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)

---

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.

---

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

---

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

---

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]

---

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)"

---

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.

---

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.

---

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.

---

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).

---

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.

---

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