The vocabulary behind every report.
The metrics and concepts the validation reports use, from CAC and LTV to TAM and unit economics, each with a definition, a formula where one exists, and how it shows up in a report.
Three terms, one tray of coins.
Each stack is one month of a customer's gross margin, and the stacks stop at 1 ÷ churn, so together they are LTV. Move the stops to see LTV:CAC and payback respond, using the formulas defined below.
Financial Metrics
Key financial indicators used to measure business health, profitability, and unit economics.
Customer Acquisition Cost (CAC)
The total cost of acquiring a new customer, including marketing and sales expenses.
readCustomer Lifetime Value (LTV/CLV)
The total revenue a business can expect from a single customer account throughout their relationship.
readLTV:CAC Ratio
The ratio between customer lifetime value and customer acquisition cost, measuring unit economics health.
readMonthly Recurring Revenue (MRR)
The predictable, recurring revenue generated each month from subscription customers.
readAnnual Recurring Revenue (ARR)
The annualized value of recurring revenue, typically MRR multiplied by 12.
readBurn Rate
The rate at which a company spends its cash reserves, typically measured monthly.
readRunway
The amount of time a company can operate before running out of cash.
readGross Margin
The percentage of revenue remaining after deducting direct costs of goods sold.
readUnit Economics
The direct revenues and costs associated with a single unit of your business model.
readPayback Period
The time required to recover the cost of acquiring a customer through their revenue.
readBreak-Even Point
The point at which total revenue equals total costs, resulting in neither profit nor loss.
readMarket Analysis
Terms and metrics used to evaluate market size, opportunity, and competitive landscape.
Total Addressable Market (TAM)
The total market demand for a product or service if 100% market share were achieved.
readServiceable Addressable Market (SAM)
The portion of TAM that your product can actually serve given your business model.
readServiceable Obtainable Market (SOM)
The realistic share of SAM you can capture in the near term given competition and resources.
readCompound Annual Growth Rate (CAGR)
The mean annual growth rate over a specified time period, assuming growth compounds.
readMarket Share
The percentage of total market sales captured by a company or product.
readCompetitive Landscape
An analysis of all competitors, alternatives, and substitutes in your market.
readValidation Criteria
Factors used to assess the viability and potential of a business idea.
Market Potential
An assessment of the overall opportunity size and growth trajectory of a target market.
readFeasibility
The practical ability to execute and deliver a product or service given available resources.
readScalability
The ability of a business to grow revenue without proportionally increasing costs.
readUniqueness / Differentiation
The distinctive qualities that set a product or business apart from competitors.
readProfitability Potential
The likelihood and timeline for a business to generate sustainable profits.
readStartup Fundamentals
Core concepts and terminology every entrepreneur should understand.
Minimum Viable Product (MVP)
The simplest version of a product that can be released to test core assumptions with real users.
readProduct-Market Fit (PMF)
The degree to which a product satisfies strong market demand.
readMoat (Competitive Moat)
Sustainable competitive advantages that protect a business from competitors.
readGrowth Metrics
Indicators that measure business growth, retention, and engagement.
Churn Rate
The percentage of customers or revenue lost during a specific time period.
readNet Revenue Retention (NRR)
The percentage of recurring revenue retained from existing customers, including expansion.
readAverage Revenue Per User (ARPU)
The average revenue generated per user or account over a specific period.
readFunding & Investment
Terms related to startup financing, fundraising, and investor relations.
Pre-Seed Funding
The earliest stage of startup funding, typically from founders, friends, family, or angels.
readSeed Funding
Early-stage funding to develop product, hire initial team, and achieve product-market fit.
readSeries A Funding
The first major institutional VC round, typically raised after achieving product-market fit.
readStartup Valuation
The estimated worth of a startup, used to determine equity exchange in funding rounds.
readSee these numbers computed for your own idea.
Every validation report estimates CAC, LTV, payback and TAM using exactly these definitions.