Startup finance fundamentals

Burn is how much net cash you're losing per month. Runway is how many months of cash you have at current burn.

• Gross burn = all monthly outflows (salaries, rent, software, ads).
• Net burn = gross burn minus revenue received.
• Runway = current cash / net burn.

Three thresholds every founder should know:

• 12+ months runway: You can build. Investing in product is sensible.
• 6-12 months: You should be acquiring customers, not building features.
• Under 6 months: Cash is the only thing that matters. Every decision is a cash-flow decision until runway is restored.

Compute it with the Runway Calculator. Check it weekly.

Gross margin = (revenue − variable cost of delivering) / revenue. It's the headline indicator of whether your business model works.

Rough benchmarks:

• SaaS: 70-85% is normal. Below 60% suggests cloud costs, support, or payment processing are eating you.
• Productised service: 40-65% typical. Bound by your time cost.
• Ecommerce: 30-50% on physical goods. Lower on dropship.
• Marketplace: 60-80% on take rate.

A business with structurally low gross margin (under 30% for software, under 20% for services) is hard to scale even if the topline is growing. You can't fix this with more revenue — you fix it by changing the cost structure or the pricing.

LTV (Lifetime Value) = how much a customer pays you across their lifetime, after variable costs. CAC (Customer Acquisition Cost) = the marketing + sales spend to acquire one customer.

The ratio LTV:CAC tells you whether your acquisition makes sense:

• >3:1 — healthy. Spend more on acquisition.
• 1.5–3:1 — workable but improving margin or retention helps.
• <1.5:1 — broken. Don't pour money into the funnel; fix retention or pricing first.

Also matters: CAC payback period = how many months until a customer's gross profit covers the CAC. Under 12 months for SaaS is healthy; under 18 is workable. Over 24 months, you need a lot of conviction.

Compute both with the LTV:CAC Calculator.

Most founders set price by feeling — "$29/mo sounds reasonable." That's why most pricing leaves money on the table.

A better frame: price the second purchase, not the first. Your first price gets you to "yes." Your second price (renewal, upgrade, expansion) is where actual profitability lives.

Three pricing instincts that pay off:

1. Price on outcome, not on input. Don't price by the hour or by user count. Price by the result the customer gets.
2. Tier with a clear upgrade trigger. Free → Starter → Pro should have a moment where the customer naturally hits a limit and self-upgrades.
3. Test annual pricing. Annual prepay improves cash flow and reduces churn. Discount 10-20% to incentivise.

Most founders raise prices too late. If you've never lost a deal on price, you're under-pricing.