business-health-diagnostic

---

name: business-health-diagnostic description: Diagnose SaaS business health across growth, retention, efficiency, and capital. Use when preparing a business review or prioritizing urgent fixes. intent: >- Diagnose overall SaaS business health by analyzing growth, retention, unit economics, and capital efficiency metrics together. Use this to identify problems early, prioritize actions by urgency, and deliver a comprehensive health scorecard for board meetings, quarterly reviews, or fundraising preparation. type: interactive theme: finance-metrics best_for:

• "Getting a complete read on your SaaS business health across all dimensions"
• "Identifying which metrics are red flags vs. leading indicators"
• "Preparing for a board meeting or investor review" scenarios:
• "Our growth is strong but we're burning cash fast — I need to understand our unit economics before the board meeting"
• "I'm preparing for a Series A board meeting and need to assess our business health across growth, retention, and efficiency" estimated_time: "20-30 min"

---

Purpose

Diagnose overall SaaS business health by analyzing growth, retention, unit economics, and capital efficiency metrics together. Use this to identify problems early, prioritize actions by urgency, and deliver a comprehensive health scorecard for board meetings, quarterly reviews, or fundraising preparation.

This is not a single-metric check—it's a holistic diagnostic that connects revenue, retention, economics, and efficiency to reveal systemic issues and opportunities.

Key Concepts

The Business Health Framework

A SaaS business is healthy when four dimensions work together:

1. Growth & Retention — Are you growing and keeping customers?

   • Revenue growth rate
   • NRR (Net Revenue Retention)
   • Churn rate
   • Quick Ratio

2. Unit Economics — Is the business model profitable at the customer level?

   • CAC (Customer Acquisition Cost)
   • LTV (Lifetime Value)
   • LTV:CAC ratio
   • Payback period
   • Gross margin

3. Capital Efficiency — Are you using cash efficiently?

   • Burn rate
   • Runway
   • Rule of 40
   • Magic Number

4. Strategic Position — Are you positioned for sustainable success?

   • Market positioning (below, at, above market pricing)
   • Competitive moat (network effects, data, brand)
   • Revenue concentration risk
   • Operating leverage

Stage-Specific Benchmarks

Early Stage (Pre-$10M ARR):

• Focus: Product-market fit, unit economics
• Growth: >50% YoY
• LTV:CAC: >3:1
• Gross Margin: >70%
• Runway: >12 months
• Acceptable: Negative margins, high burn (if unit economics work)

Growth Stage ($10M-$50M ARR):

• Focus: Scaling efficiently
• Growth: >40% YoY
• NRR: >100%
• Rule of 40: >40
• Magic Number: >0.75
• Acceptable: Moderate burn if growth is strong

Scale Stage ($50M+ ARR):

• Focus: Profitability, efficiency
• Growth: >25% YoY
• NRR: >110%
• Rule of 40: >40
• Profit Margin: >10%
• Required: Positive or near-positive cash flow

Red Flag Categories

Critical (Fix immediately):

• Runway <6 months
• LTV:CAC <1.5:1
• Churn accelerating cohort-over-cohort
• NRR <90%
• Magic Number <0.3

High Priority (Fix within quarter):

• Rule of 40 <25
• Payback >24 months
• Quick Ratio <2
• Gross margin <60%
• Revenue concentration >50% in top 10 customers

Medium Priority (Address within 6 months):

• NRR 90-100% (flat, not growing)
• Magic Number 0.3-0.5
• Operating leverage negative
• Churn rate stable but high (>5% monthly)

Anti-Patterns (What This Is NOT)

• Not a single metric: "Revenue is growing 50%, we're great!" (ignoring burn, churn, unit economics)
• Not stage-agnostic: Early-stage burn is acceptable; scale-stage burn is a problem
• Not static: Health is directional—are metrics improving or degrading?
• Not just numbers: Context matters (competitive pressure, market changes, team capacity)

When to Use This Framework

Use this when:

• Preparing for board meetings or investor updates
• Quarterly business reviews (QBR)
• Fundraising preparation (know your numbers)
• Annual planning (identify improvement areas)
• You suspect problems but can't pinpoint them
• New PM/exec joining and needs health assessment

Don't use this when:

• You're pre-revenue (focus on product-market fit first)
• You're in pure research mode (not enough data)
• You need tactical guidance (use specific skills: feature, channel, pricing)

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Facilitation Source of Truth

Use workshop-facilitation as the default interaction protocol for this skill.

