Speed is seductive. Survival is maths. When you strip story away, only a handful of ratios tell you whether a startup can compound without constant equity oxygen.
Use this quick read to pressure test unit health before partner meeting three.
The Four Ratios That Matter
1) CAC payback
How long gross profit from a new customer takes to recover acquisition cost.
Read it as a corridor, not a point. Pre-PMF, 9 to 18 months with a believable path to improve is workable. Anything that relies on instant upsell is risky.
2) Contribution margin
Revenue minus true variable costs per order or customer.
Look for a clear path to positive contribution and stability as volumes scale. If contribution flips negative at higher usage, cost to serve is not under control.
3) Retention and NRR quality
Logo retention, revenue retention, and expansion shape by cohort.
Healthy NRR growth should lag product milestones, not appear on day one. Flat or noisy cohorts usually mean promo masking.
4) Burn multiple
Net burn divided by net new ARR over the same period.
Lower is better. It blends efficiency and growth in one lens and hints at capital intensity under stress.
How To Compute Them In First Pass
CAC payback: Use latest quarter’s marketing and sales spend that truly drives acquisition. Divide by gross profit from that cohort’s first 6 to 9 months. Exclude discounts and one-off promos.
Contribution margin: Start with revenue, subtract payment fees, cloud and data tied to usage, support per ticket, delivery or COGS per plan. Do it by SKU or plan, not blended.
NRR: Take a starting cohort. Add expansion, subtract churn and contraction. Do not include brand new logos.
Burn multiple: Net cash burn for the quarter divided by net new ARR. If ARR is not the right lens, use gross profit added.
Pattern Checks That Reveal Reality
Shape, not averages: Plot two or three recent cohorts. You need to see stabilisation after month 3 to 6.
Price corridors: Test whether a 10 to 15 percent price rise breaks win rates. No corridor means pricing risk.
Channel fragility: Break CAC and payback by channel. If one channel carries more than half of new ARR, stress test its decay.
Cost step-ups: Map cloud and data invoices to usage. Watch for tier jumps that flatten margin at scale.
Red Flags That Warrant A Pause
Payback under 6 months on paper but driven by month 1 upsell.
Contribution margin improves only in spreadsheets, not in vendor bills.
Blended CAC flat while channel mix shifts materially.
Burn multiple improving only because growth slowed, not because unit efficiency rose.
NRR targets rising while churn causes remain unresolved.
FAQs
1) What is the single quickest signal to check first?
Rebuild latest-quarter CAC payback using only source invoices and gross profit. It exposes promo reliance fast.
2) How do I handle usage-based businesses?
Compute contribution per unit of consumption, then translate to an average customer at current mix. Validate against cloud and data bills.
3) Can great growth offset weak unit economics?
Not for long. Without a path to positive contribution and sane payback, growth amplifies cash burn.
4) What if cohorts are too young?
Use early shape plus qualitative signals like renewal intent and support burden. Re-test monthly.