If you’ve built something worth pitching – something more than a fancy hobby with a login screen – you need to know your numbers. Not “I’ll get back to you” know them, know them like you know your co-founder’s coffee order.
I have seen too many founders who are smart, legit, and ambitious get ghosted by investors simply because they couldn’t walk through their unit economics.
It’s not personal. It’s math.
So here it is: Numbers that will either carry your pitch or quietly kill it, explained by someone who has sat through them time and time again, with examples, and no fluff.
Here’s what we’ll cover:
3. CAC (Customer Acquisition Cost): How Much Does it Cost to Convince Someone to Pay You?
4. Customer Lifetime Value (LTV): How Much is One Customer Worth Over Time?
5. Gross Profit Margin: What Do You Actually Keep After Delivering Your Service or Product?
9. Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA)
10. Valuation: What’s Your Company Worth – and What Supports that Number?
1. Burn Rate: How Fast Are You Lighting Your Cash on Fire?
Burn rate is the speed at which a startup is spending its cash. Basically, how fast are you consuming your venture capital to cover over overhead until you generate positive cash flow from operations? It’s a measure of negative cash flow.
If you’re spending $80K a month to keep the lights on (payroll, AWS, your workspace snacks, and so on), that’s how much cash you’re burning each month. But many startups calculate two different burn rates: gross burn (how much cash you’re spending, ignoring any revenue), and net burn (monthly operating experiences minus any cash you take in each month). Net burn basically measures how fast your cash is shrinking, and it’s often what investors care more about.
Real talk: investors want to know when the plane runs out of fuel before they board. Thats what this metric helps them understand – how fast you’re going through the money you have.
At some point, if a company has a high burn rate, it has to reduce structural costs by cutting expenditures on labor, rent, marketing, and/or capital equipment. The burn rate is an important metric for any company, but it’s particularly important for startups that aren’t yet generating revenue. It tells managers and investors how fast the company is spending its capital
Watch this video to understand more about Burn Rate.
2. Cash Runway: How Long Before You Run Out of Cash?
Cash runway tells how long a startup can continue to operate at a certain burn rate until they are out of cash. For startups without revenue, you can calculate this by dividing available cash by total monthly expenses. Available cash is defined as the funds that are accessible now or can be accessed at a later time relatively quickly to pay for expenses.
When you’re making this calculation, it’s important to not include any anticipated fundraising and other uncertain sources of capital.
Actively managing cash runway is crucial for startup survival and growth. With a significant percentage of startups failing due to cash shortages, founders need to closely monitor their cash burn rate and runway.
The length of runway needed varies based on factors including the startup’s stage, industry, and milestones. In tighter venture capital markets, startups should plan for longer runways and consider strategies such as increasing revenue, reducing expenses, or raising additional capital. Regularly updating financial models and understanding metrics like the burn multiple can help you make informed decisions to extend your runway and align your growth ambitions with financial stability.
While it’s a simple calculation at face value, a cash runway analysis is nuanced and unique to every startup and can be impacted by a multitude of circumstances.
To calculate this, you just divide your total cash reserves by the amount you’re spending each month. Say you’ve got $250K in the bank and you’re spending $50K/month: 250/50 = 5. So you’ve got 5 months. Not 6. Not “it depends” – 5. That’s your runway.
Investors ask “If we don’t fund you, how long do you survive?” If you don’t know that answer, you’re not fundraising – you’re freelancing with hope.
Here is a video that explains cash runway with real world examples and the thought process behind it.
And here’s an article from JP Morgan breaking down cash runway, its importance, and what can you to to maximize it.
Burn Rate vs Runway
So, let’s just make this super clear: burn rate is simply how much you spend each month to run your operation – that is, your negative cash flow. Runway is how many months there are left before your bank balance reaches zero.
So again, why do these numbers matter?
Because burn rate tells you how quickly you need to find more revenue or funding. Runway tells investors whether you are going to still be around by the time they finish their due diligence.
They are not just numbers. They are your survival clock.
Smart founders utilize these metrics to:
Trim the fat without cutting muscle – know what to focus on and what to let go
Forecast hiring/fundraising deadlines – know the process and prep for it. Numbers don’t line but they sure can get you ghosted.
Assure investors you’re not going to come knocking again in 90 days – establishing credibility is key, make an investor realize its not just a hobby, you mean business.
The goal: Extend runway without stalling momentum. Keep the plane in the air, while building a bigger engine.