It defines:

• session heads-up + entry mode (Guided, Context dump, Best guess)
• one-question turns with plain-language prompts
• progress labels (for example, Context Qx/8 and Scoring Qx/5)
• interruption handling and pause/resume behavior
• numbered recommendations at decision points
• quick-select numbered response options for regular questions (include Other (specify) when useful)

This file defines the domain-specific assessment content. If there is a conflict, follow this file's domain logic.

Application

This interactive skill asks up to 4 adaptive questions, then delivers a comprehensive diagnostic with prioritized recommendations.

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Step 0: Gather Context

Agent asks:

"Let's diagnose your business health. I'll need metrics across four dimensions: growth, retention, unit economics, and capital efficiency.

Company context:

• Stage: (Pre-$10M ARR, $10M-$50M ARR, $50M+ ARR)
• Business model: (PLG, sales-led, hybrid)
• Target market: (SMB, mid-market, enterprise, mixed)

Why this matters: Benchmarks vary by stage. Early-stage optimizes for growth; scale-stage optimizes for efficiency.

Please provide the following metrics. Use 'unknown' if you don't have a metric."

---

Step 1: Growth & Retention Metrics

Agent asks:

"Growth & Retention:

1. Revenue:

   • Current MRR or ARR: $___
   • Revenue growth rate: ___% (MoM or YoY)

2. Retention:

   • Monthly churn rate: ___%
   • NRR (Net Revenue Retention): ___%
   • Quick Ratio: ___ (or I can calculate it)

3. Expansion:

   • Expansion revenue as % of total MRR: ___%

4. Cohort trends:

   • Are recent cohorts retaining better or worse than older cohorts?
     1. Better (improving)
     2. Same (stable)
     3. Worse (degrading)
     4. Unknown"

Based on answers, agent evaluates:

• ✅ Healthy growth: Growth >40% YoY (growth stage) or >25% (scale stage)
• ✅ Healthy retention: NRR >100%, churn <5% monthly, Quick Ratio >2
• 🚨 Growth problems: Growth <20% YoY
• 🚨 Retention problems: NRR <100%, churn >5%, cohort degradation

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Step 2: Unit Economics Metrics

Agent asks:

"Unit Economics:

1. Acquisition:

   • CAC (Customer Acquisition Cost): $___
   • Blended or by channel? (If by channel, what's your best channel CAC?)

2. Value:

   • LTV (Lifetime Value): $___
   • LTV:CAC ratio: ___ (or I can calculate it)
   • Payback period: ___ months (or I can calculate it)

3. Margins:

   • Gross margin: ___%
   • Contribution margin (if known): ___%

4. Trends:

   • Is CAC increasing, stable, or decreasing over time?
     1. Decreasing (improving efficiency)
     2. Stable
     3. Increasing (diminishing returns)
     4. Unknown"

Based on answers, agent evaluates:

• ✅ Healthy economics: LTV:CAC >3:1, payback <12 months, gross margin >70%
• ⚠️ Marginal economics: LTV:CAC 2-3:1, payback 12-18 months
• 🚨 Poor economics: LTV:CAC <2:1, payback >24 months, gross margin <60%

---

Step 3: Capital Efficiency Metrics

Agent asks:

"Capital Efficiency:

1. Cash:

   • Cash balance: $___
   • Monthly net burn rate: $___
   • Runway: ___ months (or I can calculate it)

