Build Your First Financial Model

A guided walk through the machine investors expect you to understand: marketing dollars → customers → revenue → burn → runway — how much more you spend than you take in each month, and how many months of cash that leaves you. This is the classroom; the Excel starter workbook is the homework — same steps, same order, same names.

New to these words? Plain-English meanings for the words this page leans on — the rarer ones are explained where they appear

gross profit — what is left from a sale after the direct costs of delivering it; gross margin — the same figure written as a percentage of the sale
contribution margin — gross profit after the costs of getting the order out the door too: picking, packing, shipping, card fees
CAC — customer acquisition cost: everything you spend to win one new customer
blended CAC — your total spend divided by ALL your new customers, not just the ones an ad platform takes credit for. This is the only CAC this page trusts
LTV — lifetime value: the gross profit one customer brings you over the whole relationship
payback — how many months of profit from one customer it takes to earn back what they cost to win
churn — the share of customers who leave in a given month
cohort — a group of customers who all started in the same month, followed together over time
burn — how much more cash you spend than you bring in each month
runway — how many months of cash you have left at your current burn
unit economics — whether one customer, on their own, makes you money
take rate — the share of each transaction a marketplace keeps
COGS — cost of goods sold: the direct cost of what you sell
opex — operating expenses: the fixed costs of running the business, such as salaries, rent and tools
CPA — cost per acquisition: what one ad platform says a customer cost
MRR / ARR — recurring subscription revenue, restated per month (MRR) or per year (ARR)

Step 1

Unit economics — is one customer worth having?

Before any spreadsheet, answer the first question every investor asks: what is a customer worth (LTV), and what does one cost (CAC)? LTV is the hard ceiling on what you may ever pay for a customer. If this ratio doesn't work, more marketing just loses money faster.

Step 2

Cohort retention — the evidence behind your LTV

The LTV in Step 1 is a claim — a formula built on one average churn number. Investors don't underwrite claims; they ask for cohorts: group customers by the month they arrived and watch what each group actually does. Real cohorts leak hardest in the first 90 days, then settle — which is why a flattering average can hide a broken product. The table is a triangle because young cohorts have fewer observed months.

Cumulative gross profit per customer vs CAC — where the line crosses the bar is your real payback month

Step 3

The acquisition engine — revenue is never an input

The one rule that separates credible models from fantasy: you never type revenue in. Revenue only emerges: marketing budget ÷ CPA = new customers; customers × price = revenue. Your budget is the throttle — and churn is the leak. Try moving the sliders and watch the machine respond.

Step 4

Team & opex — the fixed costs volume must cover

Good unit economics at the customer level does not make the company profitable — you need enough volume of customers to cover the fixed costs of payroll and overhead. Payroll is almost always the biggest line. (In the workbook this is a headcount grid × salaries with a +25% load for taxes and benefits; here it's simplified to totals.)

Step 5

Cash & runway — survive long enough to win

Profit is an opinion; cash is a fact. A money-losing startup lives and dies by its cash position. The deepest point of this curve — the trough — is the number that sizes your raise: your round must cover it, with a buffer. Express that ask in months to the next fundable milestone, not merely months of survival. Budget six months of runway to run the raise — to money in the bank, not to term sheet — and remember investors judge you on your trailing 12 months. That is why 12–18 months is the planning range: twelve to build the record they read, six to close on it. Raise when it's easy, not when you need it.

Ending cash by month — the trough is marked

Step 6

The investor dashboard — what they'll ask, in order

Every metric chips away at five questions: what's a customer worth, what does one cost, the ratio between those, where the business is now, and how fast it's growing. Here is your model's answer sheet — and the red flags an investor would raise in the first ten minutes.