startup-financial-modeling

Define your business model and pricing, then project revenue using cohort-based retention, model costs across COGS, S&M, R&D, and G&A, plan headcount with fully-loaded compensation, and calculate monthly cash flow to derive burn rate and runway.

Runway equals your current cash balance divided by monthly burn rate, where burn rate is monthly revenue minus monthly expenses. Model cash flow monthly since revenue collection timing differs from expense payment timing.

Cohort-based modeling calculates MRR as the sum of each cohort's size multiplied by its retention rate and ARPU. Typical SaaS retention curves start at 100% in month one and decline to roughly 70-75% by month 12-24.

Investors evaluate LTV/CAC ratio above 3, CAC payback under 12-18 months, burn multiple below 2.0, gross margins of 75-85% for SaaS, and net revenue retention of 100-120%. Models should pass sanity checks on growth rates and unit economics.

Common pitfalls include overly optimistic revenue assumptions, underestimating costs by omitting fully-loaded compensation, ignoring cash flow timing differences, static headcount plans that skip hiring ramp time, and failing to model conservative downside scenarios.