Startup glossary: runway, churn, CAC, LTV and other terms in plain words
Short explanations of the words founders, investors and product teams use. First what each term means in real life, then how the same thing works in Runway 200, where you can test it on your own decisions.
Money
Runway
How many months or weeks the company lasts on the money in the bank if costs and revenue stay as they are now.
runway = cash in the bank ÷ monthly burn
$300,000 in the bank and $50,000 burned a month — six months of runway. Founders usually start raising six to twelve months before zero: talks take months, and with a short runway it's no longer you setting the terms. More in Startup runway.
In Runway 200: runway is counted in weeks at the current burn. If the company is profitable, it's infinite. When the cash covers fewer than fourteen weeks, the period report warns you separately.
Work out your own runway — runway calculator.
Burn rate
How much money the company loses per period: all costs minus revenue. Salaries, ads, servers, rent. Gross burn is all costs; net burn is costs minus revenue. When people say "burn", they usually mean net.
In Runway 200: the "burning" line is costs minus revenue for the week.
Gross and net burn with an example, what growth costs and common mistakes — on the Burn rate page.
Funding round
Raising money from investors in exchange for a share of the company: pre-seed, seed, Series A and on. The amount and the share depend on the company's valuation.
In Runway 200: raising costs two of the week's actions. The size of the offer depends on how the company looks: growth, segment fit, paying customers, brand and market mood; churn pulls it down. The fund asks for 12 to 22%. You can negotiate — sometimes you get more, but the fund may also walk away.
Valuation (pre-money and post-money)
What the investor thinks the company is worth. Pre-money is before the investment, post-money is after: pre-money plus the round. The investor's share is the round divided by post-money.
$2M at an $8M pre-money valuation: $10M post-money, the investor owns 20%
Dilution
The shrinking of the founders' and earlier shareholders' stake when the company issues new shares to an investor or an option pool. The percentage goes down, but if the valuation grows faster, the stake is worth more. More in Founder dilution.
In Runway 200: when the company is sold, the founders get the valuation times their share — so every round shows up in the final number.
Stock options
An employee's right to buy a share of the company at a price fixed in advance. Options are given instead of part of a salary or to keep key people; companies set aside part of the equity for them — the option pool.
In Runway 200: when a valuable employee gets poached, one of the choices is to give them 1.2% in options instead of a raise.
Revenue and customers
MRR and ARR
MRR is recurring monthly revenue from subscriptions: paying customers times the average price. ARR is the same for a year, MRR × 12. One-off sales and setup fees don't count.
In Runway 200: MRR is paying customers times the price.
What counts, where growth comes from and common mistakes — on the MRR and ARR page.
Churn
The share of customers who stopped paying during a period.
monthly churn = customers lost in the month ÷ paying customers at the start of the month
With steady churn, growth hits a ceiling: maximum customers equal monthly inflow divided by churn. 20 new customers a month at 10% churn — no more than 200 customers, however long you wait. More in Customer churn.
In Runway 200: churn is made of causes: segment fit, product quality, price against what the segment is willing to pay, competitors and outages. The end-of-run review breaks it down by these causes.
Cohort
A group of customers who arrived in the same period — a week or a month. Cohorts are tracked separately: how many are left after 4, 8, 12 weeks. That shows whether customers level off and whether new groups stay better than old ones — overall churn mixes everyone together and shows it late.
In Runway 200: every week of new customers is its own cohort. To leave the first phase, seven in ten new customers have to make it to month two. You see that exactly only after the "Cohort reports" initiative; without it, it's a noisy estimate.
An example, how to build the table and common mistakes — on the Cohort and cohort analysis page.
Retention
The flip side of churn: the share of customers still there after a given time. 70% retention at week eight means that out of every ten who arrived, seven are still paying two months later.
Funnel
The customer's path from first hearing about you to paying: aware — trying — paying. Some people drop off at each step, and the share that moves on is that step's conversion.
In Runway 200: the funnel turns those who know about you into trials, and trials into paying customers.
Segment
A group of customers with the same problem and the same willingness to pay: small online shops, say, or the finance teams of mid-size companies. The segment decides how much your problem hurts for customers and how much they'll pay to solve it.
In Runway 200: you choose the segment, and you can switch at any time. But that's a pivot: most of what you built for the old segment, and most of your awareness, is lost.
Pivot
A change of direction: a different segment, problem or business model with the same team. Done when the data shows the current bet won't work. Part of the work is lost, but not all — the team and what it learned remain.
Product-market fit
When the product solves a problem that hurts the chosen segment enough that customers come on their own, pay and stay. Signs: cohorts level off, word-of-mouth grows, churn is low without discounts. How to test demand before building — in Customer interviews.
In Runway 200: segment fit is one of the key numbers: churn depends on it, and so does what a fund is willing to offer.
Signs, what only looks like it and why fit is for a group of customers — on the Product-market fit page.
Unit economics
Unit economics
Working out whether the company makes money on one customer: what it costs to win them and how much they bring in before they leave. If a customer brings in less than they cost, growth only speeds up the losses. More in Unit economics in plain words.
In Runway 200: there are no unit economics on screen in the first phase — with three customers any division gives a pretty number and no knowledge.
CAC
Customer acquisition cost: all marketing and sales spend for a period divided by the new paying customers in that period.
CAC = acquisition spend ÷ new paying customers
In Runway 200: CAC is calculated over the last eight weeks, not set with a slider.
An example, common mistakes and what to compare it with — on the CAC page.
LTV
How much a customer brings in over the whole time they pay. The simplest estimate: monthly margin per customer divided by monthly churn.
LTV = monthly margin per customer ÷ monthly churn
A $30 monthly margin at 5% churn — an LTV of $600. A healthy business usually has an LTV at least three times its CAC.
Work out LTV, CAC and payback on your own numbers — unit economics calculator.
An example, where the formula lies and what to compare it with — on the LTV page.
Payback period
How many months it takes a customer to pay back what it cost to win them: CAC divided by monthly margin per customer. The shorter it is, the less money growth needs.
Margin
What's left of revenue after the direct costs of serving customers. Gross margin subtracts only those: servers, support, payment fees. Operating margin subtracts all of the company's costs, including salaries and ads; below zero, the company is burning money.
In Runway 200: margin is what's left of revenue after infrastructure and support. At scale, it decides how the run ends.
Rule of 40
Annual revenue growth in percent plus operating margin in percent. If the sum is at least 40, the company is considered healthy: you can grow fast at a loss or slowly at a profit. Investors and buyers pay for the pair, not one of the two.
In Runway 200: when the company is sold, the rule of 40 gives a valuation multiplier from ×0.25 to ×1.5.
Product and team
Tech debt
Shortcuts and patches in the code made for speed. They save time at first and take it back later: every change gets more expensive and outages pile up. Tech debt is paid back with refactoring — rework without new features.
In Runway 200: tech debt grows with haste and caps product quality, and quality drives churn. Refactoring raises the cap.
First hire
The first employees after the founders. A hire doesn't pay off right away: the search takes weeks, and the new person needs about another month to get up to speed, while the salary starts on day one. More in First hire.
In Runway 200: a candidate arrives in three to eight weeks, their level depends on your brand, and team morale drops with overload, outages and a short runway.
Price war
Competitors take turns cutting prices to take each other's customers. Usually everyone loses: revenue falls, and customers who came for a discount leave more easily than the rest. More in Price war.
In Runway 200: competitors respond to your price once a month, and customers who came in at a price far below what the segment will pay stay less well.