3. CAC (Customer Acquisition Cost): How Much Does it Cost to Convince Someone to Pay You?
Cost of acquisition refers to the entire cost that a business incurs to obtain a new client or asset. This includes the purchase price, shipping, installation, and marketing costs for the asset acquired. CAC takes into account the total expenditure on all marketing, advertising, and sales for the period, which you then divide by the number of new customers for the period.
In this case, all the upfront costs incurred to purchase a business asset, including equipment or inventory, are part of the cost of acquisition. Cost of acquisition includes:
Purchase price of the item
Costs to ship it to its point of use
Costs to install the item
Costs to get it up and running (in the case of equipment) or ready for sale (in the case of inventory) condition
Marketing sales teams salaries
All sales and consulting marketing expenses geared to get new consumers should all be included
Formula:
CAC = (Total Marketing + Sales Expenses) / Number of New Customers Acquired
Say you spent $10K last month across paid ads, content creation, outbound campaigns, and sales team costs. You onboarded 100 new customers, so your CAC = $100.
But is that good?
It depends on:
Your pricing model (one-time vs. subscription)
Your margin (how much of that sale do you actually keep?)
Your customer retention (how long do they stick around?)
If you’re selling a $20 product once, a $100 CAC is a non-starter. But if that customer brings in $50/month for 12 months, you’ve got a solid return.
Watch for red flags:
CAC is rising but revenue isn’t
You’re overly reliant on paid ads (especially if organic/referral is flat)
You don’t know CAC by channel (averages hide leaks)
A healthy CAC is one that pays itself back quickly and can be improved over time as you optimize funnels and messaging
Here is a video that breaks down CAC for you.
4. Customer Lifetime Value (LTV): How Much is One Customer Worth Over Time?
Customer Lifetime Value is the average monetary value of each customer to your business. LTV takes into account how much a unique customer is expected to spend with your business. It’s an important metric so you know how much new customers are worth to your business over their lifespan as a customer.
Let’s say you charge $25/month. The average customer sticks around 12 months.
LTV = $300.
In this case, if your CAC is $80? You’re in the green. But if it’s $350? You’re basically paying people to hang out (and losing money on them).
Now, let’s connect this to CAC.
Say your CAC is $80. You’re doing fine – your LTV is ~4x CAC. That’s what investors want to see.
Rule of thumb: you want your LTV to be at least 3x your CAC. A 1:1 ratio means you’re barely breaking even, before operational costs and the math stops working at scale. So if you can hit a 3:1 ratio, great – and based off my experience, your business will be much more appealing if it’s closer to 5:1.
And keep in mind that different models can have different thresholds. For example, a SaaS company with low churn can afford higher CACs, while an e-commerce platform might need faster payback. And marketplaces and freemium models may have lower LTV per user, but they can often more easily offset it with volume.
If you don’t know your LTV or can’t defend it with data, it becomes hard to justify spend – and easy for investors to walk.
If you want to know more, this video walks you through the basics.
And here’s a video that beautifully explains the CAC and LTV relationship.
5. Gross Profit Margin: What Do You Actually Keep After Delivering Your Service or Product?
Gross profit margin shows the amount of money a business collects after it pays for all its expenses. It’s usually calculated as a percentage of sales. This specific metric is also referred to as the gross margin ratio.
Companies use gross margin as a measure of how production costs relate to revenue. If a company’s gross margin falls because it is making less revenue, it may try to cut labor costs, find cheaper suppliers of materials, or increase prices to increase revenue.
Gross profit margins can also allow a business to measure how efficient a company is, or compare two very differently sized companies that share a common revenue stream or product
If you sell a subscription for $50/month and it costs you $10/month to host, maintain, and support it, your gross margin is 80%.
Good: SaaS companies often hit 70–90%.
Bad: If you’re below 30%, your “scalable” business will collapse under weight.
Want to know the conceptual math behind this metric and how it differs from Profit Margin? Here is a fantastic video that easily breaks it down.
6. Monthly / Annual Recurring Revenue (MRR / ARR)
Annual recurring revenue (ARR) is revenue a company expects to see from its product and service offerings, calculated over the course of a year. Companies that sell annual subscriptions like using ARR as a sales metric to track what they anticipate making in a year.
ARR tends to be used if companies sell a product or service in the software as a service (SaaS) space, but it can also be useful in terms of streaming services, cell phone bills, and (almost) anything else with a predictable, recurring charge.
ARR is calculated annually, whereas monthly recurring revenue (MRR) is calculated monthly. MRR is useful in that it shows what’s happening on a month-to-month basis. For example, if you change your price in April, you can see the immediate effects of that change in May. MRR also helps track fluctuations in revenue based on outside factors like holiday shopping seasons and economic conditions.
