# Metrics There's an art to picking the right metric. Get it right and you create clarity across an organisation. Each one says: this is what matters, measure it this way, here's what good looks like. The point is insight — seeing something you couldn't see before. EBITDA exists because John Malone needed to value cable companies with massive depreciation and interest costs — earnings made no sense for his business. LTV:CAC came from SaaS investors comparing subscription economics. Rule of 40 from the trade-off between growth and profitability. At the extreme, the metric becomes the strategy. See [[Serial Acquirers/The Bergman & Beving Legacy|Bergman & Beving]] and [[Serial Acquirers/The Roper Model|Roper]]. Focus means omission. Every metric has gaps and weaknesses worth understanding. What follows explores the concepts I've found most useful to understand deeply. --- ## Foundations *The conceptual building blocks.* - **[[Notes/Ratios|Ratios]]** — Dividing one number by another is the simplest analytical move. It is also one of the most powerful. - **[[Notes/Scale|Scale]]** — Before asking if a number is exactly right, ask if it is roughly right. Most errors are 10x, not 10%. - **[[Notes/Confidence|Confidence]]** — A number without a confidence level is a guess dressed as a fact. - **[[Notes/Variance|Variance]]** — Not all variation requires action. Knowing when to react and when to wait is half of operational judgement. - **[[Notes/Small Samples|Small Samples]]** — At n=20, the qualitative signal is more reliable than the quantitative noise. --- ## Evaluating a subscription business *How sticky is the revenue? Where is the ceiling?* - **[[Notes/Recurring Revenue|Recurring Revenue]]** — Recurring revenue determines how hard you have to run just to stand still. - **[[Notes/Gross vs Net Retention|Gross vs Net Retention]]** — Gross retention measures churn. Net retention measures growth from existing customers. - **[[Notes/Non-Renewal vs Churn|Non-Renewal vs Churn]]** — Customer decisions vs revenue outcomes. Different denominators, different insights. - **[[Notes/Retention Decay|Retention Decay]]** — Why 95% retention is fundamentally different from 90%. - **[[Notes/The 95% Illusion|The 95% Illusion]]** — Contract length and measurement period distort reported retention. - **[[Notes/Limits to Growth|Limits to Growth]]** — Every recurring revenue business has a ceiling. The maths is unforgiving. - **[[Notes/Rule of 40|Rule of 40]]** — Growth and profitability usually trade off. Are you managing it well? --- ## Understanding unit economics *Does adding customers create value or consume it?* - **[[Notes/Unit Economics|Unit Economics]]** — How to diagnose whether growth creates value or consumes capital. - **[[Notes/Payback Period|Payback Period]]** — When customer acquisition becomes self-funding. - **[[Notes/Payback Over Ratios|Payback Over Ratios]]** — CAC payback period matters more than LTV:CAC. - **[[Notes/Contribution Margin vs Gross Margin|Contribution Margin vs Gross Margin]]** — Two margins, two questions. Product vs customer. --- ## Assessing capital efficiency *How hard is the capital working? Where does the cash go?* - **[[Notes/Asset Turnover|Asset Turnover]]** — Margin gets all the attention. Turnover is where the real leverage hides. - **[[Notes/Margins vs Growth|Margins vs Growth]]** — Once returns are high enough, the bigger lever is finding reinvestment opportunities. - **[[Notes/Cash Return on Investment|Cash Return on Investment]]** — CRI measures what you get back, in cash, relative to what you put in. - **[[Notes/EBITA-WC|EBITA-WC]]** — The ratio serial acquirers use to focus managers on controllable levers. - **[[Notes/FCF Conversion|FCF Conversion]]** — Profits are accounting. Cash is real. The gap reveals business quality. - **[[Notes/Customer-Funded Growth|Customer-Funded Growth]]** — Some businesses need capital to grow. Others generate cash by growing. - **[[Notes/Profitable and Broke|Profitable and Broke]]** — Why profitable companies run out of cash. Working capital constrains growth. --- ## Measuring operational performance *Is the machine getting better or worse?* - **[[Notes/Revenue per FTE|Revenue per FTE]]** — The productivity metric that reveals operating leverage. - **[[Notes/Organic vs Acquired Growth|Organic vs Acquired Growth]]** — The distinction that shows whether a company can grow without buying growth. - **[[Notes/ROI and the Cost of Delay|ROI and the Cost of Delay]]** — Time erodes ROI. Delay compounds. Speed is a margin decision. --- ## Reading software financials *What the headline numbers hide.* - **[[Notes/EBITDA in Software|EBITDA in Software]]** — How software gets priced. Where the gaps between accounting and cash hide. - **[[Notes/Accounting for Widgets|Accounting for Widgets]]** — Why inherited numbers mislead. Throughput over cost accounting. ---