business-health-diagnostic

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.

Input

Works best with: Whatever business metrics you have access to — growth rate, NRR/GRR, CAC payback, burn multiple, runway. Partial data is fine; the diagnostic flags what's missing.
Also useful: The occasion (board meeting, quarterly review, fundraise prep) and what you already suspect is wrong.

Anything supplied with the invocation itself — text after the skill name, a pasted context dump, or an appended ARGUMENTS: line — counts as answers already given. Use it and skip whatever it covers; don't re-ask.

Arriving empty-handed? That works too. The diagnostic opens by asking your company stage and which metric families you can pull.

Example invocation: Run a health check: $8M ARR, 60% YoY growth, NRR 96%, CAC payback 21 months, 14 months runway — board meeting in 3 weeks.

Key Concepts

The Business Health Framework

A SaaS business is healthy when four dimensions work together:

Growth & Retention — Are you growing and keeping customers?

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

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

Capital Efficiency — Are you using cash efficiently?

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

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:

Revenue:

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

Retention:

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

Expansion:

- Expansion revenue as % of total MRR: ___%

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:

Acquisition:

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

Value:

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

Margins:

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

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%

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Step 3: Capital Efficiency Metrics

Agent asks:

"Capital Efficiency:

Cash:

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

Efficiency ratios:

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

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

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:

Overall Health Score — Healthy / Moderate / Concerning / Critical

Dimension Scores — Growth, Retention, Economics, Efficiency

Red Flags — Critical, High Priority, Medium Priority

Prioritized Recommendations — Top 3-5 actions with expected impact

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.

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Health Scorecard

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Key Strengths

[Specific strength 1]

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

[Specific strength 2]

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

[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])

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].

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Health Scorecard

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Red Flags Identified

High Priority 🚨

[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 ⚠️

[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.

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Health Scorecard

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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:

Extend runway (if <6 months)

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

Stop scaling broken channels

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

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):

Emergency board meeting

Fundraise immediately OR cut burn 50%+

Stop all non-essential spend

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