Finance — Unit Economics & Financial Models
Know your numbers. Every dollar in, every dollar out, every dollar you'll need.
Unit Economics
| Metric |
Formula |
Healthy Range |
| CAC |
Total acquisition spend / new customers |
Depends on LTV |
| LTV |
ARPU × gross margin × avg lifespan (months) |
LTV > 3× CAC |
| LTV:CAC |
LTV / CAC |
3:1 to 5:1 |
| Payback period |
CAC / (ARPU × gross margin) |
< 12 months |
| Gross margin |
(Revenue - COGS) / Revenue |
> 70% for SaaS |
| Net revenue retention |
(Start MRR + expansion - contraction - churn) / Start MRR |
> 100% |
| Burn multiple |
Net burn / net new ARR |
< 2× good, < 1× great |
Rules:
- If you don't know your CAC, you don't know if your growth is profitable.
- LTV:CAC < 1 means you lose money on every customer. Stop spending.
- Payback period > 18 months = you need a lot of capital to grow.
Burn Rate & Runway
Monthly burn = monthly expenses - monthly revenue
Runway (months) = cash in bank / monthly burn
| Runway |
Action |
| 18+ months |
Comfortable. Invest in growth. |
| 12-18 months |
Start fundraising conversations. |
| 6-12 months |
Cut non-essential spend. Raise urgently. |
| < 6 months |
Survival mode. Cut to break-even or close. |
Track weekly: Cash balance, burn rate, revenue. No surprises.
Revenue Forecasting
Bottom-Up (Preferred)
Monthly revenue = active customers × ARPU
Customer growth = new customers - churned customers
New customers = leads × conversion rate
Top-Down (For Context Only)
TAM × achievable market share = revenue potential
Never forecast top-down to investors. They'll ask how you get there. Bottom-up shows the engine.
Pricing Math
| Question |
How to Answer |
| What should I charge? |
10× the value delivered, or anchor to alternatives |
| Should I raise prices? |
If <5% of prospects mention price as objection, yes |
| Free tier? |
Only if virality/network effects justify it |
| Annual discount? |
15-20% discount for annual. Improves cash flow + retention |
| Per-seat vs usage? |
Per-seat if value scales with people. Usage if value scales with volume. |
Financial Model Template
Build a 24-month model with these tabs:
| Tab |
Contents |
| Revenue |
MRR by cohort, expansion, churn, net new |
| Costs |
People, infra, tools, marketing, G&A |
| Headcount |
By function, with start dates and salaries |
| Cash |
Opening balance, revenue, expenses, closing balance, runway |
| Metrics |
CAC, LTV, burn multiple, gross margin, NRR |
Rules:
- Separate assumptions from calculations. Every input in one place.
- Scenario model: base, optimistic, pessimistic. Share base with investors.
- Update monthly with actuals vs forecast. Calibrate assumptions.
Common Mistakes
| Mistake |
Reality |
| Ignoring COGS |
SaaS COGS = hosting + support + payment processing |
| Counting revenue before collection |
Cash ≠ bookings ≠ revenue. Know the difference. |
| Hiring ahead of revenue |
Every hire adds ~12 months of burn commitment |
| No scenario planning |
"Plan for the best, model for the worst" |
| Forgetting payment processing fees |
Stripe takes 2.9% + 30¢. At scale, this matters. |
1---2name: finance3description: (forwward) Models unit economics, burn rate, projections, pricing, and revenue forecasting with startup-specific frameworks. Triggers on CAC, LTV, burn rate, runway, pricing analysis, financial models, or any CFO-level financial question.4---56# Finance — Unit Economics & Financial Models78Know your numbers. Every dollar in, every dollar out, every dollar you'll need.910## Unit Economics1112| Metric | Formula | Healthy Range |13|--------|---------|---------------|14| CAC | Total acquisition spend / new customers | Depends on LTV |15| LTV | ARPU × gross margin × avg lifespan (months) | LTV > 3× CAC |16| LTV:CAC | LTV / CAC | 3:1 to 5:1 |17| Payback period | CAC / (ARPU × gross margin) | < 12 months |18| Gross margin | (Revenue - COGS) / Revenue | > 70% for SaaS |19| Net revenue retention | (Start MRR + expansion - contraction - churn) / Start MRR | > 100% |20| Burn multiple | Net burn / net new ARR | < 2× good, < 1× great |2122**Rules:**23- If you don't know your CAC, you don't know if your growth is profitable.24- LTV:CAC < 1 means you lose money on every customer. Stop spending.25- Payback period > 18 months = you need a lot of capital to grow.2627## Burn Rate & Runway2829```30Monthly burn = monthly expenses - monthly revenue31Runway (months) = cash in bank / monthly burn32```3334| Runway | Action |35|--------|--------|36| 18+ months | Comfortable. Invest in growth. |37| 12-18 months | Start fundraising conversations. |38| 6-12 months | Cut non-essential spend. Raise urgently. |39| < 6 months | Survival mode. Cut to break-even or close. |4041**Track weekly:** Cash balance, burn rate, revenue. No surprises.4243## Revenue Forecasting4445### Bottom-Up (Preferred)46```47Monthly revenue = active customers × ARPU48Customer growth = new customers - churned customers49New customers = leads × conversion rate50```5152### Top-Down (For Context Only)53```54TAM × achievable market share = revenue potential55```5657**Never forecast top-down to investors.** They'll ask how you get there. Bottom-up shows the engine.5859## Pricing Math6061| Question | How to Answer |62|----------|---------------|63| What should I charge? | 10× the value delivered, or anchor to alternatives |64| Should I raise prices? | If <5% of prospects mention price as objection, yes |65| Free tier? | Only if virality/network effects justify it |66| Annual discount? | 15-20% discount for annual. Improves cash flow + retention |67| Per-seat vs usage? | Per-seat if value scales with people. Usage if value scales with volume. |6869## Financial Model Template7071Build a 24-month model with these tabs:7273| Tab | Contents |74|-----|----------|75| Revenue | MRR by cohort, expansion, churn, net new |76| Costs | People, infra, tools, marketing, G&A |77| Headcount | By function, with start dates and salaries |78| Cash | Opening balance, revenue, expenses, closing balance, runway |79| Metrics | CAC, LTV, burn multiple, gross margin, NRR |8081**Rules:**82- Separate assumptions from calculations. Every input in one place.83- Scenario model: base, optimistic, pessimistic. Share base with investors.84- Update monthly with actuals vs forecast. Calibrate assumptions.8586## Common Mistakes8788| Mistake | Reality |89|---------|---------|90| Ignoring COGS | SaaS COGS = hosting + support + payment processing |91| Counting revenue before collection | Cash ≠ bookings ≠ revenue. Know the difference. |92| Hiring ahead of revenue | Every hire adds ~12 months of burn commitment |93| No scenario planning | "Plan for the best, model for the worst" |94| Forgetting payment processing fees | Stripe takes 2.9% + 30¢. At scale, this matters. |
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