Money, pricing & model

How do I build a simple financial model or revenue projection?

The short answer

Build bottom-up from real drivers, leads, conversion rate, price, churn, not top-down from 'we'll grab 1% of a huge market.' A useful early model fits on one spreadsheet and lets you flex three or four assumptions to see runway impact. The goal isn't accuracy; it's understanding which levers actually move the business.

Go deeper, your way

3 hand-picked resources, 1 link-checked. Pick how you want to dig in.

📄 Article
✓ Link checked Free Advanced

Why we picked it David Skok's For Entrepreneurs work is the foundational, near-universally cited source on SaaS unit economics and modeling. It's where the LTV:CAC and CAC-payback conventions were popularized.

SaaS Metrics 2.0, Detailed Definitions

From forentrepreneurs.com by David Skok long-form reference

  • Unit economics (LTV:CAC and months to recover CAC) reveal long-term profitability
  • Simple LTV formulas break when revenue expands over a customer's lifetime
  • Build financial models from real drivers, not top-down market-share guesses
Open forentrepreneurs.com →
📄 Article
Free Advanced

Why we picked it David Sacks (PayPal, Yammer, Craft Ventures) distills the metrics that actually predict a SaaS company's health, including the burn multiple he popularized. Sharp, operator-grade, and opinionated.

The SaaS Metrics That Matter

From sacks.substack.com by David Sacks essay

  • Net revenue retention and the burn multiple reveal true capital efficiency
  • Focus on a small set of metrics reviewed on a strict weekly cadence
  • Growth and profitability must be balanced (the Rule of 40)
Open sacks.substack.com →
📄 Article
Free Intermediate

Why we picked it A focused a16z piece on the single ratio that most captures a business's efficiency and drives its valuation. Great for founders who need to understand the 3:1 benchmark and its limits.

Why Do Investors Care So Much About LTV:CAC?

From a16z.com by Andreessen Horowitz (a16z) article

  • 3x LTV:CAC is a common rule-of-thumb benchmark for healthy unit economics
  • Higher LTV:CAC drives higher margins and therefore higher valuation
  • The ratio can mislead, CAC payback period matters just as much for cash
Open a16z.com →

Terms in this answer

Conversion Rate Financial Model Runway Churn

People also ask

What are unit economics and why do they matter? Unit economics is the profit or loss on a single customer or unit, strip away the noise and ask 'do I make money on one customer?' If the answer is... Beginner 3 resources → How do I calculate CAC (customer acquisition cost) and LTV? CAC = total sales and marketing spend divided by new customers acquired in that period, count everything, not just ad spend. LTV = the profit (not ... Intermediate 3 resources → What is a good LTV to CAC ratio? The rule of thumb is LTV:CAC of at least 3:1, earn back roughly three times what it costs to acquire a customer. Below 1:1 you lose money on every ... Intermediate 3 resources → What metrics should I actually track as an early-stage SaaS founder? Early on, obsess over MRR growth, churn, gross margin, and CAC payback, ignore vanity metrics like downloads and pageviews. Net revenue retention t... Intermediate 3 resources → What is churn and how much churn is too much? Churn is the rate customers leave, and it silently caps your growth because you're refilling a leaky bucket. For SMB SaaS, ~3-5% monthly is common ... Intermediate 2 resources → My CAC looks great but I paid for it with a founder-led discount. How do I know my unit economics without the promo? Discounts and founder hustle hide your real acquisition cost, so run two versions: the promo number and the number when a stranger buys at list pri... Intermediate 2 resources →

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The same ground, over in Money, pricing & unit economics, our D2C track.

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Also in How Founders Use AI

How founders actually use AI for this, over in Finance & Accounting.

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Also in GTM

The same ground, over in Close deals and price right, our GTM track.

I have a call booked with a real prospect tomorrow. What do I do on it? Ask questions and shut up. Gong's analysis of more than half a million calls found the sweet spot is somewhere around eleven to fourteen questions,... 3 resources → I have no idea what to charge. How do I pick a first price? Find the right order of magnitude first and stop arguing about the exact number. Are you a ten dollar product, a hundred dollar product, a thousand... 3 resources →
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