SaaS Fundamentals
9 concepts · ~25 min · Beginner
Master the 8 core numbers that determine whether your SaaS business will survive or die. Every founder and PM must know these cold.
What You'll Learn
- ✓Calculate your own LTV:CAC ratio and know if it's healthy
- ✓Identify which of your metrics is the weakest link in your unit economics
- ✓Explain to an investor why your business model is (or isn't) working
Revenue
Finance
💡 The Concept
Revenue is the total income generated from selling your product or service before any expenses are deducted. It is the top line of your income statement and the first number investors look at. Revenue quality matters as much as revenue quantity: $1M in recurring subscription revenue is worth 8-15x as a valuation multiple, while $1M in one-time services revenue is worth only 1-3x. Slack grew to $12M ARR before raising its Series A because they focused on revenue quality — recurring, low-churn enterprise contracts — not vanity revenue spikes.
⚠️ The Trap
The trap is celebrating revenue growth while ignoring the cost of generating it. A startup doing $1M in revenue but spending $1.5M to get there is dying — it just doesn't know it yet. Revenue is vanity; profit is sanity; cash is reality. Also, one-time revenue spikes (viral launches, seasonal sales, a single large contract) are not sustainable growth. If you strip out the spikes, what's your underlying recurring revenue trend?
🎯 The Action
Track revenue by three dimensions: (1) Source: organic vs paid vs referral — know which channels actually generate revenue, not just traffic. (2) Type: recurring vs one-time — only recurring revenue drives SaaS valuations. (3) Cohort: does each monthly cohort's revenue grow, stay flat, or shrink over time? If older cohorts are shrinking, you have a retention problem hidden by new customer acquisition.
Knowledge Check
Your SaaS made $50,000 this month. You spent $60,000 on operations. An investor asks how your business is doing. What's the honest answer?