2. Efficiency ratios:

   • Rule of 40: ___ (Growth % + Profit Margin %) (or I can calculate it)
   • Magic Number: ___ (S&M efficiency) (or I can calculate it)

3. Operating expenses:

   • S&M as % of revenue: ___%
   • R&D as % of revenue: ___%
   • Is OpEx growing faster than revenue?
     1. No (positive operating leverage)
     2. Yes (negative operating leverage)
     3. Unknown

4. Profitability:

   • Profit margin: ___%
   • Path to profitability: (already profitable, 6-12 months, 12-24 months, >24 months, unknown)"

Based on answers, agent evaluates:

• ✅ Healthy efficiency: Rule of 40 >40, magic number >0.75, runway >12 months
• ⚠️ Acceptable efficiency: Rule of 40 25-40, magic number 0.5-0.75, runway 6-12 months
• 🚨 Poor efficiency: Rule of 40 <25, magic number <0.5, runway <6 months

---

Step 4: Deliver Comprehensive Diagnostic

Agent synthesizes all metrics and delivers:

1. Overall Health Score — Healthy / Moderate / Concerning / Critical
2. Dimension Scores — Growth, Retention, Economics, Efficiency
3. Red Flags — Critical, High Priority, Medium Priority
4. Prioritized Recommendations — Top 3-5 actions with expected impact
5. Stage-Appropriate Benchmarks — How you compare to peers

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Diagnostic Pattern 1: Healthy Business

When:

• Growth, retention, economics, and efficiency all meet stage-appropriate benchmarks
• No critical red flags
• Improving trends

Output:

"## ✅ Overall Health: Healthy

Your business shows strong fundamentals across all dimensions.

---

Health Scorecard

Dimension	Score	Status
Growth & Retention	✅ Healthy	Growth ___% YoY, NRR ___%, Churn ___%
Unit Economics	✅ Healthy	LTV:CAC ___:1, Payback ___ months
Capital Efficiency	✅ Healthy	Rule of 40: ___, Runway ___ months
Overall	✅ Healthy	Strong position for scaling

---

Key Strengths

1. [Specific strength 1]

   • Metric: [e.g., NRR 120%]
   • Why it matters: [Expanding within base without new logos]

2. [Specific strength 2]

   • Metric: [e.g., LTV:CAC 5:1]
   • Why it matters: [Sustainable unit economics support scaling]

3. [Specific strength 3]

   • Metric: [e.g., Rule of 40 = 65]
   • Why it matters: [Excellent balance of growth and efficiency]

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Opportunities for Optimization

Even healthy businesses can improve. Here are your top opportunities:

1. [Opportunity 1]

• Current: [e.g., Magic Number 0.9]
• Opportunity: [Could scale S&M spend 2x and maintain efficiency]
• Impact: [+$___ MRR/month]

2. [Opportunity 2]

• Current: [e.g., Expansion revenue 15% of total]
• Opportunity: [Build upsell paths, target 25% expansion revenue]
• Impact: [NRR 110% → 120%]

3. [Opportunity 3]

• Current: [e.g., CAC $500, stable]
• Opportunity: [Improve conversion, reduce CAC to $400]
• Impact: [Faster payback, better LTV:CAC]

---

Recommended Actions (Next Quarter)

Priority 1: Scale what's working

• [e.g., Double content marketing budget (best channel)]
• Expected impact: [+___ customers/month, +$___ MRR]

Priority 2: Expand within base

• [e.g., Launch premium tier for 20% of customers]
• Expected impact: [NRR 110% → 115%]

Priority 3: Improve efficiency

• [e.g., Optimize paid acquisition (reduce CAC 10%)]
• Expected impact: [Payback 8mo → 7mo]

---

Monitor These Metrics

Weekly:

• NRR (should stay >___%)
• Churn rate (should stay <___%)
• Quick Ratio (should stay >___)

Monthly:

• Rule of 40 (should stay >___)
• Magic Number (should stay >___)
• LTV:CAC (should stay >___:1)

Quarterly:

• Cohort retention trends
• Revenue concentration risk
• Operating leverage

---

Benchmarks (Your Stage: [Growth/Scale])

Metric	Your Performance	Benchmark	Status
Growth Rate	___%	>40% (growth) / >25% (scale)	✅
NRR	___%	>100%	✅
LTV:CAC	___:1	>3:1	✅
Rule of 40	___	>40	✅
Gross Margin	___%	>70%	✅

You're performing at or above benchmarks across the board."

