Y Combinator S Business Model Guide 1682754604

Y Combinator's
Business Model Guide

SaaS (Software as a Service):
Cloud-based subscription software
PRIMARY METRICS: TAKEAWAYS:

Monthly Recurring Revenue All the benefits of recurring

(MRR) or Annual Recurring revenue
Revenue (ARR) Can have non-recurring
Growth Rate: Measured revenue, but don’t include in
weekly or monthly ARR/MRR
Net Revenue Retention: % of Usually sold to businesses,
recurring revenue retained ideally on annual contracts
from a prior period Growth can be driven by
CAC: Costs to acquire a new direct sales, self-serve
customer acquisition channels, or both
Transactional:
Facilitate transactions and take a cut

Gross Transaction Value Usually fintech and payments

(GTV): Total payment volume businesses
transacted One-time transactions rather
Net Revenue: Fees charged than recurring
for transactions (often a %) Often high volume with a low
User Retention: % of month 1 fee (1-3% is common)
customers that make a Best transactional businesses
purchase in month 2, etc have extremely consistent
CAC revenue from high repeat
usage
Marketplaces:
Facilitate transactions between buyers and sellers

Gross Merchandise Value Hard to get off the ground,

(GMV): Total sales volume chicken & egg problem
transacted Need to scale supply and
Net Revenue: Fees charged demand in sync
for transactions (often a % Network effects at scale drive
take rate) exponential growth
Growth Rate When they work, often
User Retention: % of month 1 become dominant winner-
customers that make a take-all winners
purchase in month 2, etc
Subscription:
Product or service sold on a recurring basis, usually to
consumers

Monthly Recurring Revenue Recurring revenue is the most

(MRR) or Annual Recurring valuable revenue
Revenue (ARR) Usually sold to consumers,
Growth Rate: Measured often paying monthly
weekly or monthly Usually lower price points,
User Retention: % of month 1 from a higher volume of
customers that make a customers
purchase in month 2, etc Growth driven by scalable,
CAC self-serve acquisition channels
Enterprise:
Sell large fixed-term contracts to big companies (5k+
employees)

Bookings: Total signed Very few customers, much

contract value (recurring + larger deals ($100k+/year)
non-recurring) Growth driven by direct sales
Revenue: Recognized when Often begin with paid pilots or
delivering on the contract LOIs
Annual Contract Value (ACV): Usually long sales cycles, with
Total contract value / # of many gatekeepers
years The buyer is not always the
→
Demo Close
→
Pipeline: Top of funnel end user
Lumpy growth: measuring
m/m growth rate doesn't
make as much sense
Usage Based:
Pay-as-you-go based on consumption in a given period

Monthly Revenue (not Don’t confuse usage-based

recurring!) revenue with recurring
Growth Rate revenue
Revenue Retention: % of Charge per API request, # of
revenue from last month’s records, data usage, etc
customers in this month Grow as your customers grow
Gross Margin: Revenue - Cost Product and pricing scale to
of Goods Sold (COGS) support tiny startups to large
enterprises
E-commerce:
Sell products online

Monthly Revenue: Total sales Includes D2C brands and

Growth Rate: Measured Shopify stores
weekly or monthly Not marketplaces, so keep
Gross Margin/Unit Economics: 100% of each sale
Revenue - Cost of Goods Sold Higher COGS = lower margins
(COGS) Products often commoditized
CAC Need to be excellent at user
acquisition and
operations/unit economics
Advertising:
Sell ads to monetize free users

Daily Active Users (DAU): Typically consumer social

Unique users active in a 24 products with huge scale
hour period Customer is the advertiser,
Monthly Active Users (MAU): not the end user
Unique users active in a 28 Users are the product being
day period sold
User Retention: % of active Need billions of impressions
users on D1/7/30/etc each month
CPM (Cost Per Thousand) or Registered Users is a vanity
CPC (Cost Per Click) metric
Hardtech/Bio/Moonshots:
Hard businesses with lots of technical risk and long time
horizons

Milestones: Progress towards Often take years to get to a

the long-term vision live product because of
Signed contracts technical and/or regulatory
Letters of Intent (LOIs): Non- risk
binding contracts indicating Impressive technical
interest to purchase milestones or experimental
data can de-risk the tech
Revenue is often years away,
so signed LOIs are usually the
best way to show customer
interest
Credit: Aaron Epstein via

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Y Combinator's

Business Model Guide

PRIMARY METRICS: TAKEAWAYS:

Monthly Recurring Revenue All the benefits of recurring

PRIMARY METRICS: TAKEAWAYS:

Gross Transaction Value Usually fintech and payments

PRIMARY METRICS: TAKEAWAYS:

Gross Merchandise Value Hard to get off the ground,

PRIMARY METRICS: TAKEAWAYS:

Monthly Recurring Revenue Recurring revenue is the most

PRIMARY METRICS: TAKEAWAYS:

Bookings: Total signed Very few customers, much

PRIMARY METRICS: TAKEAWAYS:

Monthly Revenue (not Don’t confuse usage-based

PRIMARY METRICS: TAKEAWAYS:

Monthly Revenue: Total sales Includes D2C brands and

PRIMARY METRICS: TAKEAWAYS:

Daily Active Users (DAU): Typically consumer social

PRIMARY METRICS: TAKEAWAYS:

Milestones: Progress towards Often take years to get to a

Credit: Aaron Epstein via

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