In a nutshell, Monthly / Annual Recurring Revenue = predictable income.
If you’re pulling $20K/month in subscriptions, that’s $240K ARR. Simple.
What investors care about:
Is it growing?
How fast?
And how stable is it?
Here is a founder breaking down the metric and explaining the relationship between MRR/ARR.
7. Churn Rate: How Fast Are Your Users Leaving
The churn rate, also known as attrition rate, represents the rate at which a customer stops doing business with a company. Customer churn is typically expressed as the percentage of service subscribers that discontinue their service subscriptions within a time frame. Churn can also be expressed as the rate at which employees leave their jobs in a given time.
In order for a business to grow its number of clients, its growth rate (which takes into account new customers) must be higher than its churn rate.
The benefit of calculating a churn rate is that it can clarify how well a business is retaining its customers, which is a measure of the quality of service the business is providing and the usefulness of that service.
When a business can see its churn rate increasing from period to period, this suggests that a critical aspect of how it is running the business might be problematic or flawed.
It could be the result of:
A faulty product(s)
Bad customer service
Costs exceed utility to customers
And so on.
The churn rate will indicate to a business that it needs to learn why its customers are leaving, and where it needs to adjust its business. It’s more expensive to attract new customers than it is to retain them, so reducing the churn rate can save a business resources in the future.
Real talk: Say you had 500 users at the start of the month, and you lost 50 by the end of the month. That’s 10% churn – which is high! Annualize that and…ouch. You’re not growing. You’re replacing.
Make sure you fix this before you fundraise. Or at least explain why churn’s high and what you’re doing to plug the holes.
Here is a video that beautifully explains Churn Rate.
8. Payback Period: How Long Before You Recover Your CAC?
The payback period is a popular tool for determining investment return. People invest money for the purpose of getting it back and generating a positive return on the money they invested. The shorter the payback period, the more beneficial the investment will be.
The payback period does not factor in the time value of money. You can determine it simply by counting the number of years until the principal paid in is returned.
This metric measures how quickly your customer pays you back for the cost of acquiring them. The payback period doesn’t take into account the total profitability of an investment. It’s just concerned with paying the investment back.
There are two common interpretations:
Customer-Level Payback: If your CAC is $250 and your customer pays $50/month, it’ll take 5 months to recover the acquisition cost.
Investment-Level Payback: You spend $100,000 on a new sales hire, tool stack, or feature. You want to know how long it takes for that investment to generate $100,000 in profit.
Both use the same principle: the shorter the payback period, the less cash you need to float your growth.
If you want a target, aim for 6 months for customer-level payback. Closer to 3-6 is ideal. Long payback periods mean you need deep pockets – or exceptional retention – to stay afloat.
Here’s a video where you can learn more.
9. Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA)
EBITDA stands for Earning Before Interest, Taxes, Depreciation, and Amortization. You can think of this as just your company’s operating profit if you wanted a very rudimentary way of referring to it.
It’s not flashy. It’s not fun. But it tells investors: “Here’s what we really make once the accounting fog clears.” and “Are we generating real profits from our actual operations?”
EBITDA is what investors look at because it is the best way of comparing apples to apples when considering startups. EBITDA can provide investors a measure of your operational health.
A negative EBITDA for an early stage company isn’t going to raise any eyebrows. Just don’t act surprised when someone brings it up. You need to do that math before the pitch. But, if you have a growing early stage company that’s moving from negative EBITDA to positive? Now your getting into grown folks business.
Here’s a video that explains the basics of EBITDA.
And here’s another video that explains how investors look at EBITDA and its value in determining your business’s worth.
10. Valuation: What’s Your Company Worth – and What Supports that Number?
Valuation is a focused exercise that determines the value of an asset, investment, or company. So, how much your company’s worth. And the goal is typically to determine whether that value is a fair value.
Valuations can be conducted in one of two ways:
an absolute valuation, which evaluates a company on its own merits and entirely independently of other factors/companies, or
a relative valuation, which evaluates the company relative to other similar firms, or assets, in the same sector or industry. This determines if the company, or asset, is worth that much relative to others.
Depending on how the analysis and conclusions are reached, there are a variety of methods and techniques used to develop valuations. And as you’d expect, there’s often significant variability between outputs (or valuations) based on the inputs and context.
While valuations are predominantly quantitatively driven, there’s often a significant subjective influence that come from the assumptions and estimates made along the way. Valuations are also subject to developing situations and events outside of the analysis or the control of the analyst – for example, earnings reports or material news, or economic news – that can result in a change to a valuation stance.