---

Diagnostic Pattern 2: Moderate Health (Fixable Issues)

When:

• Most metrics acceptable, but 1-2 dimensions have problems
• Medium-priority red flags
• Solvable with focus

Output:

"## ⚠️ Overall Health: Moderate (Fixable Issues)

Your business has good fundamentals but needs attention in [specific dimension].

---

Health Scorecard

Dimension	Score	Status
Growth & Retention	[✅ / ⚠️ / 🚨]	[Details]
Unit Economics	[✅ / ⚠️ / 🚨]	[Details]
Capital Efficiency	[✅ / ⚠️ / 🚨]	[Details]
Overall	⚠️ Moderate	[Primary issue area] needs attention

---

Red Flags Identified

High Priority 🚨

1. [Specific red flag]
   • Metric: [e.g., NRR 95%]
   • Threshold: [Should be >100%]
   • Impact: [Base is contracting, not expanding]
   • Fix by: [End of quarter]

Medium Priority ⚠️

1. [Specific issue]
   • Metric: [e.g., Magic Number 0.6]
   • Threshold: [Should be >0.75]
   • Impact: [S&M spend moderately efficient, room for improvement]
   • Fix by: [6 months]

---

Root Cause Analysis

Primary Issue: [e.g., Retention & Expansion]

Symptoms:

• NRR 95% (should be >100%)
• Churn rate 5% monthly (should be <3%)
• Expansion revenue only 10% of MRR (should be 20-30%)

Diagnosis: [e.g., Customers are churning before they expand. Onboarding is weak, no clear upsell paths.]

Impact:

• Lost MRR: [Calculate churn impact]
• Missed expansion: [Calculate expansion opportunity]
• Total impact: [Combined revenue loss]

---

Prioritized Action Plan

Immediate (Next 30 days):

1. Fix [Primary Issue]

• Action: [Specific step, e.g., "Launch onboarding improvement program"]
• Owner: [PM, Customer Success]
• Target: [Reduce churn 5% → 4%]
• Impact: [Save $___K MRR/month]

Short-term (Next Quarter):

2. [Secondary Action]

• Action: [e.g., "Build premium tier for upsell"]
• Target: [NRR 95% → 105%]
• Impact: [+$___K expansion MRR]

3. [Tertiary Action]

• Action: [e.g., "Optimize S&M spend, improve magic number"]
• Target: [Magic Number 0.6 → 0.8]
• Impact: [More efficient growth]

---

What Success Looks Like (90 Days)

Target metrics:

• NRR: 95% → 105% (+10pp)
• Churn: 5% → 3.5% (-30%)
• Magic Number: 0.6 → 0.8 (+33%)

Impact:

• Monthly revenue saved from churn: +$___K
• Expansion revenue: +$___K
• More efficient S&M: [details]

If you hit these targets, you'll be in 'Healthy' territory.

---

Monitor Weekly

Must-track metrics:

• Churn rate (track to ensure it's decreasing)
• NRR (track to ensure it's improving)
• Customer feedback (are improvements working?)

Leading indicators:

• Onboarding completion rate
• Time-to-value
• Usage metrics (activation, engagement)

---

What Not to Do

Don't:

• Scale acquisition until retention is fixed (you'll just churn faster)
• Ignore expansion (it's easier than new acquisition)
• Wait too long (retention problems compound)"

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Diagnostic Pattern 3: Concerning Health (Urgent Action Required)

When:

• Multiple critical red flags
• 2+ dimensions problematic
• Requires immediate intervention

Output:

"## 🚨 Overall Health: Concerning (Urgent Action Required)

Your business has multiple critical issues that need immediate attention.

