Finance Metrics
Metrics for measuring financial health, efficiency, and operational performance.
Revenue Metrics
Revenue (GAAP)
Definition: Recognized revenue according to accounting standards.
Formula:
Revenue = Recognized revenue in period (per ASC 606)
Note: Different from bookings or billings. Revenue is recognized as service is delivered.
What it tells you: Actual earned revenue for the period.
Bookings
Definition: Total contract value signed in a period.
Formula:
Bookings = Sum of total contract value for deals signed in period
Types:
- New Bookings: From new customers
- Expansion Bookings: Upgrades from existing customers
- Renewal Bookings: Contract renewals
What it tells you: Sales output and future revenue committed.
Billings
Definition: Amounts invoiced in a period.
Formula:
Billings = Total invoiced amount in period
What it tells you: Cash coming in (or expected).
ARR / MRR
See Core Metrics for full definitions.
Deferred Revenue
Definition: Cash received for services not yet delivered.
Formula:
Deferred Revenue = Billings collected - Revenue recognized
What it tells you: Future revenue already paid for. A liability on balance sheet.
Revenue per Employee
Definition: Total revenue divided by headcount.
Formula:
Revenue per Employee = ARR / Total employees
Benchmarks:
- Below $100K: Early stage or overstaffed
- $100K-$200K: Growing
- $200K-$300K: Efficient
- Above $300K: Highly efficient
What it tells you: Overall company productivity.
Profitability Metrics
Gross Margin
See Core Metrics for full definition.
Operating Margin (EBIT Margin)
Definition: Operating income as a percentage of revenue.
Formula:
Operating Margin = Operating Income / Revenue × 100
Operating Income = Revenue - COGS - Operating Expenses
Benchmarks:
- Below -50%: Heavy investment phase
- -50% to 0%: Growth mode
- 0-20%: Path to profitability
- Above 20%: Profitable and efficient
EBITDA Margin
Definition: Earnings before interest, taxes, depreciation, and amortization as a percentage of revenue.
Formula:
EBITDA Margin = EBITDA / Revenue × 100
What it tells you: Operational profitability before non-cash charges.
Net Income Margin
Definition: Net income as a percentage of revenue.
Formula:
Net Income Margin = Net Income / Revenue × 100
What it tells you: Bottom line profitability.
Rule of 40
See Core Metrics for full definition.
Cash Metrics
Cash Burn Rate
Definition: Net cash consumed per month.
Formula:
Burn Rate = (Cash at start of period - Cash at end of period) / Months in period
What it tells you: How fast cash is being consumed.
Cash Runway
Definition: Time until cash runs out at current burn rate.
Formula:
Runway = Current cash / Monthly burn rate
Measured in months.
Targets:
- Below 6 months: Critical, fundraise immediately
- 6-12 months: Urgent attention needed
- 12-18 months: Planning window
- Above 18 months: Comfortable
Free Cash Flow (FCF)
Definition: Cash generated from operations minus capital expenditures.
Formula:
FCF = Operating cash flow - Capital expenditures
What it tells you: Cash available for growth, debt repayment, or distribution.
Free Cash Flow Margin
Definition: FCF as a percentage of revenue.
Formula:
FCF Margin = Free Cash Flow / Revenue × 100
Benchmarks:
- Below -20%: Heavy investment
- -20% to 0%: Growth mode
- 0-10%: Cash flow positive
- Above 10%: Strong cash generation
Efficiency Metrics
CAC Payback Period
See Core Metrics for full definition.
LTV:CAC Ratio
See Core Metrics for full definition.
Magic Number
Definition: Sales efficiency metric measuring revenue generated per dollar of sales and marketing spend.
Formula:
Magic Number = (QoQ ARR growth) / (Prior quarter S&M spend)
Benchmarks:
- Below 0.5: Inefficient, fix before scaling
- 0.5-0.75: Acceptable
- 0.75-1.0: Efficient (2024 median: 0.90)
- Above 1.0: Very efficient, invest more aggressively
What it tells you: Whether sales and marketing investment is generating sufficient returns.
Sources:
Burn Multiple
Definition: Net burn divided by net new ARR. Popularized by David Sacks.
Formula:
Burn Multiple = Net burn / Net new ARR
Benchmarks:
- Below 1x: Excellent (top 10% of Series A companies)
- 1.0-1.5x: Strong (top quartile)
- 1.5-2x: Median, acceptable
- 2.0-3x: Concerning, especially above $20M ARR
- Above 3x: Critical, requires immediate attention
Scale expectations: Burn multiple should decrease as company scales. Target <1.0x by $25M-$50M ARR range.
What it tells you: How much cash is being burned to generate each dollar of new ARR.
Sources:
Operating Expense Metrics
Opex Ratio
Definition: Operating expenses as a percentage of revenue.
Formula:
Opex Ratio = Operating expenses / Revenue × 100
S&M as % of Revenue
Definition: Sales and marketing spend as percentage of revenue.
Formula:
S&M % = Sales & Marketing expense / Revenue × 100
Benchmarks:
- Early stage: 80-120%
- Growth stage: 40-60%
- Mature: 20-40%
R&D as % of Revenue
Definition: Research and development spend as percentage of revenue.
Formula:
R&D % = R&D expense / Revenue × 100
Benchmarks:
- SaaS typical: 15-25%
G&A as % of Revenue
Definition: General and administrative spend as percentage of revenue.
Formula:
G&A % = G&A expense / Revenue × 100
Benchmarks:
- SaaS typical: 10-15%
Collections Metrics
Days Sales Outstanding (DSO)
Definition: Average days to collect payment after invoicing.
Formula:
DSO = (Accounts receivable / Revenue) × Days in period
Benchmarks:
- Below 30 days: Excellent
- 30-45 days: Good
- 45-60 days: Average
- Above 60 days: Collection issues
What it tells you: Collection efficiency and customer payment behavior.
Collection Rate
Definition: Percentage of invoiced amounts collected.
Formula:
Collection Rate = Cash collected / Amount invoiced × 100
Target: >95%
Bad Debt Rate
Definition: Percentage of revenue written off as uncollectable.
Formula:
Bad Debt Rate = Bad debt expense / Revenue × 100
Target: <1%
Summary Table
| Metric | Type | Primary Indicator Of |
|---|---|---|
| ARR | Revenue | Business scale |
| Gross Margin | Profitability | Unit economics |
| Operating Margin | Profitability | Operational efficiency |
| Rule of 40 | Profitability | Growth/profit balance |
| Burn Rate | Cash | Cash consumption |
| Runway | Cash | Financial sustainability |
| Magic Number | Efficiency | Sales efficiency |
| Burn Multiple | Efficiency | Capital efficiency |
| DSO | Collections | Payment collection speed |