Startup Numbers 101: Money, Metrics, and Runway

1. Why Numbers Matter (Even at the MVP Stage)

You already know how to build an MVP and get first users. Now you need to keep the lights on long enough to learn from them.

In this module you will learn to:

• Build a simple startup budget
• Understand cash burn and runway
• Track a few core metrics (KPIs) like CAC, LTV, and conversion rate
• Decide which 2–3 numbers matter most for your startup right now

Keep in mind:

• Early-stage numbers are rough estimates, not perfect forecasts.
• Your goal is decision-making, not accounting perfection.
• You should be able to answer, at any time:

1. How much cash do we have?
2. How long can we survive at this pace?
3. What 2–3 metrics tell us if we’re moving in the right direction?

2. Building a Simple 3-Line Budget

For most early-stage startups, a 3-line budget is enough to start.

Think in monthly numbers:

1. Revenue (Money In)

• Product sales
• Subscriptions
• Service income (e.g., consulting to fund development)

1. Fixed Costs (Mostly Don’t Change with Sales)

• Founder and team stipends/salaries
• Office / coworking / software tools
• Insurance, hosting, basic subscriptions

1. Variable Costs (Change with Sales or Users)

• Payment processing fees (e.g., Stripe)
• Shipping / delivery
• Per-user costs (e.g., SMS, API calls)
• Ads directly tied to acquiring customers

Formula (per month):

```text

Net Cash Flow = Revenue − (Fixed Costs + Variable Costs)

```

• If Net Cash Flow is negative, you are burning cash.
• If it is positive, you are generating cash.

You do not need complex accounting software at this stage. A simple spreadsheet or a tool like Notion + a basic calculator is enough, as long as you update it every month.

3. Example: A Simple Monthly Budget

Imagine a small SaaS startup with a basic task-management app.

Assumptions (per month):

• Revenue:
• 50 paying users × $10 = $500

• Fixed Costs:
• Founder stipend: $1,000
• Part-time developer: $1,000
• Tools (hosting, SaaS, etc.): $300
• Total Fixed = $2,300

• Variable Costs:
• Payment processing: 3% of revenue = 0.03 × $500 = $15
• Occasional ads: $200
• Total Variable = $215

Net Cash Flow:

```text

Net Cash Flow = Revenue − (Fixed + Variable)

= $500 − ($2,300 + $215)

= $500 − $2,515

= −$2,015 per month

```

So this startup is burning $2,015 per month.

This is not necessarily bad at an early stage, if:

• They understand the burn, and
• They know how many months of runway they have (next step).

4. Cash Burn and Runway: How Long Can You Survive?

Two critical concepts:

1. Cash Burn (Burn Rate)

How much cash you lose per month (on average).

• If net cash flow is −$2,000/month, your burn rate is $2,000/month.

1. Runway

How many months you can operate before you run out of cash, if nothing changes.

Basic Formula:

```text

Runway (months) = Current Cash / Monthly Burn

```

Using the previous example:

• Current cash in bank: $20,000
• Monthly burn: $2,015

```text

Runway ≈ 20,000 / 2,015 ≈ 9.9 months

```

So they have about 9–10 months of runway.

In practice, founders often track:

• Gross burn = total cash out per month (all expenses)
• Net burn = cash out − cash in (same as net cash flow if negative)

At early stage, net burn and runway are usually enough to guide decisions.

5. Activity: Estimate Your Own Runway

Use this as a thought exercise (you can write it down on paper or in a spreadsheet).

1. List your current cash

• Cash in bank: $
• Any committed funding you are sure you will receive soon (e.g., signed grant): $
• Total available cash: $____

1. Estimate your monthly burn

• Average total monthly expenses (last 2–3 months): $
• Average monthly revenue: $
• Net burn = Expenses − Revenue = $____

1. Calculate your runway

Use:

```text

Runway (months) = Total Available Cash / Net Burn

```

1. Reflect:

• Is your runway less than 6 months? That usually means urgent decisions (cut costs, increase revenue, or raise money).
• Is your runway 6–18 months? You have some room to experiment, but still need to be careful.
• Is your runway more than 18 months? You can invest more in learning, product, and growth experiments.

Write down one action you would take if your runway were suddenly cut in half.

6. Core Startup KPIs: The Essential Vocabulary

Now that you know if you can survive, you need to know if you are improving.

Here are the most common early-stage KPIs:

1. Customer Acquisition Cost (CAC)

How much you spend (on average) to get one new paying customer.

```text

CAC = Total Sales & Marketing Spend / # of New Customers

```

1. Lifetime Value (LTV or CLV)

How much revenue (or profit, in more advanced models) you expect from a customer over their relationship with you.

