sale contributes after variable costs, before fixed costs.
- Logo Churn vs Revenue ChurnLosing customers versus losing revenue, and why they can tell different stories.
Scale
Run the company: organization, moats, new markets and exits. Repeat-founder territory.
- Rule of 40A rule of thumb that growth rate plus profit margin should reach about 40% for a healthy SaaS company.