Finances

---
name: finances
description: "Use this skill when the user needs to build a financial model, calculate unit economics, understand MRR/ARR/churn, or figure out their quit number. Covers SaaS metrics, CAC/LTV, burn rate, cash flow modeling, and making unit economics legible for non-finance founders."
---

# SaaS Financial Modeling & Metrics

A SaaS business is a math machine. If you don't know your numbers, you're guessing. This skill makes unit economics legible — MRR, CAC, LTV, churn, burn rate — clear enough to make decisions, rigorous enough to be trusted.

## Core Principles

- A SaaS business is a math machine. If you don't know your numbers, you're guessing.
- Unit economics tell the truth about your business long before your bank account does.
- The only financial model that matters for a solo founder is one that fits on a single spreadsheet and gets updated monthly.
- Revenue is vanity. Margin is sanity. Cash flow is reality.
- Every metric should answer a specific question: "Should I spend more here?" or "Is this working?"

## The Quit Number
Before building anything, calculate what it takes to replace your income:

```
Monthly personal burn (after taxes):
  Rent/mortgage:         $______
  Insurance:             $______
  Food/living:           $______
  Debt payments:         $______
  Everything else:       $______
  Safety buffer (20%):   $______
  = Monthly nut:         $______

Required MRR to quit:
  Monthly nut ÷ 0.70 = $______
  (0.70 accounts for taxes, SaaS costs, and variance)

At your target price point ($X/mo):
  Required MRR ÷ Price = customers needed

Timeline:
  Customers needed ÷ realistic monthly growth rate = months to quit
```

**Reality check**: If you need 500+ customers at \$29/mo to quit, that's an 18-36 month journey. Plan accordingly.

## Personal Constraint Budget
```
Runway calculation:
  Current savings available for this venture: $______
  Monthly burn while building (no revenue):  $______
  Savings ÷ Monthly burn = months of runway: ______

  Hard deadline: Date you MUST have revenue or go back to employment.

Startup costs (one-time):
  Domain + hosting (year 1):  \$100-500
  LLC formation:              \$50-500
  Tools (analytics, email):   \$0-200/mo
  Paid acquisition test:      \$500-1,000
  Legal (if needed):          \$500-2,000
  = Total launch cost:        $______

Monthly operating costs (once live):
  Hosting/infra:    $______
  SaaS tools:       $______
  Email service:    $______
  Payment fees:     $______
  = Monthly opex:   $______
```

## Core SaaS Metrics

### The Metrics That Matter (and only these)

**Monthly Recurring Revenue (MRR)**
```
MRR = Sum of all active monthly subscription amounts

MRR breakdown:
  New MRR:        Revenue from new customers this month
  Expansion MRR:  Revenue from upgrades/seat additions
  Contraction MRR: Revenue lost from downgrades
  Churned MRR:    Revenue lost from cancellations
  Net New MRR:    New + Expansion - Contraction - Churned
```

**Annual Recurring Revenue (ARR)**
```
ARR = MRR × 12
(Only use this once MRR is relatively stable. Don't annualize your first month.)
```

**Customer Acquisition Cost (CAC)**
```
CAC = Total acquisition spend ÷ New customers acquired (in same period)

Include: Ad spend, outreach tools, content costs, your time (value it at \$0
for solo founder or at your opportunity cost — be consistent).

By channel:
  SEO CAC:      Content costs ÷ SEO-attributed signups
  Paid CAC:     Ad spend ÷ Paid-attributed signups
  Outreach CAC: Tool costs ÷ Outreach-attributed signups
```

**Lifetime Value (LTV)**
```
Simple LTV:
  LTV = ARPU ÷ Monthly churn rate

Example:
  ARPU = \$49/mo, Monthly churn = 5%
  LTV = \$49 ÷ 0.05 = \$980

With gross margin:
  LTV = (ARPU × Gross margin %) ÷ Monthly churn rate
```

**LTV:CAC Ratio**
```
LTV:CAC = LTV ÷ CAC

Benchmarks:
  < 1:1   You lose money on every customer. Stop spending.
  1-3:1   Unsustainable. Improve retention or reduce CAC.
  3:1     Healthy target for most SaaS.
  > 5:1   You're probably underinvesting in growth.
```