• For a simple subscription business:

```text

LTV ≈ Average Monthly Revenue per Customer × Average # of Months Retained

```

1. Conversion Rate

Percentage of people who move from one step to the next (e.g., website visitor → signup; signup → paying customer).

```text

Conversion Rate (%) = (Conversions / Total Visitors) × 100

```

1. Churn Rate (for recurring revenue)

Percentage of customers who cancel or stop paying in a period.

```text

Customer Churn Rate (%) = (Customers Lost in Period / Customers at Start of Period) × 100

```

1. Monthly Recurring Revenue (MRR)

Predictable subscription revenue per month.

```text

MRR = Σ (Price of each plan × # of active customers on that plan)

```

In early stages, you rarely track all of these deeply. Instead, you choose 2–3 that matter most for your current business model and stage.

7. Example: CAC, LTV, and the LTV:CAC Rule of Thumb

Let’s return to our task-management SaaS example.

Assumptions (for one month):

• New paying customers this month: 20
• Marketing spend (ads, content, tools) this month: $400
• Average subscription price: $10/month
• On average, customers stay 10 months before cancelling (based on early data / similar products in the market)

1. CAC

```text

CAC = Total Marketing Spend / # New Customers

= $400 / 20

= $20 per customer

```

1. LTV (simple version, using revenue, not profit)

```text

LTV ≈ Average Monthly Revenue per Customer × Average # of Months Retained

≈ $10 × 10

= $100

```

1. LTV:CAC Ratio

```text

LTV:CAC = 100 : 20 = 5 : 1

```

Interpretation:

• A common rule of thumb: an LTV:CAC of 3:1 or higher is considered healthy for many SaaS businesses.
• Here, 5:1 suggests they might be under-investing in growth (they could spend more to acquire customers, as long as payback time is reasonable).

Always be cautious: early estimates are noisy. Use them to form hypotheses, not to justify huge spending.

8. Activity: Pick Your 2–3 Critical Metrics

Connect back to your MVP and go-to-market strategy.

1. Identify your business model type (pick one that’s closest):

• A. Subscription SaaS (B2B or B2C)
• B. Marketplace (connecting buyers and sellers)
• C. E-commerce (selling products online)
• D. Mobile app (freemium, ads, or in-app purchases)
• E. Service / agency / consulting

1. Based on that, choose 2–3 core metrics for the next 3 months. Examples:

• A. Subscription SaaS
• MRR
• Conversion rate (trial → paid)
• Churn rate

• B. Marketplace
• # of active buyers and sellers
• Gross Merchandise Value (GMV)
• Take rate (% you keep from each transaction)

• C. E-commerce
• Website → purchase conversion rate
• Average Order Value (AOV)
• CAC

• D. Mobile app
• Day-1 and Day-7 retention
• % of users who activate key feature at least once
• Revenue per daily active user (if monetized)

• E. Service / consulting
• Billable utilization (% of time spent on paid work)
• Average project size
• Sales pipeline value

1. For each metric you choose, answer:

• Why does this metric matter right now?
• What action will you take based on it? (e.g., if conversion is low, improve onboarding; if CAC is high, test a cheaper channel.)

Write your answers in a notebook or doc. The key is that every metric you track should influence a decision.

9. Simple Spreadsheet-Style Formulas for Your Dashboard

You can build a very basic dashboard in Google Sheets, Excel, or similar. Here are some copy-pasteable formulas (using spreadsheet-style notation):

```text

1. Net Cash Flow (per month)

= Revenue - (FixedCosts + VariableCosts)

2. Burn Rate (if Net Cash Flow is negative)

= -MIN(NetCashFlow, 0)

3. Runway (in months)

= IF(BurnRate>0, TotalCash / Burn_Rate, "Infinite (no burn)")

4. CAC (Customer Acquisition Cost)

= IF(NewCustomers>0, MarketingSpend / New_Customers, "N/A")

5. Basic LTV (for subscriptions)

= AvgMonthlyRevenueperCustomer * AvgMonthsRetained

6. Conversion Rate (in %)

= IF(Visitors>0, (Signups / Visitors) * 100, 0)

7. Churn Rate (in %)

= IF(CustomersStart>0, (CustomersLost / Customers_Start) * 100, 0)

```

You do not need fancy BI tools at this stage. A simple sheet updated once a week can:

• Show your cash and runway clearly
• Track your 2–3 core metrics
• Help you see trends over time (e.g., simple line charts for MRR or churn)

10. Quick Check: Burn and Runway

Test your understanding of burn rate and runway with a short scenario.

11. Quick Check: Picking the Right Metric

Choose the most appropriate primary metric for the situation described.

12. Review: Key Terms and Formulas

Flip the cards (mentally or with a friend) to review the essential terms from this module.