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Health Scorecard

Dimension	Score	Status
Growth & Retention	🚨 Concerning	[Details]
Unit Economics	🚨 Concerning	[Details]
Capital Efficiency	🚨 Critical	[Details]
Overall	🚨 Concerning	Multiple urgent issues

---

Critical Red Flags 🚨

1. [Critical Issue 1 - e.g., Runway]

• Current: [6 months runway]
• Threshold: [<6 months = crisis]
• Impact: [Survival risk]
• Action: [Raise capital OR cut burn immediately]
• Timeline: [30 days]

2. [Critical Issue 2 - e.g., Unit Economics]

• Current: [LTV:CAC 1.2:1]
• Threshold: [<1.5:1 = unsustainable]
• Impact: [Losing money on every customer]
• Action: [Reduce CAC OR increase LTV]
• Timeline: [60 days]

3. [Critical Issue 3 - e.g., Cohort Degradation]

• Current: [Newer cohorts churning 2x faster than old]
• Threshold: [Degrading PMF]
• Impact: [Scaling makes problem worse]
• Action: [Stop scaling, fix retention]
• Timeline: [90 days]

---

Survival Plan (Next 90 Days)

Week 1-2: Triage

Immediate actions:

1. Extend runway (if <6 months)

   • Option A: Raise bridge round ($___K)
   • Option B: Cut burn by ___%
   • Option C: Combination
   • Decision by: [Date]

2. Stop scaling broken channels

   • Pause S&M spend on channels with LTV:CAC <2:1
   • Reallocate budget to [best-performing channel]

3. Assemble crisis team

   • Daily standups on key metrics
   • Weekly progress reviews

---

Month 1: Stop the Bleeding

Priority 1: Fix Unit Economics

• Current: LTV:CAC ___:1 (unsustainable)
• Actions:
  1. Reduce CAC: [Specific tactics]
  2. Increase LTV: [Improve retention, add expansion]
• Target: LTV:CAC >2:1 within 30 days

Priority 2: Improve Retention

• Current: Churn ___% (too high)
• Actions:
  1. Interview churned customers (identify top 3 reasons)
  2. Fix onboarding (reduce early churn)
  3. Proactive outreach to at-risk accounts
• Target: Reduce churn by 20% within 30 days

---

Month 2-3: Stabilize

Milestone 1: Positive Unit Economics

• LTV:CAC >2:1 ✅
• Payback <18 months ✅
• Gross margin >60% ✅

Milestone 2: Slowing Churn

• Churn decreasing month-over-month
• Cohort degradation stopped
• NRR improving toward 100%

Milestone 3: Runway Extended

• 12+ months runway (via fundraise or burn reduction)
• Clear path to next milestone

---

What Success Looks Like (Day 90)

Metrics:

• Runway: ___ months → 12+ months ✅
• LTV:CAC: ___:1 → >2:1 ✅
• Churn: ___% → reduced by 30% ✅
• NRR: ___% → improving toward 100%

Position:

• Out of crisis mode
• Stable foundation to rebuild growth
• Clear plan for next 6-12 months

---

What to Avoid

Don't:

• Try to grow your way out of this (fix unit economics first)
• Ignore the data (hope is not a strategy)
• Scale before you fix retention (accelerates failure)
• Wait until runway <3 months to fundraise (too late)

Do:

• Focus ruthlessly on retention and unit economics
• Cut costs to extend runway
• Be honest with board/investors about problems
• Move fast (you don't have time to waste)"

---

Diagnostic Pattern 4: Critical Health (Existential Crisis)

When:

• Runway <3 months OR
• Multiple critical failures (LTV:CAC <1:1, massive churn, no path to profitability)

Output:

"## 🚨🚨 Overall Health: Critical (Existential Crisis)

Your business is in survival mode. Immediate drastic action required.