**CAC Payback Period**
```
Payback = CAC ÷ (ARPU × Gross margin %)

Example:
  CAC = \$150, ARPU = \$49/mo, Gross margin = 85%
  Payback = \$150 ÷ (\$49 × 0.85) = 3.6 months

Benchmarks:
  < 6 months:  Excellent for solo founder
  6-12 months: Acceptable
  > 12 months: Dangerous without funding
```

**Churn Rate**
```
Logo churn (customer count):
  Customers lost this month ÷ Customers at start of month

Revenue churn (MRR):
  MRR lost this month ÷ MRR at start of month

Net revenue retention (NRR):
  (MRR at start + Expansion - Contraction - Churn) ÷ MRR at start
  NRR > 100% means existing customers grow faster than they churn.

Benchmarks:
  Logo churn < 5%/mo:   Acceptable early stage
  Logo churn < 3%/mo:   Good
  Revenue churn < 2%/mo: Target
  NRR > 100%:           Excellent (expansion revenue working)
```

## Unit Economics Calculation
Build this table monthly:

```
| Metric                    | Month 1 | Month 2 | Month 3 | ... |
|---------------------------|---------|---------|---------|-----|
| New customers             |         |         |         |     |
| Churned customers         |         |         |         |     |
| Total customers (end)     |         |         |         |     |
| MRR                       |         |         |         |     |
| Net new MRR               |         |         |         |     |
| Revenue (collected)       |         |         |         |     |
| COGS (hosting, APIs, etc) |         |         |         |     |
| Gross profit              |         |         |         |     |
| Gross margin %            |         |         |         |     |
| Total acquisition spend   |         |         |         |     |
| CAC                       |         |         |         |     |
| LTV                       |         |         |         |     |
| LTV:CAC                   |         |         |         |     |
| Payback (months)          |         |         |         |     |
| Operating expenses        |         |         |         |     |
| Net profit/loss           |         |         |         |     |
| Cash balance              |         |         |         |     |
| Runway (months)           |         |         |         |     |
```

## Revenue Mix Model
Map your revenue sources:

```
Primary revenue:
  Monthly subscriptions: $X/mo × estimated customers = $______
  Annual subscriptions:  $Y/yr × estimated customers = $______

Secondary revenue (if applicable):
  Usage-based overage:   Estimated average overage/customer = $______
  One-time setup fees:   $Z × new customers/month = $______
  Consulting/services:   Hours/month × rate = $______

Revenue mix target:
  Recurring %:    ____% (target >80%)
  One-time %:     ____% (keep <20%)
  Services %:     ____% (keep <10% — doesn't scale)
```

## Essential Metrics Dashboard
Track weekly, review monthly:

**Growth metrics:**
- MRR (absolute and growth rate)
- New signups this week
- Activation rate (signups → activated)
- Conversion rate (activated → paying)

**Retention metrics:**
- Monthly logo churn rate
- Monthly revenue churn rate
- Net revenue retention

**Economics metrics:**
- CAC by channel
- LTV:CAC ratio
- Gross margin %
- Cash runway (months)

**Leading indicators (predict future revenue):**
- Traffic to marketing site
- Trial starts
- Feature adoption rates
- Support ticket volume (rising = problems ahead)

## Financial Forecasting (Simple)

Don't build a complex model. Use this:

```
Conservative monthly growth rates by stage:
  Pre-revenue to $1K MRR:     add 5-15 customers/month
  $1K-$5K MRR:                10-20% MRR growth/month
  $5K-$20K MRR:               5-15% MRR growth/month
  $20K+ MRR:                  3-8% MRR growth/month

3-month forecast:
  Current MRR × (1 + monthly growth rate)^3 = projected MRR

Break-even forecast:
  Monthly opex ÷ ARPU = customers needed to break even
  Customers needed ÷ monthly new customers = months to break even
```

## When the Numbers Say Stop

Red flags that mean pivot or stop:

- LTV:CAC < 1 after 3+ months of trying to improve it
- Monthly churn > 10% with no clear fix
- CAC increasing month over month despite optimizations
- Activation rate < 20% (product-market fit problem)
- Revenue plateaus for 3+ months despite active effort
- Cash runway < 3 months with no path to profitability

## Related Skills

- **accounting** — Bookkeeping, tax prep, and financial operations
- **pricing** — Set prices that support healthy unit economics
- **analytics** — Track the product metrics that feed financial models
- **ads** — CAC tracking and paid acquisition budgeting