For the last decade, the advice to Series B founders was simple: grow. If you grew fast enough, the unit economics would eventually sort themselves out. Capital was cheap, and the market rewarded top-line velocity over bottom-line reality.
That party is over. The lights are on, the music has stopped, and the 2025 market reality is staring you in the face. Investors have swung aggressively from valuing growth to valuing efficient growth. If you are burning $2 to generate $1 of ARR, you aren't building a company; you're building a furnace.
As a founder, you face a critical decision point. You have pressure to scale—to hire the VPs, to ramp the sales team, to expand marketing. But if your underlying unit economics are broken, scaling is the fastest way to kill your company. You don't die from starvation; you die from indigestion.
Before you approve that next headcount plan or sign the insertion order for a new demand gen campaign, you need to pass a health check. This isn't about GAAP accounting; it's about operational physics. If the math doesn't work at $10M ARR, it certainly won't work at $50M.
We use this exact framework to assess whether a portfolio company is ready for fuel or requires a fix. Grab your latest board deck and let's look at the numbers.
The Metric: How many months of gross profit it takes to recover the cost of acquiring a customer.
The Benchmark:
The Diagnosis: If your payback period is over 18 months, your sales efficiency is toxic. Every new customer you sign digs a deeper cash flow hole that takes a year and a half to fill. Why Your CAC Payback Is Lying to You explores how to audit this number properly (hint: are you including onboarding costs?). Verdict: If >15 months, freeze sales hiring immediately.
The Metric: The percentage of recurring revenue retained from existing customers, including expansion and churn.
The Benchmark:
The Diagnosis: In 2025, median NRR has settled near 101–103%, but "median" doesn't get you a premium exit. Healthy companies grow from their installed base. If your NRR is below 100%, you have a hole in the bucket. Pouring more leads into the top (New ARR) is futile until you fix the retention mechanics. See The Valuation Multiplier for deeper NRR targets.
The Metric: Net Cash Burn divided by Net New ARR. How much cash do you burn to add $1 of revenue?
The Benchmark:
The Diagnosis: This is the ultimate efficiency test. A Burn Multiple of 2.5x means you are spending $2.50 to buy $1.00 of growth. In the zero-interest rate era, this was called "capturing market share." Today, it's called "going out of business." If you are above 1.5x, you need to cut costs or increase velocity—usually both. Check The Efficiency Trap for a detailed breakdown by stage.
The Metric: (Revenue - COGS) / Revenue. Note: COGS must include Customer Success and Hosting/DevOps.
The Benchmark:
The Diagnosis: Be honest about what you are. If you claim to be a SaaS platform but your gross margins are 55%, you are likely a services firm in disguise (using humans to patch product gaps). Low gross margins kill your LTV, which kills your CAC Payback. You cannot scale out of a gross margin problem.
The Metric: Total ARR divided by total headcount.
The Benchmark:
The Diagnosis: If you are sitting at $100k ARR/FTE, you have over-hired relative to your traction. This is common after a fresh funding round. The solution isn't always layoffs; it's often a hiring freeze until revenue catches up to the headcount.
If you failed two or more of the checks above, you are not ready to scale. You are in the "Fix" phase.
Scaling a company with broken unit economics amplifies the losses, not the wins. It speeds up the rate at which you hit the wall. The hardest thing for a founder to do is to slow down sales and marketing spend to fix the engine, but it is the only move that preserves optionality.
The market has shifted. The winners of the next cycle won't be the ones who burned the most cash; they will be the ones who built the most durable revenue engines. Get your unit economics healthy, then pour on the gas.
