Growth can be bought. Retention shows whether customers get lasting value, and unit economics show whether each customer is worth what it costs to win.
13 min read · Level 3
The single metric I would ask for first is cohort retention, because it is the one founders find hardest to dress up and the one that says most directly whether the product matters to customers. A company with modest growth and excellent retention is fixable; a company with fast growth and poor retention usually is not.
Traction means evidence that the product works for customers and that the business can grow profitably. Three measures matter most:
Measure Question it answers Retention do customers keep using and paying Unit economics is a customer worth more than it costs to acquire Growth quality is growth repeatable or bought with spending
Cohort retention. Of 100 customers who signed up in January, if 62 are still paying 12 months later, twelve-month retention is 62%, and churn over the year is 38%. Looking at each monthly cohort separately shows whether retention is improving as the product gets better.
Unit economics. Suppose:
Customer acquisition cost (CAC) 1,200 Monthly revenue per customer 300 Gross margin 70% Monthly gross profit per customer 210 CAC payback 1,200 / 210 = about 5.7 months
A payback under about a year is often considered healthy for subscription software, though norms vary by sector and customer type. If customers churn before payback, each new customer loses money.
Growth quality. Revenue that grows 20% a month because marketing spend tripled is different from revenue growing through referrals and expansion by existing customers.
Because a growth chart alone can be manufactured. Discounts, heavy advertising and one-off deals can all create a rising line that collapses when spending stops.
Retention is harder to fake. If customers keep paying month after month, the product is delivering value. If they leave quickly, growth is filling a leaking bucket.
Unit economics connect the two: they show whether growth creates value or destroys it.
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Two companies each growing to 1,000,000 of annual recurring revenue.
Measure Company A Company B 12-month retention 85% 40% CAC 900 2,500 Monthly gross profit 200 200 CAC payback 4.5 months 12.5 months Largest customer share 6% 35%
Company B loses 60% of customers within a year and needs 12.5 months to recover each customer's acquisition cost, so many leave before paying back. It also depends on one customer for over a third of revenue. Its growth chart looks similar to Company A's; its business is far weaker.
Treating revenue growth as traction without checking whether customers stay and whether each one is profitable to acquire.
Request retention by signup month, not a single blended figure, and look for improvement over time.
Divide total sales and marketing spend by new customers, then divide by monthly gross profit per customer.
Ask how much growth came from paid acquisition versus referrals, expansion and word of mouth.
Find the share of revenue from the largest customers.
When a startup has enough customers and history to measure usage and economics, typically after early product launch.
Do not demand mature metrics from a company with only a handful of customers, where numbers are too small to be meaningful.
Several consumer delivery and transport startups that grew rapidly in the 2010s through heavy discounts and incentives saw usage fall when incentives were reduced, as reported in financial press and later public filings. Growth metrics had reflected subsidies more than durable demand.
Ask how growth and retention change when discounts or incentives are removed.
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