[Similar structure to Pattern 3, but more urgent tone, shorter timelines, more drastic measures]

Immediate Actions (This Week):

1. Emergency board meeting
2. Fundraise immediately OR cut burn 50%+
3. Stop all non-essential spend
4. Fix top 1-2 critical issues (runway, unit economics)"

---

Examples

See examples/ folder. Mini examples below:

Example 1: Healthy Growth-Stage SaaS

Metrics:

• ARR: $20M, Growth: 60% YoY
• NRR: 115%, Churn: 2.5%
• LTV:CAC: 4:1, Payback: 10 months
• Rule of 40: 50, Runway: 18 months

Diagnosis: Healthy. Scale aggressively.

---

Example 2: Moderate Health (Retention Issue)

Metrics:

• ARR: $15M, Growth: 40% YoY
• NRR: 95%, Churn: 5%
• LTV:CAC: 3.5:1, Payback: 12 months
• Rule of 40: 38, Runway: 12 months

Diagnosis: Moderate. Fix retention before scaling further.

---

Example 3: Concerning (Multiple Issues)

Metrics:

• ARR: $8M, Growth: 25% YoY (slowing)
• NRR: 88%, Churn: 7% (increasing)
• LTV:CAC: 1.8:1, Payback: 20 months
• Rule of 40: 15, Runway: 8 months

Diagnosis: Concerning. Urgent action on retention and unit economics required.

---

Common Pitfalls

Pitfall 1: Celebrating Single Metrics

Symptom: "Revenue growing 50%!" (ignoring burn, churn, unit economics)

Consequence: Unsustainable growth. Scaling broken model.

Fix: Look at all four dimensions together.

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Pitfall 2: Ignoring Stage-Specific Benchmarks

Symptom: "We're not profitable yet, is that bad?" (early-stage company)

Consequence: Misplaced worry. Early-stage should optimize for growth and unit economics, not profitability.

Fix: Use stage-appropriate benchmarks.

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Pitfall 3: Focusing on Lagging Indicators Only

Symptom: "Churn is 5%, let's watch it"

Consequence: By the time lagging indicators (churn, NRR) show problems, it's late.

Fix: Track leading indicators (usage, engagement, onboarding completion).

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Pitfall 4: Not Acting on Red Flags

Symptom: "NRR <100% for 3 quarters, but we'll fix it eventually"

Consequence: Problems compound. Becomes crisis.

Fix: Set clear timelines. If metric doesn't improve in X time, escalate.

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Pitfall 5: Trying to Fix Everything at Once

Symptom: "Let's improve growth, retention, CAC, and efficiency simultaneously"

Consequence: Resources spread thin. Nothing improves.

Fix: Prioritize top 1-3 issues. Fix sequentially.

---

References

Related Skills

• saas-revenue-growth-metrics — Detailed growth and retention metrics
• saas-economics-efficiency-metrics — Detailed unit economics and capital efficiency
• finance-metrics-quickref — Fast lookup for all metrics and benchmarks
• feature-investment-advisor — Uses health diagnostic to inform feature priorities
• acquisition-channel-advisor — Uses health diagnostic to inform channel priorities
• finance-based-pricing-advisor — Uses health diagnostic to inform pricing decisions

External Frameworks

• Bessemer Venture Partners: "SaaS Metrics 2.0" — Comprehensive benchmarks
• David Skok: "SaaS Metrics" — Unit economics benchmarks
• OpenView Partners: SaaS benchmarking reports
• Battery Ventures: "State of SaaS" annual report

Provenance

• Adapted from research/finance/Finance_QuickRef.md (Red flags table)
• Decision frameworks from research/finance/Finance_For_PMs.Putting_It_Together_Synthesis.md
• Benchmarks from research/finance/Finance for Product Managers.md