If you’re pre-revenue and you’re saying $30M because a friend raised at that, please stop. Their experience likely has nothing to do with yours.
Valuation = traction + market comps + revenue + momentum + team.
Valuation isn’t just about what you want – it’s about what you can defend.
Startups are typically valued using:
Comparable Analysis (Comps): What similar companies are worth
Discounted Cash Flow (DCF): Projecting future cash and discounting it back
Revenue Multiples: Often 5x–10x for SaaS, but varies wildly
Precedent Transactions: What investors paid in past rounds for similar startups
But that’s the math.
Here’s the messy truth: Valuation = Traction + Team + TAM (total addressable market) + Timing + Storytelling.
Hard factors:
MRR/ARR
Growth rate
Churn
CAC:LTV
Gross margins
Soft factors:
Founding team’s track record
Market momentum
Hype or scarcity
Don’t inflate. Don’t anchor to your friend’s raise. Know your comps. And show why your model is defensible, not just desirable. Inflated numbers make investors run. They don’t correct you – they just ghost you.
There are numerous books written on valuation and each technique could be its own PhD. But my role here is to give you a sneak peak into the metrics.
Here’s a basic video on valuation if you’re interested in a deeper dive.
And here’s a more detailed video course outlining different forms of valuation. Professor Damodaran from New York University is considered to be one of the aces and thought leaders when it comes to valuation. In this video course he explains stepwise and beautifully so you can understand and explore the fascinating world of valuations.
Real Talk Before You Close That Tab
Real Experience
I met a founder once – early days, rough product, but you could tell he actually cared. He wasn’t trying to look good. No buzzwords. No “disrupt” talk. Just someone trying to solve something annoying and important.
He walked into the room with a twinkle. Not swagger – just that gentle intensity. We were leaning in.
Then, in the middle of the pitch, someone asked, “So what’s your monthly burn?” And I swear to you, he said, “Umm… I think my co-founder has that. I haven’t looked in a while.”
That was it.
No freak out. No awkward pause. Just… a cluck. Like a window closing in the background.
The product? Still smart. But the moment? Gone.
Nobody was mad. Nobody laughed. We even said thank you. But nobody followed up.
Why? Because it didn’t feel like a business. It felt like a maybe.
Why This Matters
I’ve seen so many versions of that same scene play out. It’s never about charisma. It’s not even about the idea, half the time.
It’s about whether the person asking for money actually knows what they’re building. Not the dream, the mechanics. The guts, nuts and bolds of the business. The ugly Excel math nobody brags about on Twitter.
Unfortunately, no simple pitch deck will do that part for you. No co-founder can answer those questions on your behalf.
If it’s your vision, own the math. If it’s your company, learn the cost of keeping it alive.
The rest? The logos, the taglines, the “go-to-market” plans?…. All of that’s just packaging.
And you don’t have to be perfect either. You just have to be in it. Eyes open. Numbers in your head.
Because if you’re asking people to believe in what you’re building, you’d better believe in the scaffolding holding it up.
So yeah, know your CAC. Your LTV. Your margins. Your churn. Not to check some box on an investor’s sheet, but to prove to yourself and the investor that the thing you’re spending your life on…has legs. That it can stand. And run.
And maybe, someday, outlast you. Maybe!
Conclusion and Final Thoughts
I hope this was helpful to you, especially if you’re a founder or aspiring founder trying to build the next big thing. While there a many more ratios and concepts, these are the crux of them.
A lot of other complex ratios and valuations are either built using these metrics or refer them in some way. And each of these metrics could be an article of its own. But I wanted to give you my top 10 run down so that you could get a head start. Numbers are very much a part of the ideation stage itself, and omitting them from your strategy could prove to be a fatal mistake.
I’ll leave you with one last video on How to Start a Start Up with Michael Seibel (Reddit, YC, Twitch) that I hope you find valuable. It lays out, in a crash course format, the mindset of a founder who has been there and done that. The fun fact is that a lot of the themes he speaks of tie in to the metrics here, directly or indirectly.
I hope this gives you a perspective of being on the other side, evaluating your hard work and passion, and I hope it sets you up for success in your next Investor Review.
I look forward to your thoughts, comments, and feedback. If this was helpful, engaging, and informative, do share it – you never know who may need it, or could benefit from it. I wish you all the very best in your funding rounds.
Until then, keep learning, unlearning, and relearning, folks.
Source: freeCodeCamp Programming Tutorials: Python, JavaScript, Git & MoreÂ