# Reading the Numbers Numbers don't speak for themselves. The same figures can tell completely different stories depending on what you compare, how you aggregate, and what you're trying to decide. A 20% margin might be excellent or terrible. A 10% growth rate might signal momentum or decline. Context is everything. There's an art to picking the right metric. Get it right and you create clarity across an organisation. EBITDA exists because John Malone needed to value cable companies with massive depreciation and interest costs. 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 [[Bergman & Beving]] and [[Roper]]. The goal is to know what questions to ask, what comparisons matter, and when a number is telling you something versus when it's noise. --- ## Thinking about numbers *How data becomes information — and when it doesn't.* - **[[From Data to Information]]** — Data doesn't become information until it passes through a decision process. Otherwise it's just noise with structure. - **[[Effort to Impact]]** — Every metric sits somewhere on a chain: effort → output → outcome → impact. Most reporting stops too early. - **[[Unknown and Unknowable]]** — The most important figures are often unknown or unknowable. Learning to reason under uncertainty. - **[[Order of Magnitude]]** — Most business debates happen at the wrong level of precision. Getting the zoom level right. --- ## Foundations *The conceptual building blocks.* - **[[Ratios]]** — Dividing one number by another is the simplest analytical move. It is also one of the most powerful. - **[[Scale]]** — Before asking if a number is exactly right, ask if it is roughly right. Most errors are 10x, not 10%. - **[[Confidence]]** — A number without a confidence level is a guess dressed as a fact. - **[[Variance]]** — Not all variation requires action. Knowing when to react and when to wait is half of operational judgement. - **[[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?* - **[[Recurring Revenue]]** — Recurring revenue determines how hard you have to run just to stand still. - **[[Gross vs Net Retention]]** — Gross retention measures churn. Net retention measures growth from existing customers. - **[[Non-Renewal vs Churn]]** — Customer decisions vs revenue outcomes. Different denominators, different insights. - **[[Retention Decay]]** — Why 95% retention is fundamentally different from 90%. - **[[Retention vs Renewal]]** — Contract length and measurement period distort reported retention. - **[[Limits to Growth]]** — Every recurring revenue business has a ceiling. The maths is unforgiving. - **[[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?* - **[[Unit Economics]]** — How to diagnose whether growth creates value or consumes capital. - **[[Payback Period]]** — When customer acquisition becomes self-funding. - **[[Payback Over Ratios]]** — CAC payback period matters more than LTV:CAC. - **[[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?* - **[[Asset Turnover]]** — Margin gets all the attention. Turnover is where the real leverage hides. - **[[Margins vs Growth]]** — Once returns are high enough, the bigger lever is finding reinvestment opportunities. - **[[Cash Return on Investment]]** — CRI measures what you get back, in cash, relative to what you put in. - **[[EBITA-WC]]** — The ratio serial acquirers use to focus managers on controllable levers. - **[[FCF Conversion]]** — Profits are accounting. Cash is real. The gap reveals business quality. - **[[Customer-Funded Growth]]** — Some businesses need capital to grow. Others generate cash by growing. - **[[Profitable and Broke]]** — Why profitable companies run out of cash. Working capital constrains growth. --- ## Measuring operational performance *Is the machine getting better or worse?* - **[[Revenue per FTE]]** — The productivity metric that reveals operating leverage. - **[[Organic vs Acquired Growth]]** — The distinction that shows whether a company can grow without buying growth. - **[[ROI and the Cost of Delay]]** — Time erodes ROI. Delay compounds. Speed is a margin decision. --- ## Reading software financials *What the headline numbers hide.* - **[[EBITDA in Software]]** — How software gets priced. Where the gaps between accounting and cash hide. - **[[Accounting for Widgets]]** — Why financial statements can mislead. ---